$7,635,000 city of laredo texas general obligation ......mr. adrian galvan mr. wally sevier...

$7,635,000CITY OF LAREDO, TEXAS

General Obligation Refunding BondsSeries 2012

Bonds Delivered: May 22, 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)

GENERAL OBLIGATION REFUNDING BONDSSERIES 2012

$7,635,000 Tab No.

PRIMARY FINANCING DOCUMENTS

Bond Ordinance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Certificate Approving the Final Terms of the Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Certificate Approving Outstanding Obligations Selected for Refunding . . . . . . . . . . . . . . . . 3

Bond Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Verification Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Paying Agent/Registrar Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Specimen Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

DTC Blanket Letter of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Final Official Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

DOCUMENTS RELATED TO TAX EXEMPTION

Federal Tax Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Form 8038-G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

CERTIFICATES OF THE CITY

General Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Signature Identification and No-Litigation Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

CERTIFICATES OF ESCROW AGENT;DOCUMENTS RELATED TO REDEMPTION OF REFUNDED OBLIGATIONS

Escrow Agent's Authentication Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Escrow Agent's Receipt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

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Certificates of The Bank of New York Mellon Trust Company, N.A. re: Notices of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Affidavits of Publication re: Notices of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Material Events filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

MISCELLANEOUS DOCUMENTS

Instruction Letters to Attorney General and Comptroller of Public Accounts . . . . . . . . . . . . 21

Closing Memorandum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Receipt for Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Rating Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

OPINIONS

Attorney General's Approving Opinion and Comptroller Registration Certificate . . . . . . . . . 25

Opinion of Underwriters' Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Opinion of Bond Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Supplemental Opinion of Bond Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

$7,635,000

CITY OF LAREDO, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012

DISTRIBUTION LIST

ISSUER City of Laredo 1110 Houston Street Laredo, Texas 78040 Ms. Rosario Cabello Mr. Jose Castillo Finance Director Email: [email protected] Email: [email protected] 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: [email protected] Email: [email protected] 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: [email protected] Email: [email protected] Email: [email protected] UNDERWRITERS (Senior Underwriter) Citigroup Global Markets Inc. 300 Crescent Court, Suite 940 Dallas, Texas 75201 Mr. Mario Carrasco 210-857-8517 214-871-5335 – Fax [email protected] Devin Phillips (214) 720-5075 [email protected] Edwin Clark (214) 720-5019 [email protected]

UNDERWRITERS – Con't. Stifel Nicolaus & Company, Inc. Renaissance Plaza 70 Northeast Loop 410, Suite 295 San Antonio, Texas 78216 210-525-8048 Ms. Nora Chavez [email protected] Ms. Lizzeth Gamboa [email protected] Ms. Marisol Warneke [email protected] UNDERWRITERS’ COUNSEL Escamilla, Poneck & Cruz, Inc. 850 Riverwalk Place 700 North Saint Mary’s Street San Antonio, Texas 78205 Juan Aguilera Humberto Aguilera Glenda Starr Telephone: 210-225-0001 Fax: 210-225-0041 Email:[email protected] Email:[email protected] Email:[email protected] 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: [email protected]

CITY OF LAREDO, TEXAS(WEBB COUNTY)

GENERAL OBLIGATION REFUNDING BONDSSERIES 2012

$7,635,000 Tab No.

PRIMARY FINANCING DOCUMENTS

Bond Ordinance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Certificate Approving the Final Terms of the Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Certificate Approving Outstanding Obligations Selected for Refunding . . . . . . . . . . . . . . . . 3

Bond Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Verification Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Paying Agent/Registrar Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Specimen Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

DTC Blanket Letter of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Final Official Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

DOCUMENTS RELATED TO TAX EXEMPTION

Federal Tax Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Form 8038-G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

CERTIFICATES OF THE CITY

General Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Signature Identification and No-Litigation Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

CERTIFICATES OF ESCROW AGENT;DOCUMENTS RELATED TO REDEMPTION OF REFUNDED OBLIGATIONS

Escrow Agent's Authentication Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Escrow Agent's Receipt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

2

Certificates of The Bank of New York Mellon Trust Company, N.A. re: Notices of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Affidavits of Publication re: Notices of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Material Events filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

MISCELLANEOUS DOCUMENTS

Instruction Letters to Attorney General and Comptroller of Public Accounts . . . . . . . . . . . . 21

Closing Memorandum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Receipt for Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Rating Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

OPINIONS

Attorney General's Approving Opinion and Comptroller Registration Certificate . . . . . . . . . 25

Opinion of Underwriters' Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Opinion of Bond Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Supplemental Opinion of Bond Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

ORDINANCE NO. 2012-O-028

AN ORDINANCE BY THE CITY COUNCIL OF THE CITY OF LAREDO, TEXAS AUTHORIZING THE ISSUANCE, SALE AND DELIVERY OF CITY OF LAREDO, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012; APPROVING AND AUTHORIZING AN OFFICIAL STATEMENT AND THE DISTRIBUTION THEREOF, A PURCHASE CONTRACT, AN ESCROW AGREEMENT, AND A PAYING AGENT/REGISTRAR AGREEMENT; APPROVING AND AUTHORIZING ALL OTHER INSTRUMENTS AND PROCEDURES RELATED THERETO; DELEGATING AUTHORITY TO THE MAYOR OR THE CITY MANAGER TO SELECT OUTSTANDING BONDS TO BE REFUNDED AND APPROVE ALL FINAL TERMS OF THE BONDS; AND AUTHORIZING AMENDMENT TO THE CITY'S BUDGET TO APPROPRIATE SUCH PROCEEDS FOR PURPOSES AUTHORIZED HEREIN; AND ORDAINING OTHER MATTERS RELATING TO THE SUBJECT

DATE OF APPROVAL: FEBRUARY 6, 2012

TABLE OF CONTENTS RECITALS ............................................................................................................................ 1 Section 1. AMOUNT AND PURPOSE OF THE BONDS; DELEGATION OF AUTHORITY TO CERTAIN CITY OFFICIALS .......................................... 4 Section 2. DESIGNATION, DATE, DENOMINATIONS, NUMBERS, AND MATURITIES OF THE BONDS ...................................................................... 5 Section 3. INTEREST ......................................................................................................... 5 Section 4. CHARACTERISTICS OF THE BONDS .......................................................... 5 Section 5. FORM OF BONDS ........................................................................................... 9 Section 6. INTEREST AND SINKING FUND; TAX LEVY; SECURITY INTEREST .. 16 Section 7. INVESTMENTS ................................................................................................ 17 Section 8. DEFEASANCE OF BONDS ............................................................................. 17 Section 9. DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED BONDS.. 19

Section 10. CUSTODY, APPROVAL, AND REGISTRATION OF BONDS; BOND COUNSEL'S OPINION; CUSIP NUMBERS; AND OTHER MATTERS........................................................................................... 20 Section 11. COVENANTS REGARDING TAX EXEMPTION OF INTEREST ON THE BONDS ............................................................................................ 20 Section 12. COMPLIANCE WITH RULE 15c2-12............................................................. 23 Section 13. SALE OF BONDS ............................................................................................. 26 Section 14. APPROVAL OF OFFICIAL STATEMENT .................................................... 26 Section 15. APPROVAL OF ESCROW AGREEMENT; REFUNDING OF REFUNDED OBLIGATIONS ......................................... 27 Section 16. REDEMPTION OF REFUNDED OBLIGATIONS ......................................... 27 Section 17. RESERVED ....................................................................................................... 27

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Section 18. AUTHORITY OF OFFICER TO EXECUTE DOCUMENTS AND APPROVE CHANGES ......................................................................... 27 Section 19. ORDINANCE A CONTRACT; AMENDMENTS ........................................... 28 Section 20. INTERESTED PARTIES .................................................................................. 29 Section 21. REMEDIES IN EVENT OF DEFAULT ........................................................... 29 Section 22. APPROPRIATION TO PAY PRINCIPAL AND INTEREST ......................... 29 Section 23. INCORPORATION OF RECITALS ................................................................. 29 Section 24. SEVERABILITY ............................................................................................... 29 Section 25. EFFECTIVE MEASURE; EFFECTIVE DATE ............................................... 29 SIGNATURES Exhibit A Form of Approval Certificate Exhibit B Form of Certificate Approving Outstanding Obligations Selected for Refunding Exhibit C Paying Agent/Registrar Agreement Exhibit D Written Procedures Relating to Continuing Compliance with Federal Tax Covenants Exhibit E Description of Annual Financial Information Exhibit F Form of Escrow Agreement Exhibit G Notice of Redemption

ORDINANCE NO. 2012-O-028

AN ORDINANCE BY THE CITY COUNCIL OF THE CITY OF LAREDO, TEXAS AUTHORIZING THE ISSUANCE, SALE AND DELIVERY OF CITY OF LAREDO, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012; APPROVING AND AUTHORIZING AN OFFICIAL STATEMENT AND THE DISTRIBUTION THEREOF, A PURCHASE CONTRACT, AN ESCROW AGREEMENT, AND A PAYING AGENT/REGISTRAR AGREEMENT; APPROVING AND AUTHORIZING ALL OTHER INSTRUMENTS AND PROCEDURES RELATED THERETO; DELEGATING AUTHORITY TO THE MAYOR OR THE CITY MANAGER TO SELECT OUTSTANDING BONDS TO BE REFUNDED AND APPROVE ALL FINAL TERMS OF THE BONDS; AND AUTHORIZING AMENDMENT TO THE CITY'S BUDGET TO APPROPRIATE SUCH PROCEEDS FOR PURPOSES AUTHORIZED HEREIN; AND ORDAINING OTHER MATTERS RELATING TO THE SUBJECT

THE STATE OF TEXAS § COUNTY OF WEBB § CITY OF LAREDO § WHEREAS, the CITY OF LAREDO, TEXAS (the "City") in Webb County, Texas, is a political subdivision of the State of Texas operating as a home-rule city pursuant to the Texas Local Government Code; and WHEREAS, among numerous series of bonds of the City which are secured by the full faith and credit of the City and a pledge by the City to levy ad valorem taxes sufficient to pay principal of and interest on such bonds as they become due, within the limits permitted by law, there are specifically outstanding the following series of obligations:

City of Laredo, Texas Combination Tax and Revenue Certificates of Obligation, Series 2003, dated May 1, 2003, maturing on February 15 in the years 2012 through 2023, and currently outstanding in the aggregate principal amount of $2,515,000 (the "Series 2003 Certificates"); and

City of Laredo, Texas Combination Tax and Sewer System Revenue Certificates of Obligation, Series 2003, dated May 1, 2003, maturing on February 15 in the years 2012 through 2023, and currently outstanding in the aggregate principal amount of $2,545,000 (the "Series 2003 Tax and Sewer System Certificates"); and

City of Laredo, Texas Combination Tax and Revenue Certificates of Obligation, Series 2004, dated June 1, 2004, maturing on February 15 in the years 2012

2

through 2024, and currently outstanding in the aggregate principal amount of $5,635,000 (the "Series 2004 Certificates"); and

City of Laredo, Texas Combination Tax and Revenue Certificates of Obligation, Series 2005, dated July 1, 2005, maturing on August 15 in the years 2012 through 2022, inclusive, 2024 and 2025, and currently outstanding in the aggregate principal amount of $12,265,000 (the "Series 2005 Certificates"); and

City of Laredo, Texas General Obligation Refunding Bonds, Series 2005, dated July 1, 2005, maturing on August 15 in the years 2012 through 2021, and currently outstanding in the aggregate principal amount of $22,565,000 (the "Series 2005 Bonds"); and

WHEREAS, pursuant to the ordinance which authorized the issuance of the Series 2003 Certificates, maturities 2014 through 2023 of such Series 2003 Certificates are subject to redemption, at the option of the City, at the redemption price of par, on February 15, 2013 or any date thereafter; pursuant to the ordinance which authorized the issuance of the Series 2003 Tax and Sewer System Certificates, maturities 2014 through 2023 of such Series 2003 Tax and Sewer System Certificates are subject to redemption, at the option of the City, at the redemption price of par, on February 15, 2013 or any date thereafter; pursuant to the ordinance which authorized the issuance of the Series 2004 Certificates, maturities 2015 through 2024 of such Series 2004 Certificates are subject to redemption, at the option of the City, at the redemption price of par, on February 15, 2014 or any date thereafter; pursuant to the ordinance which authorized the issuance of the Series 2005 Certificates, maturities 2016 through 2022, inclusive, 2024 and 2025 of such Series 2005 Certificates are subject to redemption, at the option of the City, at the redemption price of par, on August 15, 2015 or any date thereafter; and pursuant to the ordinance which authorized the issuance of the Series 2005 Bonds, maturities 2016 through 2021 of such Series 2005 Bonds are subject to redemption, at the option of the City, at the redemption price of par, on August 15, 2015 or any date thereafter; and WHEREAS, the City now desires to authorize the refunding of all or a portion of the Series 2003 Certificates, Series 2003 Tax and Sewer System Certificates, Series 2004 Certificates and Series 2005 Certificates that are subject to optional redemption as described in the preceding recital, which are more fully described as follows: [The remainder of this page intentionally left blank.]

3

SERIES 2003 CERTIFICATES ELIGIBLE TO BE REFUNDED

MATURITY (FEB. 15)

PRINCIPAL AMOUNT

MATURING IN YEAR ($)

PRINCIPAL AMOUNT ELIGIBLE TO BE REFUNDED ($)

STATED INTEREST RATE (%)

CUSIP NO.

(516823)

2014 180,000 180,000 3.800 UN9

2015 185,000 185,000 3.900 UP4

2016 195,000 195,000 4.000 UQ2

2017 200,000 200,000 4.100 UR0

2018 210,000 210,000 4.200 US8

2019 220,000 220,000 4.300 UT6

2020 230,000 230,000 4.350 UU3

2021 240,000 240,000 4.400 UV1

2022 255,000 255,000 4.500 UW9

2023 265,000 265,000 4.500 UX7

Totals $2,180,000 $2,180,000 *** ***

SERIES 2003 TAX AND SEWER SYSTEM CERTIFICATES ELIGIBLE TO BE REFUNDED

MATURITY (FEB. 15)

PRINCIPAL AMOUNT




CUSIP NO. ( 516823)

2014 180,000 180,000 3.800 VJ7

2015 190,000 190,000 3.900 VK4

2016 195,000 195,000 4.000 VL2

2017 205,000 205,000 4.100 VM0

2018 215,000 215,000 4.200 VN8

2019 220,000 220,000 4.300 VP3

2020 235,000 235,000 4.350 VQ1

2021 245,000 245,000 4.400 VR9

2022 255,000 255,000 4.500 VS7

2023 265,000 265,000 4.500 VT5

Totals $2,205,000 $2,205,000 *** ***

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MATURITY (FEB. 15)

PRINCIPAL AMOUNT




CUSIP NO. ( 516823)

2015 370,000 370,000 4.300 WS6

2016 390,000 390,000 4.400 WT4

2017 405,000 405,000 4.500 WU1

2018 425,000 425,000 4.600 WV9

2019 445,000 445,000 4.700 WW7

2020 470,000 470,000 4.750 WX5

2021 490,000 490,000 4.850 WY3

2022 510,000 510,000 5.000 WZ0

2023 540,000 540,000 5.000 XA4

2024 565,000 565,000 5.000 XB2

Totals $4,610,000 $4,610,000 *** ***


MATURITY (AUG. 15)

PRINCIPAL AMOUNT




CUSIP NO.

(516823)

2016 775,000 775,000 4.000 XN6

2017 810,000 810,000 4.000 XP1

2018 845,000 845,000 4.100 XQ9

2019 875,000 875,000 4.125 XR7

2020 915,000 915,000 4.250 XS5

2021 955,000 955,000 4.250 XT3

2022 995,000 995,000 4.300 XU0

**** **** **** **** ****

2024 2,125,000 2,125,000 5.000 XV8

2025 1,140,000 1,140,000 5.000 XW6

Totals $9,435,000 $9,435,000 *** ***

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SERIES 2005 BONDS ELIGIBLE TO BE REFUNDED

MATURITY (AUG. 15)

PRINCIPAL AMOUNT




CUSIP NO.

(516823)

2016 3,950,000 3,950,000 5.000 YE5

2017 4,215,000 4,215,000 5.000 YF2

2018 1,245,000 1,245,000 5.000 YG0

2019 1,310,000 1,310,000 5.000 YH8

2020 1,065,000 1,065,000 5.000 YJ4

2021 740,000 740,000 4.250 YK1

Totals $12,525,000 $12,525,000 *** *** WHEREAS, pursuant to the provisions of Section 1207.007(a)(4), Texas Government Code, the City now desires to delegate to a "Designated Officer" (as defined in Section 1(a) below) the authority, individually or collectively, to select the specific maturities and principal amounts of the Series 2003 Certificates, Series 2003 Tax and Sewer System Certificates, Series 2004 Certificates, Series 2005 Certificates and Series 2005 Bonds described in the preceding recital to be refunded with proceeds of the bonds authorized pursuant to this Ordinance and effect the sale of such bonds; and WHEREAS, the Series 2003 Certificates, Series 2003 Tax and Sewer System Certificates, Series 2004 Certificates, Series 2005 Certificates and Series 2005 Bonds selected by a Designated Officer to be refunded as authorized by Section 1(c) of this Ordinance are hereafter referred to as the "Refunded Obligations"; and WHEREAS, Chapter 1207, Texas Government Code, as amended ("Chapter 1207"), authorizes the City to issue refunding bonds and to deposit the proceeds from the sale thereof, and any other available funds or resources, directly with a place of payment (paying agent) for the Refunded Obligations, or with another trust company or commercial bank that does not act as a depository for the City, in an amount sufficient to provide for the payment and/or redemption of the Refunded Obligations, and such deposit, if made before such payment dates, shall constitute the making of firm banking and financial arrangements for the discharge and final payment or redemption of the Refunded Obligations; and WHEREAS, Chapter 1207 (specifically Section 1207.062, Texas Government Code) further authorizes the City to enter into an escrow agreement with any paying agent for the Refunded Obligations, or with another trust company or commercial bank that does not act as a depository for the City, with respect to the safekeeping, investment, reinvestment, administration and disposition of any such deposit, upon such terms and conditions as the City and such paying agent may agree; provided that such deposits may be invested and reinvested in:

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(i) direct noncallable obligations of the United States, including obligations that are unconditionally guaranteed by the United States,

(ii) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the City Council of the City adopts or approves this Ordinance, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and

(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 the City Council of the City adopts or approves this Ordinance, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent,

and all of which must mature and bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment or redemption of the Refunded Obligations; and WHEREAS, THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., currently serves as the paying agent for some of the Refunded Obligations, and the Escrow Agreement hereinafter authorized between the City and The Bank of New York Mellon Trust Company, N.A., shall constitute an escrow agreement of the kind authorized and permitted by Chapter 1207; and WHEREAS, the City Council of the City hereby finds and declares a public purpose and deems it advisable and in the best interests of the City to issue a series of bonds (defined in Section 2 hereof as the "Bonds"), the proceeds of which will be used to pay costs of issuance and refund the Refunded Obligations in order to achieve a gross debt service savings and a net present value debt service savings for the benefit of the taxpayers of the City; provided, however, in no event shall Bonds be issued unless the City is able to achieve a net present value debt service savings of at least 3.00% of the principal of the Refunded Obligations; and WHEREAS, the Bonds hereinafter authorized and designated are to be issued and delivered pursuant to Chapter 1207; and WHEREAS, it is hereby officially found and determined that the meeting at which this Ordinance was passed 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; THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LAREDO: SECTION 1. AMOUNT AND PURPOSE OF THE BONDS; DELEGATION OF AUTHORITY TO CERTAIN CITY OFFICIALS. (a) Authorization to Issue General Obligation Refunding Bonds. General obligation bonds of the City are hereby authorized to be issued and delivered in the aggregate principal amount as designated by the Mayor or City Manager (each a "Designated Officer") pursuant to the provisions of Section 1(b) of this Ordinance FOR THE PURPOSE OF PROVIDING FUNDS TO REFUND A PORTION OF THE ISSUER'S OUTSTANDING GENERAL OBLIGATION INDEBTEDNESS AND TO PAY FOR COSTS OF ISSUANCE.

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(b) Delegation of Final Terms. As authorized by Section 1207.007, Texas Government Code, each Designated Officer, acting individually or in combination with another Designated Officer, is hereby authorized, appointed, and designated as an officer of the City authorized to act on behalf of the City to effect the sale of the Bonds and to establish the terms and details related to the issuance and sale of the Bonds including the total aggregate principal amount of Bonds to be issued (but in no event to exceed $31,500,000 in aggregate principal amount), the price at which the Bonds will be sold (but in no event shall the Bonds be sold at a price which would result in a net present value savings of less than 3.00% of the principal amount of the Refunded Obligations), the date of the Bonds, the aggregate principal amount of each maturity thereof, the due date of each maturity (but in no event later than August 15, 2026), the rate of interest to be borne on the principal amount of each such maturity (but in no event to exceed a net effective interest rate for all of the Bonds of 5.00% per annum), the interest payment periods, the dates, price and terms upon and at which the Bonds shall be subject to any mandatory sinking fund redemption provisions for any maturity, and all other matters relating to the issuance, sale and delivery of the Bonds. Each Designated Officer, acting individually or in combination with another Designated Officer for and on behalf of the City, is further authorized to (i) complete and attach Exhibit A of this Ordinance, and (ii) revise and complete the FORM OF BOND set forth in Section 5 of this Ordinance, with the final terms of the Bonds approved pursuant to the authority granted herein, and to enter into, execute and carry out an agreement to purchase the Bonds (the "Purchase Contract") with the Underwriters named in Section 13 herein. (c) Delegation of Authority to Select Series 2003 Certificates, Series 2003 Tax and Sewer System Certificates, Series 2004 Certificates, Series 2005 Certificates and Series 2005 Bonds for Refunding. As authorized by Section 1207.007(a)(4), Texas Government Code, each Designated Officer, acting individually or in combination with another Designated Officer for and on behalf of the Issuer, is hereby authorized to select all or any portion of the Series 2003 Certificates, Series 2003 Tax and Sewer System Certificates, Series 2004 Certificates, Series 2005 Certificates and Series 2005 Bonds described in the third and fourth recitals to this Ordinance to be refunded with proceeds of the Bonds and to evidence the selection of such Series 2003 Certificates, Series 2003 Tax and Sewer System Certificates, Series 2004 Certificates, Series 2005 Certificates and Series 2005 Bonds by executing and attaching to this Ordinance as Exhibit B a certificate describing the maturities and the principal amount of such maturities of the Series 2003 Certificates, Series 2003 Tax and Sewer System Certificates, Series 2004 Certificates, Series 2005 Certificates and Series 2005 Bonds to be refunded with the proceeds of the Bonds. (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 Designated Officer to approve the final terms of the Bonds set forth in this Ordinance is, and the decisions made by a Designated Officer pursuant to such delegated authority and incorporated in Exhibit A will be, in the City's best interests, and each Designated Officer is hereby authorized to make and include in Exhibit A an appropriate finding to that effect. (e) Expiration of Delegation Authority. The authority delegated to a Designated Officer pursuant to Sections 1(b) and (c) above shall expire on August 6, 2012. SECTION 2. DESIGNATION, DATE, DENOMINATIONS, NUMBERS AND MATURITIES OF BONDS. Each Bond issued pursuant to this Ordinance shall be designated: CITY OF LAREDO, TEXAS GENERAL OBLIGATION REFUNDING BOND, SERIES 2012, and initially there shall be issued, sold and delivered hereunder one fully registered bond, numbered T-1 (the "Initial Bond"), without interest coupons, dated as of the date determined by a Designated Officer and set forth in Exhibit A, and payable on the dates and in the principal amounts determined by a Designated Officer and set forth in Exhibit A, with Bonds issued and delivered in substitution for the Initial Bond being in the

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denomination of $5,000 or any integral multiple thereof, being numbered consecutively from R-1 upward, and being payable to the initial registered owner designated in Section 13 hereof, or to the registered assignee or assignees of said Bonds or any portion or portions thereof (the "Registered Owner"). The term "Bonds" used in this Ordinance shall mean and include collectively the bonds initially issued and delivered pursuant to this Ordinance and all substitute bonds exchanged therefor, as well as all other substitute bonds and replacement bonds issued pursuant hereto, and the term "Bond" shall mean any of the Bonds SECTION 3. INTEREST. The Bonds shall bear interest calculated on the basis of a 360-day year composed of twelve 30-day months from the dates specified in the FORM OF BONDS set forth in this Ordinance to their respective dates of maturity at the rates per annum determined by a Designated Officer as set forth in Exhibit A attached hereto. Said interest shall be payable in the manner provided and on the dates stated in the FORM OF BONDS set forth in this Ordinance. SECTION 4. CHARACTERISTICS OF THE BONDS. (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. (currently located in Dallas, Texas) (the "Paying Agent/Registrar"), books or records for the registration of the transfer and exchange of the Bonds (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 C 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 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 Bond to which payments with respect to the Bonds 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 Bonds 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 Bond or Bonds shall be paid as provided in the FORM OF BONDS set forth in this Ordinance. Registration of assignments, transfers and exchanges of Bonds shall be made in the manner provided and with the effect stated in the FORM OF BONDS set forth in this Ordinance. Each substitute Bond shall bear a letter and/or number to distinguish it from each other Bond. Except as provided in (c) below, an authorized representative of the Paying Agent/Registrar shall, before the delivery of any such Bond, date and manually sign the Paying Agent/Registrar's Authentication Certificate, and no such Bond shall be deemed to be issued or outstanding unless such Certificate is so executed. The Paying Agent/Registrar promptly shall cancel all paid Bonds and Bonds 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

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exchange of any Bond or portion thereof, and the Paying Agent/Registrar shall provide for the printing, execution, and delivery of the substitute Bonds in the manner prescribed herein, and said Bonds shall be of type composition printed on paper with lithographed or steel engraved borders of customary weight and strength. Pursuant to Sections 1201.061 through 1201.067 of the Public Securities Code, Chapter 1201, Texas Government Code, the duty of transfer and exchange of Bonds as aforesaid is hereby imposed upon the Paying Agent/Registrar, and, upon the execution of said Certificate, the transferred and exchanged Bond shall be valid, incontestable, and enforceable in the same manner and with the same effect as the Bonds 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 Bonds 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 Bonds, 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 Bonds. (c) In General. The Bonds (i) shall be issued in fully registered form, without interest coupons, with the principal of and interest on such Bonds to be payable only to the registered owners thereof, (ii) may be transferred and assigned, (iii) may be exchanged for other Bonds, (iv) shall have the characteristics, (v) shall be signed, sealed, executed and authenticated, (vi) the principal of and interest on the Bonds shall be payable, and (vii) shall be administered and the Paying Agent/Registrar and the City shall have certain duties and responsibilities with respect to the Bonds, all as provided, and in the manner and to the effect as required or indicated, in the FORM OF BONDS set forth in this Ordinance. The Initial Bond is not required to be, and shall not be, authenticated by the Paying Agent/ Registrar, but on each substitute Bond issued in exchange for the Initial Bond 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 BONDS. In lieu of the executed Paying Agent/Registrar’s Authentication Certificate described above, the Initial Bond 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 BONDS below, manually executed by the Comptroller of Public Accounts of the State of Texas or by his duly authorized agent, which certificate shall be evidence that the Initial Bond 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 Bonds that at all times while the Bonds 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 Bonds 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 Bonds, 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 Bonds, by United States mail, first-class postage prepaid, which notice also shall give the address of the

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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 Bonds. The Bonds issued in exchange for the Bonds initially issued to the purchaser specified in Section 13 herein shall be initially issued in the form of a separate single fully registered Bond for each of the maturities thereof. Upon initial issuance, the ownership of each such Bond 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 Bonds shall be registered in the name of Cede & Co., as nominee of DTC. With respect to Bonds 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 Bonds. 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 Bonds, (ii) the delivery to any DTC Participant or any other person, other than a registered owner of the Bonds, as shown on the Registration Books, of any notice with respect to the Bonds, or (iii) the payment to any DTC Participant or any other person, other than a registered owner of Bonds, as shown in the Registration Books of any amount with respect to principal of or interest on the Bonds. 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 Bond is registered in the Registration Books as the absolute owner of such Bond for the purpose of payment of principal and interest with respect to such Bond, for the purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of and interest on the Bonds only to or upon the Ordinance 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 Bonds 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 Bond 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 Bonds that they be able to obtain certificated Bonds, 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 Bonds to such successor securities depository or (ii) notify DTC and DTC Participants of the availability through DTC of Bonds and transfer one or more separate Bonds to DTC Participants having Bonds credited to their DTC accounts. In such event, the Bonds 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

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whatever name or names registered owners transferring or exchanging Bonds 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 Bond is registered in the name of Cede & Co., as nominee for DTC, all payments with respect to principal of and interest on such Bond and all notices with respect to such Bond 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, if necessary, with DTC establishing the book-entry only system with respect to the Bonds. (i) Delivery of Initial Bond. On the closing date, one Initial Bond representing the entire principal amount of the Bonds and, payable in stated installments to the initial registered owner named in Section 13 of this Ordinance or its designee, executed by manual or facsimile signature of the Mayor or Mayor Pro-Tem and the 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 Bonds, the Paying Agent/Registrar shall cancel the Initial Bond and deliver to the initial registered owner or its designee one registered definitive Bond for each year of maturity of the Bonds, in the aggregate principal amount of all of the Bonds for such maturity. SECTION 5. FORM OF BONDS. The form of the Bonds, including the form of Paying Agent/Registrar's Authentication Certificate, the form of Assignment and the form of Registration Certificate of the Comptroller of Public Accounts of the State of Texas (to be attached only to the Bonds initially issued and delivered pursuant to this Ordinance), shall be, respectively, substantially as follows, with such appropriate variations, omissions, or insertions as are permitted or required by this Ordinance. [The remainder of this page intentionally left blank.]

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FORM OF BOND R-__ Principal Amount $_____________ UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF WEBB CITY OF LAREDO, TEXAS GENERAL OBLIGATION REFUNDING BOND, SERIES 2012

INTEREST RATE

____%

DATE OF SERIES

April 15, 2012

MATURITY DATE

___________, 20__

CUSIP NO.

_________

REGISTERED OWNER: PRINCIPAL AMOUNT: DOLLARS 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 set forth above, or registered assigns (hereinafter called the "Registered Owner") the Principal Amount set forth above, and to pay interest thereon from April 15, 2012, at the Interest Rate per annum specified above, on August 15, 2012, and semiannually on each February 15 and August 15 thereafter to the Maturity Date specified above; except that if this Bond 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 Bond or Bonds, if any, for which this Bond is being exchanged or converted from is due but has not been paid, then this Bond shall bear interest from the date to which such interest has been paid in full. THE PRINCIPAL OF AND INTEREST ON THIS BOND are payable in lawful money of the United States of America, without exchange or collection charges. The principal of this Bond shall be paid to the Registered Owner hereof upon presentation and surrender of this Bond at maturity at the designated corporate trust or commercial banking office (initially located in Dallas, Texas) of THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., which is the "Paying Agent/Registrar" for this Bond. The payment of interest on this Bond shall be made by the Paying Agent/Registrar to the Registered Owner hereof on each interest payment date by check or draft, 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 the Bonds (the "Bond Ordinance") to be on deposit with the Paying Agent/Registrar for such purpose as hereinafter provided; and such check or draft 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 addition, interest may be paid by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the Registered

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Owner. 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 (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 owner of a Bond appearing on the Registration Books at the close of business on the last business day next preceding the date of mailing of such notice. The City covenants with the Registered Owner of this Bond that on or before each principal payment date and interest payment date for this Bond it will make available to the Paying Agent/Registrar, from the "Interest and Sinking Fund" created by the Bond Ordinance, the amounts required to provide for the payment, in immediately available funds, of all principal of and interest on the Bonds, when due. IF THE DATE FOR ANY PAYMENT DUE on this Bond shall be a Saturday, Sunday, a legal holiday, or a day on which banking institutions in the city where the Designated Trust Office of the Paying Agent/Registrar is located are authorized by law or executive order to close, 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, and payment on such date shall have the same force and effect as if made on the original date payment was due. THIS BOND IS ONE OF A SERIES OF BONDS dated as of April 15, 2012, authorized in accordance with the Constitution and laws of the State of Texas in the principal amount of $7,635,000 FOR THE PURPOSE OF PROVIDING FUNDS TO REFUND A PORTION OF THE ISSUER'S OUTSTANDING GENERAL OBLIGATION INDEBTEDNESS AND TO PAY FOR COSTS OF ISSUANCE. ON FEBRUARY 15, 2022, OR ON ANY DATE THEREAFTER, the Bonds scheduled to mature on and after February 15, 2023 may be redeemed prior to their scheduled maturities, at the option of the Issuer, with funds derived from any available and lawful source, as a whole, or in part (provided that a portion of such Bond may be redeemed only in an integral multiple of $5,000 in principal amount) at the redemption price equal to the principal amount being called for redemption plus unpaid accrued interest. If less than all of such Bonds are to be redeemed, the particular Bonds to be redeemed shall be selected by the Paying Agent/Registrar at random and by lot. AT LEAST 30 DAYS PRIOR to the date fixed for any redemption of Bonds or portions thereof prior to maturity, a written notice of such redemption shall be sent by the Paying Agent/Registrar by United States mail, first-class postage prepaid, at least 30 days prior to the date fixed for any such redemption to the Registered Owner of each Bond to be redeemed at its address as it appeared on the Registration Books maintained by the Paying Agent/Registrar on the day such notice of redemption is mailed. Any notice of redemption so mailed shall be conclusively presumed to have been duly given irrespective of whether received by the Registered Owner. The notice with respect to an optional redemption of Bonds may state (1) that it is conditioned upon the deposit of moneys, in an amount equal to the amount necessary to effect the redemption, with the Paying Agent/Registrar no later than the redemption date, or (2) that the City retains the right to rescind such notice at any time prior to the scheduled redemption date if the City delivers a certificate of an authorized representative to the Paying Agent/Registrar instructing the Paying Agent/Registrar to rescind the redemption notice, and such notice and optional redemption shall be of no effect if such moneys are not so deposited or if the notice is so rescinded. By the date fixed for any such redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the required redemption price for the Bonds or portions thereof which are to be so redeemed. If such written notice of redemption is mailed (and not rescinded), and if due provision for such payment is made, all as provided above, the Bonds or portions thereof which are to be

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so redeemed thereby automatically shall be treated as redeemed prior to their scheduled maturities, and they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the right of the Registered Owner to receive the redemption price from the Paying Agent/Registrar out of the funds provided for such payment. If a portion of any Bond shall be redeemed a substitute Bond or Bonds having the same maturity date, bearing interest at the same rate, in any denomination or denominations in any integral multiple of $5,000, at the written request of the Registered Owner, and in an aggregate principal amount equal to the unredeemed portion thereof, will be issued to the Registered Owner upon the surrender thereof for cancellation, at the expense of the City, all as provided in the Bond Ordinance. ALL BONDS OF THIS SERIES are issuable solely as fully registered Bonds, without interest coupons, in the denomination of any integral multiple of $5,000. As provided in the Bond Ordinance, this Bond may, at the request of the Registered Owner or the assignee or assignees hereof, be assigned, transferred, converted into and exchanged for a like aggregate amount of fully registered Bonds, without interest coupons, payable to the appropriate Registered Owner, assignee or assignees, as the case may be, having any authorized denomination or denominations as requested in writing by the appropriate Registered Owner, assignee or assignees, as the case may be, upon surrender of this Bond to the Paying Agent/Registrar for cancellation, all in accordance with the form and procedures set forth in the Bond Ordinance. Among other requirements for such assignment and transfer, this Bond 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 Bond or any portion or portions hereof in any authorized denomination to the assignee or assignees in whose name or names this Bond or any such portion or portions hereof is or are to be registered. The form of Assignment printed or endorsed on this Bond 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 Bond 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 assigning, transferring, converting and exchanging any Bond or portion thereof will be paid by the City. In any circumstance, any taxes or governmental charges required to be paid with respect thereto shall be paid by the one requesting such assignment, transfer, conversion 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 of a Bond during the period commencing with the close of business on any Record Date immediately preceding a principal or interest payment date for such Bond and ending with the opening of business on the next following principal or interest payment date. WHENEVER THE BENEFICIAL OWNERSHIP of this Bond is determined by a book entry at a securities depository for the Bonds, the foregoing requirements of holding, delivering or transferring this Bond shall be modified to require the appropriate person or entity to meet the requirements of the securities depository as to registering or transferring the book entry to produce the same effect. IN THE EVENT ANY PAYING AGENT/REGISTRAR for the Bonds is changed by the City, resigns, or otherwise ceases to act as such, the City has covenanted in the Bond 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 Bonds. IT IS HEREBY CERTIFIED, RECITED, AND COVENANTED that this Bond 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 Bond have been performed, existed, and been done in accordance with law; that this Bond is a general obligation of the City, issued on the full faith and credit thereof; and that ad valorem taxes sufficient to

15

provide for the payment of the interest on and principal of this Bond, 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 provided by law. THE CITY HAS RESERVED THE RIGHT TO AMEND the Bond 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 Bonds. BY BECOMING THE REGISTERED OWNER of this Bond, the Registered Owner thereby acknowledges all of the terms and provisions of the Bond Ordinance, agrees to be bound by such terms and provisions, acknowledges that the Bond 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 Bond and the Bond Ordinance constitute a contract between each Registered Owner hereof and the City. IN WITNESS WHEREOF, the City has caused this Bond 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 has caused the official seal of the City to be duly impressed, or placed in facsimile, on this Bond. (facsimile signature) (facsimile signature) City Secretary, City of Laredo, Texas Mayor [Pro-Tem], City of Laredo, Texas (SEAL)

FORM OF REGISTRATION CERTIFICATE OF THE COMPTROLLER OF PUBLIC ACCOUNTS: COMPTROLLER'S REGISTRATION CERTIFICATE: REGISTER NO. _____________ I hereby certify that this Bond has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Bond has been registered by the Comptroller of Public Accounts of the State of Texas. Witness my signature and seal this ______________________________ Comptroller of Public Accounts (COMPTROLLER'S SEAL) of the State of Texas

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FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE

(To be executed if this Bond 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 Bond has been issued under the provisions of the Bond Ordinance described in the text of this Bond; and that this Bond has been issued in conversion or replacement of, or in exchange for, a bond, bonds, or a portion of a bond or bonds 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 Bond, or duly authorized representative or attorney thereof, hereby assigns this Bond to ____________________________ /____________________________/___________________________________________________ (Assignee's Social Security or (Print or typewrite Assignee's name and address, including zip code) Taxpayer Identification) and hereby irrevocably constitutes and appoints ________________________________________ attorney to register the transfer of the within Bond on the books kept for registration thereof, 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 Bond in every particular, without alteration or enlargement or any change whatsoever.

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INITIAL BOND INSERTIONS

The Initial Bond shall be in the form set forth above except that:

(A) Immediately under the name of the Bond, 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 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 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 April 15, 2012 at the respective Interest Rates per annum specified below, payable on August 15, 2012, and semiannually on each February 15 and August 15 thereafter to the respective Maturity Dates specified below. The respective Maturity Dates, Principal Installments and Interest Rates for this Bond are set forth in the following schedule:

MATURITY DATE

PRINCIPAL INSTALLMENT ($)

INTEREST RATE (%)

_____ ________ _____

_____ ________ _____

_____ ________ _____ [Insert information from Exhibit A]

(C) The Initial Bond shall be numbered "T-1." SECTION 6. INTEREST AND SINKING FUND; TAX LEVY; SECURITY INTEREST. (a) Interest and Sinking Fund; Tax Levy. A special "Interest and Sinking Fund" is hereby created and shall be established and maintained by the City at an official depository bank of the City. Said 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 the principal of said Bonds. Immediately after the issuance and delivery of the Bonds, all accrued interest on the Bonds, together with any premium on the Bonds 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, shall be deposited to the credit of the Interest and Sinking Fund. In addition, all ad valorem taxes levied and collected for and on account of said Bonds shall be deposited, as collected, to the credit of said Interest and Sinking Fund. For each fiscal year while any of the Bonds or interest thereon are outstanding and unpaid, the governing body of the City shall compute and ascertain a rate and amount of ad valorem tax which will be sufficient to raise and

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produce the money required to pay the interest on the Bonds as such interest comes due, and to provide and maintain a sinking fund adequate to pay the principal of the Bonds as such principal matures (but never less than 2% of the original principal amount of the Bonds 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 Bonds 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 Interest and Sinking Fund created by this Ordinance. Said ad valorem taxes sufficient to provide for the payment of the interest on and principal of the Bonds, as such interest comes due and such principal matures, are hereby pledged for such payment, within the limit prescribed by law. (b) Security Interest. Chapter 1208, Texas Government Code, applies to the issuance of the Bonds and the pledge of the ad valorem taxes granted by the City under Section 6(a) of this Ordinance, and is therefore valid, effective, and perfected. If Texas law is amended at any time while the Bonds are outstanding and unpaid such that the pledge of the ad valorem taxes granted by the City under Section 6(a) 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 Bonds 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 7. INVESTMENTS. Funds on deposit in the Interest and Sinking 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 on which such funds will be needed. Income and profits from such investments shall be deposited in the Interest and Sinking Fund. It is further provided, however, that any interest earnings on proceeds which are required to be rebated to the United States of America pursuant to Section 11 hereof in order to prevent the Bonds from being arbitrage bonds shall be so rebated and not considered as interest earnings for the purposes of this Section. SECTION 8. DEFEASANCE OF BONDS. (a) Defeasance. Any Bond and the interest thereon shall be deemed to be paid, retired and no longer outstanding (a "Defeased Bond") within the meaning of this Ordinance, except to the extent provided in subsection (d) of this Section, when payment of the principal of such Bond, 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

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United States of America sufficient to make such payment and/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 Bonds shall have become due and payable. At such time as a Bond shall be deemed to be a Defeased Bond hereunder, as aforesaid, such Bond 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. (b) Investment of Funds in Defeasance Securities. 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 Bonds and interest thereon, with respect to which such money has been so deposited, shall be turned over to the 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 Bonds 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 Bonds, 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) Definition of Defeasance Securities. 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 Bonds. (d) Duties of Paying Agent/Registrar. Until all Defeased Bonds shall have become due and payable, the Paying Agent/Registrar shall perform the services of Paying Agent/Registrar for such Defeased Bonds 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) Selection of Certificates of Obligation to be Defeased. In the event that the City elects to defease less than all of the principal amount of Bonds of a maturity, the Paying Agent/Registrar shall select, or cause to be selected, such amount of Bonds by such random method as it deems fair and appropriate.

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SECTION 9. DAMAGED, MUTILATED, LOST, STOLEN, OR DESTROYED BONDS. (a) Replacement Bonds. In the event any outstanding Bond is damaged, mutilated, lost, stolen, or destroyed, the Paying Agent/Registrar shall cause to be printed, executed, and delivered, a new bond of the same principal amount, maturity, and interest rate, as the damaged, mutilated, lost, stolen, or destroyed Bond, in replacement for such Bond in the manner hereinafter provided. (b) Application for Replacement Bonds. Application for replacement of damaged, mutilated, lost, stolen, or destroyed Bonds shall be made by the registered owner thereof to the Paying Agent/Registrar. In every case of loss, theft, or destruction of a Bond, the registered owner applying for a replacement bond 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 Bond, 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 Bond. In every case of damage or mutilation of a Bond, the registered owner shall surrender to the Paying Agent/Registrar for cancellation the Bond so damaged or mutilated. (c) No Default Occurred. Notwithstanding the foregoing provisions of this Section, in the event any such Bond shall have matured, and no default has occurred which is then continuing in the payment of the principal of or interest on the Bond, the City may authorize the payment of the same (without surrender thereof except in the case of a damaged or mutilated Bond) instead of issuing a replacement Bond, provided security or indemnity is furnished as above provided in this Section. (d) Charge for Issuing Replacement Bonds. Prior to the issuance of any replacement bond, the Paying Agent/Registrar shall charge the registered owner of such Bond with all legal, printing, and other expenses in connection therewith. Every replacement bond issued pursuant to the provisions of this Section by virtue of the fact that any Bond is lost, stolen, or destroyed shall constitute a contractual obligation of the City whether or not the lost, stolen, or destroyed Bond 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 Bonds duly issued under this Ordinance. (e) Authority for Issuing Replacement Bonds. 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 bond 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 bonds is hereby authorized and imposed upon the Paying Agent/Registrar, and the Paying Agent/Registrar shall authenticate and deliver such Bonds in the form and manner and with the effect, as provided in Section 4(a) of this Ordinance for Bonds issued in conversion and exchange for other Bonds. SECTION 10. CUSTODY, APPROVAL, AND REGISTRATION OF BONDS; BOND COUNSEL'S OPINION; CUSIP NUMBERS; AND OTHER MATTERS. The Mayor or Mayor Pro-Tem of the City is hereby authorized to have control of the Bonds initially issued and delivered hereunder and all necessary records and proceedings pertaining to the

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Bonds 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 Bonds said Comptroller of Public Accounts (or a deputy designated in writing to act for said Comptroller) shall manually sign the Comptroller's Registration Certificate attached to such Bonds, 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) and the assigned CUSIP numbers may, at the option of the City, be printed on the Bonds 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 Bonds. In addition, if bond insurance is obtained, the Bonds may bear an appropriate legend as provided by the insurer. SECTION 11. COVENANTS REGARDING TAX EXEMPTION OF INTEREST ON THE BONDS. (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 Bonds 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 Bonds or the Refunded Obligations or the projects financed or refinanced 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 Bonds or the Refunded Obligations or the projects financed or refinanced 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 Bonds, 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 Bonds or the Refunded Obligations or the projects financed or refinanced 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 Bonds (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 Bonds being treated as "private activity bonds" within the meaning of section 141(b) of the Code;

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(5) to refrain from taking any action that would result in the Bonds 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 Bonds, 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 Bonds, other than investment property acquired with --

(A) proceeds of the Bonds invested for a reasonable temporary period of three years or less or, in the case of a refunding bond, for a period of thirty days or less until such proceeds are needed for the purpose for which the Bonds 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 Bonds;

(7) to otherwise restrict the use of the proceeds of the Bonds or amounts treated as proceeds of the Bonds, as may be necessary, so that the Bonds 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 Bonds) 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 Bonds 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 bondholders. 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 Bonds. It is the understanding of the City that the covenants contained 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 Bonds, the City will not be required to comply with any covenant contained herein to the extent

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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 Bonds 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 Bonds, 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 Bonds under section 103 of the Code. In furtherance of such intention, the City hereby authorizes and directs the Mayor, the City Manager and 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 Bonds. (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 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 Issuer 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 Bonds, or (2) the date the Bonds 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 Bonds. 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 Bonds 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 Bonds. 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. (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 D as the City's written procedures.

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SECTION 12. COMPLIANCE WITH RULE 15c2-12. (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 2011, financial information and operating data with respect to the City of the general type included in the final Official Statement authorized by this Ordinance being the information described in Exhibit E hereto. Any financial statements so to be provided shall be (1) prepared in accordance with the accounting principles described in Exhibit D hereto, or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation, and (2) audited, if the City 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 City 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 City 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 City 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 City 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 Bonds, if such event is material within the meaning of the federal securities laws:

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1. Non-payment related defaults;

2. Modifications to rights of holders;

3. Redemption calls;

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

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.

(ii) The City 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 Bonds, 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 Bonds, or other events affecting the tax-exempt status of the Bonds;

6. Tender offers;

7. Defeasances;

8. Rating changes; and

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

person.

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(iii) The City shall 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 subsection (b) of this Section by the time required by such subsection.

(d) Limitations, Disclaimers, and Amendments. The City shall be obligated to observe and perform the covenants specified in this Section for so long as, but only for so long as, the City remains an "obligated person" with respect to the Bonds within the meaning of the Rule, except that the City in any event will give notice of any deposit made in accordance with Section 11 of this Ordinance that causes Bonds no longer to be outstanding. The provisions of this Section are for the sole benefit of the holders and beneficial owners of the Bonds, 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 City 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 City'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 City does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Bonds at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, 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 City 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 City under federal and state securities laws. The provisions of this Section may be amended by the City 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 City, but only if (1) the provisions of this Section, as so amended, would have permitted an underwriter to purchase or sell Bonds in the primary offering of the Bonds 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 Bonds consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determined that such

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amendment will not materially impair the interest of the holders and beneficial owners of the Bonds. The City 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 Bonds in the primary offering of the Bonds. If the City 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 13. SALE OF BONDS. The Bonds are hereby authorized to be sold and shall be delivered to Citigroup Global Markets Inc. (the "Underwriters") of the Bonds at a price determined by a Designated Officer as set forth in Exhibit A attached hereto, and pursuant to the terms and provisions of a Purchase Contract in the form approved by a Designated Officer, which each Designated Officer is hereby authorized and directed to execute and deliver. The City will initially deliver to the Underwriters the Initial Bond described in Section 2 hereof, which shall be registered in the name of Citigroup Global Markets Inc. SECTION 14. APPROVAL OF OFFICIAL STATEMENT. The City hereby authorizes the Mayor and the City Manager to approve the form and content of an Official Statement relating to the Bonds and any addenda, supplement, or amendment thereto, and to approve the distribution of the Official Statement in the reoffering of the Bonds by the Underwriters in final form, with such changes therein or additions thereto as the officer executing the same may deem advisable, such determination to be conclusively evidenced by his execution thereof. The preparation, distribution and use of a Preliminary Official Statement for the Bonds is also hereby approved. SECTION 15. APPROVAL OF ESCROW AGREEMENT; REFUNDING OF REFUNDED OBLIGATIONS. Concurrently with the initial delivery of the Bonds the City shall deposit an amount from the proceeds from the sale of the Bonds and other available funds of the City, if required, with THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. (the "Escrow Agent"), sufficient to provide for the refunding of the Refunded Obligations, all in accordance with Chapter 1207. Attached hereto as Exhibit F is an Escrow Agreement between the City and the Escrow Agent, which is hereby approved in substantially final form, and the Mayor or Mayor Pro-Tem and City Secretary of the City are hereby authorized, for and on behalf of the City, to approve any changes in the Escrow Agreement from the form attached hereto and to execute the Escrow Agreement in final form. SECTION 16. REDEMPTION OF REFUNDED OBLIGATIONS. There is attached to this Ordinance as Exhibit G, and made a part hereof for all purposes, a NOTICE OF REDEMPTION for each series of the Refunded Obligations. (Each Designated Officer and the City Secretary are authorized to substitute a revised Exhibit F to reflect the actual maturities and principal amount of such maturities of the Refunded Obligations that are selected by a Designated Officer to be refunded.) The City hereby exercises its option to redeem prior to maturity the Refunded Obligations described in each NOTICE OF REDEMPTION, and the Refunded Obligations are hereby called for redemption, and shall be redeemed, prior to maturity, on the date, at the place, and at the price set forth respectively therein.

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As soon as practicable after the delivery of the Bonds, and in no event less than 30 days prior to the date set for redemption, a copy of each respective NOTICE OF REDEMPTION shall be sent to all registered owners of the respective Refunded Obligations by first class mail postage prepaid, addressed to such registered owners at their respective addresses shown on the registration books of the paying agent/registrar for such Refunded Obligations. In addition, as soon as practicable after the issuance and delivery of the Bonds, a copy of each respective NOTICE OF REDEMPTION shall be filed with the MSRB through EMMA in order to comply with the City's requirements under the Rule to provide notice of the occurrence of certain material events. SECTION 17. RESERVED. SECTION 18. 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 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 Bonds, the sale of the Bonds, the Official Statement, and the Paying Agent/Registrar Agreement. In addition, prior to the initial delivery of the Bonds, the Mayor, Mayor Pro-Tem, City Secretary, City Manager, Director of Finance, 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 Bonds by the Attorney General's office. In case any officer whose signature shall appear on any Bond shall cease to be such officer before the delivery of such Bond, 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 19. ORDINANCE A CONTRACT; AMENDMENTS. This Ordinance shall constitute a contract with the registered owners of the Bonds, binding on the City and its successors and assigns, and shall not be amended or repealed by the City as long as any Bond remains outstanding except as permitted in this Section. The City may, with prior written notice to the Insurer but 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 Insurer and the registered owners of a majority in aggregate principal amount of the Bonds then outstanding affected thereby, amend, change, modify, or rescind any provisions of this Ordinance; provided that without the consent of the Insurer and 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 Bonds, reduce the principal amount thereof or the rate of interest thereon, (ii) give any preference to any Bond over any other Bond, (ii) extend any waiver of default to subsequent defaults, or (iv) reduce the

29

aggregate principal amount of Bonds 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 and to the Insurer. 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 Insurer and the registered owners of a majority in aggregate principal amount of the Bonds then outstanding affected by any such amendment, addition, or rescission requiring the consent of the Insurer and 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 20. 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 and the registered owners of the Bonds, 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 and the registered owners of the Bonds. 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 Bonds, (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 Bonds 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. Notwithstanding the foregoing, the Insurer shall have the right to direct all remedies upon an event of default, and the Insurer shall be recognized as the registered owner of the Bonds for the purposes of exercising all rights and privileges available to the holders. 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. APPROPRIATION TO PAY PRINCIPAL AND INTEREST. The City Council hereby finds that there are sufficient funds available to pay the principal and interest on the Bonds coming due on August 15, 2012 and hereby directs the Director of Finance to transfer

30

on or before such dates available funds to the Interest and Sinking Fund in an amount sufficient to pay the principal and interest coming due on such date. SECTION 23. 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 24. 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 25. AMENDMENT TO BUDGET. It is hereby officially found and determined that the annual budget for this year is hereby amended to appropriate the proceeds from the Bonds for the purposes authorized herein. Section 26. 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 intentionally left blank]

A-1

EXHIBIT A FORM OF APPROVAL CERTIFICATE

CERTIFICATE APPROVING THE FINAL TERMS OF THE BONDS

I, the [Mayor/City Manager] of the CITY OF LAREDO, TEXAS (the "City"), pursuant to authority granted by the provisions of Section 1207.007, Texas Government Code, and by the City Council of the City in Section 1(b) of an ordinance approved by the City Council on February 6, 2012, relating to the issuance of the Bonds defined below (the "Ordinance"), hereby certify as follows: 1. GENERAL. This Certificate is given in connection with the issuance by the City of the CITY OF LAREDO, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 (the "Bonds") which, pursuant to the Ordinance, have been authorized by the City Council. 2. DEFINITIONS. All capitalized terms used in this Certificate which are not otherwise defined herein shall have the same meanings as set forth in the Ordinance. 3. DATED DATE AND AGGREGATE PRINCIPAL AMOUNT. The Bonds shall be dated ______________, 2012, and shall be issued in the aggregate principal amount of $____________. 4. PRINCIPAL AMOUNTS AND INTEREST RATES. The Bonds shall (i) mature on August 15 in each of the years and in the respective principal amounts, and (ii) bear interest from February __, 2012, to their respective date of maturity at the respective interest rates, all as set forth below:

CITY OF LAREDO, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012

MATURITY DATE (8/15)

PRINCIPAL AMOUNT ($)

INTEREST RATE (%)

MATURITY DATE (2/15)

PRINCIPAL AMOUNT ($)

INTEREST RATE (%)

A-2

5. INTEREST ON BONDS. As provided in Section 4 of the Ordinance and in the FORM OF BONDS contained in Section 5 of the Ordinance, interest on the Bonds shall be payable on each February 15 and August 15, commencing on ___________, until stated maturity or redemption. 6. OPTIONAL REDEMPTION. The Bonds maturing on and after August 15, 20__, may be redeemed prior to their scheduled maturities, at the option of the City on August 15, 20__, or on any date thereafter at the redemption price equal to par plus accrued interest to the date fixed for redemption. 7. Initial Purchaser and Purchase Price. The Bonds shall be sold to __________________ as the initial purchaser thereof pursuant to a negotiated underwriting and shall be purchased at a price equal to $________________ (which amount is equal to par, [plus][less] a net original issue [premium][discount] on the Bonds of $______________, less Underwriters' discount of $______________), plus accrued interest on the Bonds from February __, 2012, to the date of delivery. The Initial Bond shall be registered in the name of ___________________. 8. DETERMINATION OF DEBT SERVICE SAVINGS. Pursuant to the Ordinance, the City Council authorized the issuance of the Bonds in order to "achieve a gross debt service savings and a net present value debt service savings for the benefit of the taxpayers of the City; provided, however, in no event shall Bonds be issued unless the City is able to achieve a net present value debt service savings of at least 3.00% of the principal of the Refunded Obligations." The final terms of the Bonds as set forth in this Certificate have achieved such purpose, for the issuance of the Bonds will result in a gross debt service savings of $______________ and a present value debt service savings of $____________ (_______________% of the principal amount of the Refunded Obligations), after taking into account the application of accrued interest on the Bonds in the amount of $______________. 9. DETERMINATION REQUIRED BY SECTION 1201.022(A)(3), TEXAS GOVERNMENT CODE. In satisfaction of Section 1201.022(a)(3), Texas Government Code, as authorized by Section 1(d) of the Ordinance, and upon consultation with the City's Financial Advisor, the undersigned hereby determines that the final terms of the Bonds as set forth in this Certificate are in the City's best interests.


A-3

APPROVED BY [MAYOR/CITY MANAGER] OF THE CITY OF LAREDO, TEXAS ON THE _____ DAY OF ____________, 2012 IN ACCORDANCE WITH SECTION 1(B) OF THE ORDINANCE. _________________________________________ ____________, [Mayor/City Manager] CITY OF LAREDO, TEXAS

SIGNATURE PAGE TO CERTIFICATE APPROVING FINAL TERMS OF THE CITY OF LAREDO, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012

EXHIBIT B FORM OF CERTIFICATE APPROVING OUTSTANDING OBLIGATIONS SELECTED FOR REFUNDING

CERTIFICATE APPROVING OUTSTANDING OBLIGATIONS SELECTED FOR REFUNDING

I, the [Mayor/City Manager] of the CITY OF LAREDO, TEXAS (the "City"), pursuant to authority granted by the provisions of Section 1207.007(a)(4), Texas Government Code, and by the City Council of the City in Section 1(c) of an ordinance approved by the City Council of the City on February 6, 2012, relating to the issuance of the Bonds defined below (the "Ordinance"), hereby certify as follows: 1. This Certificate is given in connection with the issuance by the City of the CITY OF LAREDO, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 (the "Bonds") which, pursuant to the Ordinance, have been authorized by the City Council. 2. All capitalized terms used in this Certificate which are not otherwise defined herein shall have the same meanings as set forth in the Ordinance. 3. Pursuant to Section 1(c) of the Ordinance, the City Council authorized the undersigned, as the [Mayor/City Manager] of the City, to select to be refunded with proceeds of the Bonds all or a portion of the following outstanding obligations:

Series 2003 Certificates maturing in the years 2014 - 2023

Series 2003 Tax and Sewer System Certificates maturing in the years 2014 - 2023 Series 2004 Certificates maturing in the years 2015 - 2024

Series 2005 Certificates maturing in the years 2016 - 2022, 2024 and 2025 Series 2005 Bonds maturing the years 2016 - 2021

In accordance with such authority, and after consulting with the City's financial advisors, [I][we] hereby determine and approve the following Series 2003 Certificates, Series 2003 Tax and Sewer System Certificates, Series 2004 Certificates, Series 2005 Certificates and Series 2005 Bonds to be refunded with proceeds of the Bonds, which are described as follows:

APPROVED BY THE [MAYOR/CITY MANAGER] OF THE CITY OF LAREDO, TEXAS ON THE ____ DAY OF ____________, 2012, IN ACCORDANCE WITH SECTION 1(c) OF THE ORDINANCE. __________________________________

SIGNATURE PAGE TO CERTIFICATE APPROVING OUTSTANDING OBLIGATIONS SELECTED FOR REFUNDING

EXHIBIT C FORM OF PAYING AGENT REGISTRAR AGREEMENT

THE PAYING AGENT/REGISTRAR AGREEMENT IS OMITTED AT THIS POINT AS IT APPEARS ELSEWHERE IN THIS TRANSCRIPT OF PROCEEDINGS

EXHIBIT D

WRITTEN PROCEDURES RELATING TO CONTINUING COMPLIANCE WITH FEDERAL TAX COVENANTS

A. Arbitrage. With respect to the investment and expenditure of the proceeds of the Bonds, the City's chief financial officer (the "Responsible Person"), which currently is the City's Director of Finance, 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 Bonds does not exceed an amount equal to the debt service on the Bonds in the succeeding 12 month period plus a carryover amount equal to one-twelfth of the principal and interest payable on the Bonds 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 Bonds (the "Issue Date"), and (B) within 30 days after the date the Bonds are retired.

B. Private Business Use. With respect to the use of the facilities financed or refinanced with the proceeds of the Bonds 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 Bonds 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 Bonds 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 Bonds 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 Bonds 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 Bonds 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 Bonds and the use of the facilities financed or refinanced thereby for a period ending three (3) years after the complete extinguishment of the Bonds. If any portion of the Bonds 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. D. Responsible Person. 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 Bonds. 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 E DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Section 12 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 thereof. 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.

EXHIBIT F

FORM OF ESCROW AGREEMENT

THE ESCROW AGREEMENT IS OMITTED AT THIS POINT AS IT APPEARS ELSEWHERE IN THIS TRANSCRIPT OF PROCEEDINGS

EXHIBIT G FORM OF NOTICES OF REDEMPTION

NOTICE OF REDEMPTIONCITY OF LAREDO, TEXAS

NOTICE IS HEREBY GIVEN that the City of Laredo, Texas (the "City"), in Webb County, Texas, has calledfor redemption on the date and at the redemption price specified, the below listed outstanding obligations (the"Bonds") of the City as follows:

Combination Tax and Revenue Certificates of Obligation, Series 2003

Original Dated Date

Maturities Being Refunded Interest Rate

Principal Amount Outstanding

Principal Amount Being Refunded Call Date

05/01/2003 02/15/2014 3.800% $125,000 $125,000 02/15/2013 05/01/2003 02/15/2015 3.900 130,000 130,000 02/15/2013 05/01/2003 02/15/2016 4.000 135,000 135,000 02/15/2013 05/01/2003 02/15/2017 4.100 140,000 140,000 02/15/2013 05/01/2003 02/15/2018 4.200 145,000 145,000 02/15/2013 05/01/2003 02/15/2019 4.300 150,000 150,000 02/15/2013 05/01/2003 02/15/2020 4.350 160,000 160,000 02/15/2013 05/01/2003 02/15/2021 4.400 165,000 165,000 02/15/2013 05/01/2003 02/15/2022 4.500 175,000 175,000 02/15/2013 05/01/2003 02/15/2023 4.500 185,000 185,000 02/15/2013

$1,510,000 $1,510,000

These maturities will be redeemed prior to maturity on February 15, 2013.

Combination Tax and Sewer System Revenue Certificates of Obligation, Series 2003 Original Dated Date




05/01/2003 02/15/2014 3.800% $125,000 $125,000 02/15/2013 05/01/2003 02/15/2015 3.900 130,000 130,000 02/15/2013 05/01/2003 02/15/2016 4.000 135,000 135,000 02/15/2013 05/01/2003 02/15/2017 4.100 140,000 140,000 02/15/2013 05/01/2003 02/15/2018 4.200 145,000 145,000 02/15/2013 05/01/2003 02/15/2019 4.300 150,000 150,000 02/15/2013 05/01/2003 02/15/2020 4.350 160,000 160,000 02/15/2013 05/01/2003 02/15/2021 4.400 170,000 170,000 02/15/2013 05/01/2003 02/15/2022 4.500 175,000 175,000 02/15/2013 05/01/2003 02/15/2023 4.500 180,000 180,000 02/15/2013

$1,510,000 $1,510,000


THE BONDS shall be redeemed in whole at The Bank of New York Mellon Trust Company, N.A., Dallas,Texas, as the Paying Agent/Registrar for said Bonds. Upon presentation of the Bonds at the Paying Agent/Registraron the aforementioned redemption date, the holder thereof shall be entitled to receive the redemption price equalto par and accrued interest to the redemption date.

NOTICE IS FURTHER GIVEN that due and proper arrangements have been made for providing the placeof payment of the Bonds called for redemption with funds sufficient to pay the principal amount of the Bonds andthe interest thereon to the redemption date. In the event the Bonds or any of them are not presented for redemptionby the respective date fixed for their redemption, they shall not thereafter bear interest.

UNDER THE PROVISIONS of the Economic Growth and Tax Relief Reconciliation Act of 2003 (the"Act"), paying agents making payments of interest and principal on municipal securities may be obligated towithhold 28% tax from remittance to individuals who have failed to furnish the paying agent with a valid taxpayeridentification number. Registered holders who wish to avoid the imposition of the tax should submit certifiedtaxpayer identification numbers (via form W-9) when presenting the Bonds for payment.

THIS NOTICE is issued and given pursuant to the redemption provisions in the proceedings authorizingthe issuance of the Bonds and in accordance with the recitals and provisions of each of the Bonds, respectively.

NOTICE IS FURTHER GIVEN THAT the Bonds will be payable at and should be submitted either inperson or by certified mail to the following address:

First Class/Registered/Certified Mail:Bank of New York Mellon Trust Company, N.A.Institutional Trust ServicesP.O. Box 2320Dallas, Texas 75221-2320

By Overnight or Courier: By Hand:Bank of New York Mellon Trust Company, N.A. Bank of New York Mellon Trust Company, N.A.Institutional Trust Services GIS Unit Trust Window2001 Bryan Street, 9th Floor 4 New York Plaza, 1st FloorDallas, Texas 75201 New York, New York 10004

Raul G. Salinas, MayorCity Council

City of Laredo, Texas




Original Dated Date




06/01/2004 02/15/2016 4.400% $390,000 $390,000 02/15/2014 06/01/2004 02/15/2017 4.500 405,000 405,000 02/15/2014 06/01/2004 02/15/2018 4.600 425,000 425,000 02/15/2014 06/01/2004 02/15/2019 4.700 445,000 445,000 02/15/2014 06/01/2004 02/15/2020 4.750 470,000 470,000 02/15/2014 06/01/2004 02/15/2021 4.850 490,000 490,000 02/15/2014 06/01/2004 02/15/2022 5.000 510,000 510,000 02/15/2014 06/01/2004 02/15/2023 5.000 540,000 540,000 02/15/2014 06/01/2004 02/15/2024 5.000 565,000 565,000 02/15/2014

$4,240,000 $4,240,000








City of Laredo/BPA

$7,635,000.00

CITY OF LAREDO, TEXAS GENERAL OBLIGATION REFUNDING BONDS,

SERIES 2012

________________________________

BOND PURCHASE AGREEMENT ________________________________

April 18, 2012

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

Ladies and Gentlemen:

The undersigned, Citigroup Global Markets Inc. (the "Representative"), acting on its own behalf and on behalf of the 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 April 18, 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 Bonds. 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 $7,635,000.00 General Obligation Refunding Bonds, Series 2012 (the "Bonds"). 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 Bonds pursuant to this Agreement and the offering of the Bonds for sale and the discussions and negotiations relating to the terms of the Bonds set forth in this Agreement: (a) the Underwriters have acted at arms length, are acting solely as principals for

City of Laredo/BPA - 2 -

their own account and are not agents of or advisors to, and owe no 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 Bonds.

The Bonds shall be as described in, and shall be issued and secured under and pursuant to the provisions of an ordinance adopted by the Issuer (the "Ordinance"). As provided by the Act (as defined herein), the City Council, in the Ordinance, delegated to certain City officials the authority to execute a pricing certificate (the “Pricing Certificate”) establishing the final terms of the Bonds (the Ordinance and the Pricing Certificate are herein collectively referred to as the “Ordinance”)

The purchase price for the Bonds shall be $7,902,894.95 (representing the par amount of the Bonds, plus a net premium of $326,989.85, and less an underwriter's discount of $59,094.90) plus $23,541.25 of accrued interest on the Bonds calculated on the basis of a 360-day year of twelve 30-day months from the dated date of the Bonds to the date of the Closing (as hereinafter defined).

Delivered to the Issuer herewith is the Representative's good-faith corporate check payable to the order of the Issuer in the amount of $69,600.00 (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 Bonds 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 Bonds 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 Bonds 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 Bonds 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 Bonds 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 Bonds to certain dealers (including dealers depositing Bonds 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 initial offering prices to the public at which a substantial amount of each maturity of the Bonds was sold to the public.

3. The Official Statement.

(a) The Issuer previously has delivered copies of the Preliminary Official Statement dated March 8, 2012 (the "Preliminary Official Statement") to the Underwriters. The Issuer will prepare a final Official Statement relating to the Bonds, 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 Bonds, 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 Bonds. 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 Bonds 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 Bonds. 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 Bonds. 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 Bonds not later than the Closing upon an Underwriter's receipt from such purchaser of a request therefor.

(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 Bonds), 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 Chapter 1207, Texas Government Code, as amended (the "Act"), 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 Bonds (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"), the Escrow Agreement between the City and the Escrow Agent named therein relating to the Bonds (the “Escrow Agreement”), the 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, the Paying Agent/Registrar Agreement, the Escrow Agreement and the Continuing Disclosure Undertaking are hereinafter referred to as the "Issuer Documents"), (ii) to sell, issue and deliver the Bonds to the Underwriters as provided herein, (iii) to carry out 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 Act) 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 Bonds, (ii) the approval, execution and delivery of, and the performance by the Issuer of the obligations on its part contained in, the Bonds 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 Bonds, 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 the levy and collection of a direct and continuing 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 Bonds as aforesaid, the Ordinance will provide, for the benefit of the holders, from time to time, of the Bonds, the legally valid and binding obligation to use ad valorem taxes, within the limits prescribed by law for the payment of the Bonds 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 Bonds, 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 to be pledged to secure the Bonds or under the terms of any such law, regulation or instrument, except as provided by the Bonds 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 Bonds 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 Bonds;

(f) The Bonds and the Ordinance conform to the descriptions thereof contained in the Official Statement under the caption "THE BONDS;" the proceeds of the sale of the Bonds will be applied generally as described in the Official Statement under the captions "PLAN OF FINANCING," "THE BONDS – Sources and Uses of Funds;" 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 "OTHER RELEVANT INFORMATION – 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 Bonds or the levy of ad valorem taxes, within the limits prescribed by law or the pledge or use of certain revenues as provided in the Ordinance, for payment of the principal of and interest on the Bonds pursuant to the Ordinance or in any way contesting or affecting the validity or enforceability of the Bonds or the Issuer Documents or contesting the exclusion from gross income of interest on the Bonds 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 Bonds, 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 Bonds (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;

(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 Bonds 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 Bonds;

(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 Bonds 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 Bonds 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 Bonds (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 Bonds 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;

(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 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 May 22, 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 Bonds 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 Bonds 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 Bonds 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 Bond 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.


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 Bonds 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 Bonds 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 Bonds 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 Bonds 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 Bonds 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;


(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 and the duly executed Pricing Certificate;

(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 Bonds, 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 Bonds 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 Bonds to register the Bonds 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 BONDS" (except "Sources and Uses of Funds," "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 Bonds 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 Bonds 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:


(i) the Bonds 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 Bonds, 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 Bonds 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 Bonds, or contest the validity, due authorization and execution of the Bonds 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 Bonds) pursuant to the Ordinance or other income, pledged or to be pledged to pay the principal of and interest on the Bonds, 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 September 30, 2010, 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 Bonds will be used in a manner that would cause the Bonds 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 Bonds;

(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 Bonds;

(11) Evidence of a rating assigned to the Bonds 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) The Verification Report prepared by Grant Thornton, LLP, Certified Public Accountants, with respect to the Bonds;

(13) The Escrow Agreement, duly executed on behalf of the City and the Escrow Agent;

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

(15) Reserved.; and

(16) 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.

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 Bonds contained in this Agreement, or if the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Bonds 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 Bonds if, between the date of this Agreement and the Closing, the market price or marketability of the Bonds 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 Bonds of the interest on the Bonds 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 Bonds, 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 Bonds, 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 Bonds have been offered and sold shall have


withheld registration, exemption or clearance of the offering of the Bonds as described herein, or issued a stop order or similar ruling relating thereto;

(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 Bonds 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 Bonds 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 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 Bonds 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 Bonds; and

(n) the purchase of and payment for the Bonds by the Underwriters, or the resale of the Bonds 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 Bonds; (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 and Escrow Agent; (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 Bonds; and (iii) all other expenses incurred by them in connection with the public offering of the Bonds, 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 mementos, and similar expenses).

(c) The Issuer acknowledges that the Underwriters will pay from the underwriters' expense allocation of the underwriting discount the applicable per bond assessment charged by the Municipal Advisory Counsel of Texas, a non-profit corporation whose purpose is to collect, maintain and distribute information relating to issuing entities of municipal securities. The Issuer acknowledges that it has had an opportunity, in consultation with such advisors as it may deem appropriate, if any, to evaluate and consider the fees and expenses being incurred as part of the issuance of the Bonds.

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 Citigroup Global Markets Inc., Attention: Mr. Mario Carrasco, 300 Crescent Court, Suite 940, Dallas, Texas 75201.

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 Bonds 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 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

Citigroup Global Markets Inc.

Stifel, Nicolaus & Company, Inc.

ESCROW AGREEMENT

Relating to the Refunding of

CITY OF LAREDO, TEXAS

COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2003

(MATURITIES 2014 THROUGH 2023, INCLUSIVE)

COMBINATION TAX AND SEWER SYSTEM REVENUECERTIFICATES OF OBLIGATION, SERIES 2003


COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2004


THIS ESCROW AGREEMENT, dated as of April 15, 2012 (herein, together with anyamendments or supplements hereto, called the "Agreement") is entered into by and between the Cityof Laredo, Texas (herein called the "Issuer") and The Bank of New York Mellon Trust Company,N.A., as escrow agent (herein, together with any successor in such capacity, called the "EscrowAgent"). The addresses of the Issuer and the Escrow Agent are shown on Exhibit A attached heretoand made a part hereof.

W I T N E S S E T H:

WHEREAS, the Issuer heretofore issued and there presently remain outstanding theobligations (collectively, the "Refunded Obligations") described in the Verification Report of GrantThornton LLP (the "Report") relating to the Refunded Obligations, attached hereto as Exhibit B andmade a part hereof ; and

WHEREAS, the Refunded Obligations are scheduled to mature in such years, bear interestat such rates, and be payable at such times and in such amounts as are set forth in the Report; and

WHEREAS, when firm banking arrangements have been made for the payment of principaland interest to the maturity or redemption dates of the Refunded Obligations, then the RefundedObligations shall no longer be regarded as outstanding except for the purpose of receiving paymentfrom the funds provided for such purpose; and

WHEREAS, Chapter 1207, Texas Government Code, as amended ("Chapter 1207"),authorizes the City to issue refunding bonds and to deposit the proceeds from the sale thereof, andany other available funds or resources, directly with a place of payment (paying agent) for theRefunded Obligations, or with another trust company or commercial bank that does not act as adepository for the City, in an amount sufficient to provide for the payment and/or redemption of theRefunded Obligations, and such deposit, if made before such payment dates, shall constitute themaking of firm banking and financial arrangements for the discharge and final payment orredemption of the Refunded Obligations; and

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WHEREAS, Chapter 1207 (specifically Section 1207.062, Texas Government Code) furtherauthorizes the City to enter into an escrow agreement with (i) any paying agent for the RefundedObligations, or (ii) another trust company or commercial bank that does not act as a depository forthe Board and is named in the proceedings authorizing such escrow agreement, with respect to thesafekeeping, investment, reinvestment, administration and disposition of any such deposit, uponsuch terms and conditions as the City and such paying agent, trust company or commercial bankmay agree; provided that such deposits may be invested and reinvested in direct noncallableobligations of the United States, including obligations that are unconditionally guaranteed by theUnited States, which mature and bear interest payable at such times and in such amounts as will besufficient to provide for the scheduled payment or redemption of the Refunded Obligations; and

WHEREAS, the Escrow Agent is the paying agent for the Refunded Obligations (referredto in such capacity as the "Paying Agent"), and this Agreement constitutes an escrow agreement ofthe kind authorized and required by Chapter 1207; and

WHEREAS, Chapter 1207 makes it the duty of the Escrow Agent to comply with the termsof this Agreement and timely make available to the Paying Agent the amounts required to providefor the payment of the principal of, premium, if any, and interest on such obligations when due, andin accordance with their terms, but solely from the funds, in the manner, and to the extent providedin this Agreement; and

WHEREAS, the City of Laredo, Texas General Obligation Refunding Bonds, Series 2012(the "Refunding Bonds") have been issued, sold and delivered for the purpose, among others, ofobtaining the funds required to provide for the payment of the principal of the Refunded Obligationsat their respective maturity dates or dates of redemption and the interest thereon to such dates; and

WHEREAS, the Issuer desires that, concurrently with the delivery of the Refunding Bondsto the purchasers thereof, certain proceeds of the Refunding Bonds, together with certain otheravailable funds of the Issuer, if applicable, shall be applied to purchase certain direct obligations ofthe United States of America hereinafter defined as the "Escrowed Securities" for deposit to thecredit of the Escrow Fund created pursuant to the terms of this Agreement and to establish abeginning cash balance (if needed) in such Escrow Fund; and

WHEREAS, the Escrowed Securities shall mature and the interest thereon shall be payableat such times and in such amounts so as to provide moneys which, together with cash balances fromtime to time on deposit in the Escrow Fund, will be sufficient to pay interest on the RefundedObligations as it accrues and becomes payable and the principal of the Refunded Obligations ontheir maturity dates or dates of redemption; and

WHEREAS, to facilitate the receipt and transfer of proceeds of the Escrowed Securities,particularly those in book entry form, the Issuer desires to establish the Escrow Fund at the principalcorporate trust office of the Escrow Agent; and

WHEREAS, the Escrow Agent is herein also referred to as the "Paying Agent," and anypaying agent for the Refunded Obligations, acting through the Escrow Agent, is also a party to this

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Agreement, as a paying agent for the Refunded Obligations to acknowledge their acceptance of theterms and provisions of this Agreement in such capacity.

NOW, THEREFORE, in consideration of the mutual undertakings, promises and agreementsherein contained, the sufficiency of which hereby are acknowledged, and to secure the full andtimely payment of principal of and the interest on the Refunded Obligations, the Issuer and theEscrow Agent mutually undertake, promise, and agree for themselves and their respectiverepresentatives and successors, as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATIONS

SECTION 1.01. DEFINITIONS. Unless the context clearly indicates otherwise, the followingterms shall have the meanings assigned to them below when they are used in this Agreement:

"Code" means the Internal Revenue Code of 1986, as amended, or to the extent applicablethe Internal Revenue Code of 1954, together with any other applicable provisions of any successorfederal income tax laws.

"Escrow Fund" means the fund created by this Agreement to be administered by the EscrowAgent pursuant to the provisions of this Agreement.

"Escrowed Securities" means the direct noncallable, not pre-payable United States Treasuryobligations and obligations the due timely payment of which is unconditionally guaranteed by theUnited States of America described in the Report or cash or other direct obligations of the UnitedStates of America substituted therefor pursuant to Article IV of this Agreement.

SECTION 1.02. OTHER DEFINITIONS. The terms "Agreement,""Escrow Agent," "Issuer,""Refunded Obligations," "Refunding Bonds," "Paying Agent", and "Report," when they are used inthis Agreement, shall have the meanings assigned to them in the preamble to this Agreement.

SECTION 1.03. INTERPRETATIONS. The titles and headings of the articles and sections ofthis Agreement have been inserted for convenience and reference only and are not to be considereda part hereof and shall not in any way modify or restrict the terms hereof. This Agreement and allof the terms and provisions hereof shall be liberally construed to effectuate the purposes set forthherein and to achieve the intended purpose of providing for the refunding of the RefundedObligations in accordance with applicable law.

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ARTICLE II

DEPOSIT OF FUNDS AND ESCROWED SECURITIES

SECTION 2.01. DEPOSITS IN THE ESCROW FUND. Concurrently with the sale and deliveryof the Refunding Bonds the Issuer shall deposit, or cause to be deposited, with the Escrow Agent,for deposit in the Escrow Fund, the funds and Escrowed Securities described in the Report, and theEscrow Agent shall, upon the receipt thereof, acknowledge such receipt to the Issuer in writing.

ARTICLE III

CREATION AND OPERATION OF ESCROW FUND

SECTION 3.01. ESCROW FUND. The Escrow Agent has created on its books a special trustfund and irrevocable escrow to be known as the City of Laredo, Texas General ObligationRefunding Bonds, Series 2012 Escrow Fund (the "Escrow Fund"). The Escrow Agent hereby agreesthat upon receipt thereof it will irrevocably deposit to the credit of the Escrow Fund the funds andthe Escrowed Securities described in the Report. Such deposit, all proceeds therefrom, and all cashbalances from time to time on deposit therein (a) shall be the property of the Escrow Fund, (b) shallbe applied only in strict conformity with the terms and conditions of this Agreement, and (c) arehereby irrevocably pledged to the payment of the principal of and interest on the RefundedObligations, which payment shall be made by timely transfers of such amounts at such times as areprovided for in Section 3.02 hereof. When the final transfers have been made for the payment ofsuch principal of and interest on the Refunded Obligations, any balance then remaining in theEscrow Fund shall be transferred to the Issuer, and the Escrow Agent shall thereupon be dischargedfrom any further duties hereunder.

SECTION 3.02. PAYMENT OF PRINCIPAL AND INTEREST. The Escrow Agent is herebyirrevocably instructed to transfer from the cash balances from time to time on deposit in the EscrowFund, the amounts required to pay the principal of the Refunded Obligations at their respectivematurity dates and interest thereon to such maturity dates in the amounts and at the times shown inthe Report.

SECTION 3.03. SUFFICIENCY OF ESCROW FUND. The Issuer represents that the successivereceipts of the principal of and interest on the Escrowed Securities will assure that the cash balanceon deposit from time to time in the Escrow Fund will be at all times sufficient to provide moneysfor transfer to the Paying Agent at the times and in the amounts required to pay the interest on theRefunded Obligations as such interest comes due and the principal of the Refunded Obligations asthe Refunded Obligations mature, all as more fully set forth in the Report. If, for any reason, at anytime, the cash balances on deposit or scheduled to be on deposit in the Escrow Fund shall be insuffi-cient to transfer the amounts required by each place of payment (paying agent) for the RefundedObligations to make the payments set forth in Section 3.02 hereof, the Issuer shall timely depositin the Escrow Fund, from any funds that are lawfully available therefor, additional funds in theamounts required to make such payments. Notice of any such insufficiency shall be given aspromptly as practicable as hereinafter provided, but the Escrow Agent shall not in any manner be

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responsible for any insufficiency of funds in the Escrow Fund or the Issuer's failure to makeadditional deposits thereto.

SECTION 3.04. TRUST FUND. The Escrow Agent shall hold at all times the Escrow Fund,the Escrowed Securities and all other assets of the Escrow Fund, wholly segregated from all otherfunds and securities on deposit with the Escrow Agent; it shall never allow the Escrowed Securitiesor any other assets of the Escrow Fund to be commingled with any other funds or securities of theEscrow Agent; and it shall hold and dispose of the assets of the Escrow Fund only as set forthherein. The Escrowed Securities and other assets of the Escrow Fund shall always be maintainedby the Escrow Agent as trust funds for the benefit of the owners of the Refunded Obligations; anda special account thereof shall at all times be maintained on the books of the Escrow Agent. Theowners of the Refunded Obligations shall be entitled to the same preferred claim and first lien uponthe Escrowed Securities, the proceeds thereof, and all other assets of the Escrow Fund to which theyare entitled as owners of the Refunded Obligations. The amounts received by the Escrow Agentunder this Agreement shall not be considered as a banking deposit by the Issuer, and the EscrowAgent shall have no right to title with respect thereto except as an Escrow Agent under the terms ofthis Agreement. The amounts received by the Escrow Agent under this Agreement shall not besubject to warrants, drafts or checks drawn by the Issuer or, except to the extent expressly hereinprovided, by the Paying Agent.

SECTION 3.05. SECURITY FOR CASH BALANCES. Cash balances from time to time ondeposit in the Escrow Fund shall, to the extent not insured by the Federal Deposit InsuranceCorporation or its successor, be continuously secured by a pledge of direct obligations of, orobligations unconditionally guaranteed by, the United States of America, having a market value atleast equal to such cash balances.

ARTICLE IV

LIMITATION ON INVESTMENTS

SECTION 4.01. GENERAL REINVESTMENT RESTRICTION. Except as provided in Sections3.02, 4.02, 4.03 and 4.04 hereof, the Escrow Agent shall not have any power or duty to invest orreinvest any money held hereunder, or to make substitutions of the Escrowed Securities, or to sell,transfer or otherwise dispose of the Escrowed Securities.

SECTION 4.02. REINVESTMENT OF CERTAIN CASH BALANCES IN ESCROW BY ESCROWAGENT. In addition to the Escrowed Securities listed in the Report, the Escrow Agent shall reinvestcash balances shown in the Report in United States Treasury Obligations - State and LocalGovernment Series with an interest rate equal to zero percent (0%) to the extent such Obligationsare available from the Department of the Treasury. All such re-investments shall be made only fromthe portion of cash balances derived from the maturing principal of and interest on EscrowedSecurities that are United States Treasury Certificates of Indebtedness, Notes or Bonds - State andLocal Government Series. All such re-investments shall be acquired on and shall mature on thedates shown on the Report.

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SECTION 4.03. SUBSTITUTIONS AND REINVESTMENTS. At the discretion of the Issuer, theEscrow Agent shall reinvest cash balances representing receipts from the Escrowed Securities, makesubstitutions of the Escrowed Securities or redeem the Escrowed Securities and reinvest theproceeds thereof or hold such proceeds as cash, together with other moneys or securities held in theEscrow Fund provided that the Issuer delivers to the Escrow Agent the following:

(1) an opinion by an independent certified public accountant that after suchsubstitution or reinvestment the principal amount of the securities in the Escrow Fund (whichshall be noncallable, not pre-payable direct obligations of the United States of America),together with the interest thereon and other available moneys, will be sufficient to pay,without further investment or reinvestment, as the same become due in accordance with theReport, the principal of, interest on and premium, if any, on the Refunded Obligations whichhave not previously been paid, and

(2) an unqualified opinion of nationally recognized municipal bond counsel to theeffect that (a) such substitution or reinvestment will not cause the Refunded Obligations tobe "arbitrage bonds" within the meaning of Section 103 of the Code or the regulationsthereunder in effect on the date of such substitution or reinvestment, or otherwise make theinterest on the Refunded Obligations subject to federal income taxation, and (b) suchsubstitution or reinvestment complies with the Constitution and laws of the State of Texasand with all relevant documents relating to the issuance of the Refunded Obligations.

The Escrow Agent shall have no responsibility or liability for loss or otherwise with respectto investments made at the direction of the Issuer.

SECTION 4.04. SUBSTITUTION FOR ESCROWED SECURITIES. Concurrently with the initialdeposit by the Issuer with the Escrow Agent, but not thereafter, the Issuer, at its option, maysubstitute cash or non-interest bearing direct noncallable and not pre-payable obligations of theUnited States Treasury (i.e., Treasury obligations which mature and are payable in a stated amounton the maturity date thereof, and for which there are no payments other than the payment made onthe maturity date) (the "Substitute Obligations") for non-interest bearing Escrowed Securities, if any,but only if such Substitute Obligations

(a) are in an amount, and/or mature in an amount, which is equal to or greater than theamount payable on the maturity date of the obligation listed in the Report for whichsuch Substitute Obligation is substituted,

(b) mature on or before the maturity date of the obligation listed in the Report for whichsuch Substitute Obligation is substituted, and

(c) produce the amount necessary to pay the interest on and principal of the RefundedObligations, as set forth in the Report, as verified by a certified public accountant ora firm of certified public accountants.

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If, concurrently with the initial deposit by the Issuer with the Escrow Agent, any such SubstituteObligations are so substituted for any Escrowed Securities, the Issuer may, at any time thereafter,substitute for such Substitute Obligations the same Escrowed Securities for which such SubstituteObligations originally were substituted.

SECTION 4.05. ARBITRAGE. The Issuer hereby covenants and agrees that it shall neverrequest the Escrow Agent to exercise any power hereunder or permit any part of the money in theEscrow Fund or proceeds from the sale of Escrowed Securities to be used directly or indirectly toacquire any securities or obligations if the exercise of such power or the acquisition of suchsecurities or obligations would cause any Refunding Bonds or Refunded Obligations to be an"arbitrage bond" within the meaning of the Code.

ARTICLE V

APPLICATION OF CASH BALANCES

SECTION 5.01. IN GENERAL. Except as provided in Sections 3.02, 4.02, 4.03 and 4.04hereof, no withdrawals, transfers, or reinvestment shall be made of cash balances in the EscrowFund.

ARTICLE VI

RECORDS AND REPORTS

SECTION 6.01. RECORDS. The Escrow Agent will keep books of record and account inwhich complete and correct entries shall be made of all transactions relating to the receipts,disbursements, allocations and application of the money and Escrowed Securities deposited to theEscrow Fund and all proceeds thereof, and such books shall be available for inspection at reasonablehours and under reasonable conditions by the Issuer and the owners of the Refunded Obligations.

SECTION 6.02. REPORTS. While this Agreement remains in effect, the Escrow Agentannually shall prepare and send to the Issuer a written report summarizing all transactions relatingto the Escrow Fund during the preceding year, including, without limitation, credits to the EscrowFund as a result of interest payments on or maturities of the Escrowed Securities and transfers fromthe Escrow Fund for payments on the Refunded Obligations or otherwise, together with a detailedstatement of all Escrowed Securities and the cash balance on deposit in the Escrow Fund as of theend of such period.

ARTICLE VII

CONCERNING THE PAYING AGENTS AND ESCROW AGENT

SECTION 7.01. REPRESENTATIONS. The Escrow Agent hereby represents that it has allnecessary power and authority to enter into this Agreement and undertake the obligations andresponsibilities imposed upon it herein, and that it will carry out all of its obligations hereunder.

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SECTION 7.02. LIMITATION ON LIABILITY. The liability of the Escrow Agent to transferfunds for the payment of the principal of and interest on the Refunded Obligations shall be limitedto the proceeds of the Escrowed Securities and the cash balances from time to time on deposit in theEscrow Fund. Notwithstanding any provision contained herein to the contrary, neither the EscrowAgent nor the Paying Agent shall have any liability whatsoever for the insufficiency of funds fromtime to time in the Escrow Fund or any failure of the obligors of the Escrowed Securities to maketimely payment thereon, except for the obligation to notify the Issuer as promptly as practicable ofany such occurrence.

The recitals herein and in the proceedings authorizing the Refunding Bonds shall be takenas the statements of the Issuer and shall not be considered as made by, or imposing any obligationor liability upon, the Escrow Agent. The Escrow Agent is not a party to the proceedings authorizingthe Refunding Bonds or the Refunded Obligations and is not responsible for nor bound by any ofthe provisions thereof (except as a place of payment and paying agent and/or a Paying Agent/-Registrar therefor). In its capacity as Escrow Agent, it is agreed that the Escrow Agent need lookonly to the terms and provisions of this Agreement.

The Escrow Agent makes no representations as to the value, conditions or sufficiency of theEscrow Fund, or any part thereof, or as to the title of the Issuer thereto, or as to the security affordedthereby or hereby, and the Escrow Agent shall not incur any liability or responsibility in respect toany of such matters.

It is the intention of the parties hereto that the Escrow Agent shall never be required to useor advance its own funds or otherwise incur personal financial liability in the performance of anyof its duties or the exercise of any of its rights and powers hereunder.

The Escrow Agent shall not be liable for any action taken or neglected to be taken by it ingood faith in any exercise of reasonable care and believed by it to be within the discretion or powerconferred upon it by this Agreement, nor shall the Escrow Agent be responsible for theconsequences of any error of judgment; and the Escrow Agent shall not be answerable except forits own action, neglect or default, nor for any loss unless the same shall have been through itsnegligence or willful misconduct.

Unless it is specifically otherwise provided herein, the Escrow Agent has no duty todetermine or inquire into the happening or occurrence of any event or contingency or theperformance or failure of performance of the Issuer with respect to arrangements or contracts withothers, with the Escrow Agent's sole duty hereunder being to safeguard the Escrow Fund, to disposeof and deliver the same in accordance with this Agreement. If, however, the Escrow Agent is calledupon by the terms of this Agreement to determine the occurrence of any event or contingency, theEscrow Agent shall be obligated, in making such determination, only to exercise reasonable care anddiligence, and in event of error in making such determination the Escrow Agent shall be liable onlyfor its own willful misconduct or its negligence. In determining the occurrence of any such eventor contingency the Escrow Agent may request from the Issuer or any other person such reasonableadditional evidence as the Escrow Agent in its discretion may deem necessary to determine any factrelating to the occurrence of such event or contingency, and in this connection may make inquiriesof, and consult with, among others, the Issuer at any time.

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SECTION 7.03. COMPENSATION. (a) Concurrently with the sale and delivery of theRefunding Bonds, the Issuer shall pay to the Escrow Agent, as a fee for performing the serviceshereunder and for all expenses incurred or to be incurred by the Escrow Agent in the administrationof this Agreement, the sum of $2,250.00, the sufficiency of which is hereby acknowledged by theEscrow Agent. In the event that the Escrow Agent is requested to perform any extraordinaryservices hereunder, the Issuer hereby agrees to pay reasonable fees to the Escrow Agent for suchextraordinary services and to reimburse the Escrow Agent for all expenses incurred by the EscrowAgent in performing such extraordinary services, and the Escrow Agent hereby agrees to look onlyto the Issuer for the payment of such fees and reimbursement of such expenses. The Escrow Agenthereby agrees that in no event shall it ever assert any claim or lien against the Escrow Fund for anyfees for its services, whether regular or extraordinary, as Escrow Agent, or in any other capacity, orfor reimbursement for any of its expenses.

(b) The Paying Agent is the place of payment (paying agent) for the Refunded Obliga-tions. The Issuer covenants to timely pay for all future paying agency services of the Paying Agentand any other places of payment (paying agents) for the Refunded Obligations in accordance withthe paying agent fee schedule now or hereafter in effect through the final payment of the RefundedObligations.

SECTION 7.04. SUCCESSOR ESCROW AGENTS. If at any time the Escrow Agent or its legalsuccessor or successors should become unable, through operation or law or otherwise, to act asescrow agent hereunder, or if its property and affairs shall be taken under the control of any stateor federal court or administrative body because of insolvency or bankruptcy or for any other reason,a vacancy shall forthwith exist in the office of Escrow Agent hereunder. In such event the Issuer,by appropriate action, promptly shall appoint an Escrow Agent to fill such vacancy. If no successorEscrow Agent shall have been appointed by the Issuer within 60 days, a successor may be appointedby the owners of a majority in principal amount of the Refunded Obligations then outstanding byan instrument or instruments in writing filed with the Issuer, signed by such owners or by their dulyauthorized attorneys-in-fact. If, in a proper case, no appointment of a successor Escrow Agent shallbe made pursuant to the foregoing provisions of this section within three months after a vacancyshall have occurred, the owner of any Refunded Obligation may apply to any court of competentjurisdiction to appoint a successor Escrow Agent. Such court may thereupon, after such notice, ifany, as it may deem proper, prescribe and appoint a successor Escrow Agent.

Any successor Escrow Agent shall be a corporation organized and doing business under thelaws of the United States or the State of Texas, authorized under such laws to exercise corporatetrust powers, authorized under Texas law to act as an escrow agent, having its principal office andplace of business in the State of Texas, having a combined capital and surplus of at least $5,000,000and subject to the supervision or examination by Federal or State authority.

Any successor Escrow Agent shall execute, acknowledge and deliver to the Issuer and theEscrow Agent an instrument accepting such appointment hereunder, and the Escrow Agent shallexecute and deliver an instrument transferring to such successor Escrow Agent, subject to the termsof this Agreement, all the rights, powers and trusts of the Escrow Agent hereunder. Upon therequest of any such successor Escrow Agent, the Issuer shall execute any and all instruments in

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writing for more fully and certainly vesting in and confirming to such successor Escrow Agent allsuch rights, powers and duties.

The Escrow Agent at the time acting hereunder may at any time resign and be dischargedfrom the trust hereby created by giving not less than sixty (60) days' written notice to the Issuer andpublishing notice thereof, specifying the date when such resignation will take effect, in a newspaperprinted in the English language and with general circulation in New York, New York, suchpublication to be made once at least three (3) weeks prior to the date when the resignation is to takeeffect. No such resignation shall take effect unless a successor Escrow Agent shall have beenappointed by the owners of the Refunded Obligations or by the Issuer as herein provided and suchsuccessor Escrow Agent shall be a paying agent for the Refunded Obligations and shall haveaccepted such appointment, in which event such resignation shall take effect immediately upon theappointment and acceptance of a successor Escrow Agent.

Under any circumstances, the Escrow Agent shall pay over to its successor Escrow Agentproportional parts of the Escrow Agent's fee and, if applicable, its Paying Agent's fee hereunder.

ARTICLE VIII

MISCELLANEOUS

SECTION 8.01. NOTICE. Any notice, authorization, request, or demand required or permittedto be given hereunder shall be in writing and shall be deemed to have been duly given when mailedby registered or certified mail, postage prepaid addressed to the Issuer or the Escrow Agent at theaddress shown on Exhibit A attached hereto. The United States Post Office registered or certifiedmail receipt showing delivery of the aforesaid shall be conclusive evidence of the date and fact ofdelivery. Any party hereto may change the address to which notices are to be delivered by givingto the other parties not less than ten (10) days prior notice thereof. Prior written notice of anyamendment to this Agreement contemplated pursuant to Section 8.08 and immediate written noticeof any incidence of a severance pursuant to Section 8.04 shall be sent to Moody's Investors Service,Attn: Public Finance Rating Desk/Refunded Bonds, 99 Church Street, New York, New York 10007and Standard & Poor's Corporation, Attn: Municipal Bond Department, 25 Broadway, New York,New York 10004.

SECTION 8.02. TERMINATION OF RESPONSIBILITIES. Upon the taking of all the actions asdescribed herein by the Escrow Agent, the Escrow Agent shall have no further obligations orresponsibilities hereunder to the Issuer, the owners of the Refunded Obligations or to any otherperson or persons in connection with this Agreement.

SECTION 8.03. BINDING AGREEMENT. This Agreement shall be binding upon the Issuerand the Escrow Agent and their respective successors and legal representatives, and shall inuresolely to the benefit of the owners of the Refunded Obligations, the Issuer, the Escrow Agent andtheir respective successors and legal representatives.

SECTION 8.04. SEVERABILITY. In case any one or more of the provisions contained in thisAgreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, suchinvalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but

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this Agreement shall be construed as if such invalid or illegal or unenforceable provision had neverbeen contained herein.

SECTION 8.05. TEXAS LAW GOVERNS. This Agreement shall be governed exclusively bythe provisions hereof and by the applicable laws of the State of Texas.

SECTION 8.06. TIME OF THE ESSENCE. Time shall be of the essence in the performance ofobligations from time to time imposed upon the Escrow Agent by this Agreement.

SECTION 8.07. EFFECTIVE DATE OF AGREEMENT. This Agreement shall be effective uponreceipt by the Escrow Agent of the funds described in the Report and the Escrowed Securities,together with the specific sums stated in subsections (a) and (b) of Section 7.03 for Escrow Agentand paying agency fees, expenses, and services.

SECTION 8.08. AMENDMENTS. This Agreement shall not be amended except to cure anyambiguity or formal defect or omission in this Agreement. No amendment shall be effective unlessthe same shall be in writing and signed by the parties thereto. No such amendment shall adverselyaffect the rights of the holders of the Refunded Obligations.


A-1

EXHIBIT A

ADDRESSES OF THE ISSUER AND THE ESCROW AGENT

ISSUER

City of Laredo, Texas1110 Houston StreetLaredo, Texas 78040Attention: Director of Finance

ESCROW AGENT

The Bank of New York Mellon Trust Company, N.A.2001 Bryan Street, 11th FloorDallas, Texas 75201Attention: Corporate Trust Department

B-1

EXHIBIT B

VERIFICATION REPORT

PAYING AGENT/REGISTRAR AGREEMENT

THIS AGREEMENT entered into as of April 15, 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 GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012 (the "Securities") inthe aggregate principal amount of $7,635,000, such Securities to be issued in fully registered formonly 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 May 22, 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.

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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.

"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.

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"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.

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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.

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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.

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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.

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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 of thesecurities in the manner disclosed in the closing memorandum approved by the Issuer as prepared by theIssuer’s financial advisor or other agent. The Bank may act on a facsimile or e-mail transmission of theclosing memorandum acknowledged by the financial advisor or the Issuer as the final closing memorandum.The Bank shall not be liable for any losses, costs or expenses arising directly or indirectly from the Bank'sreliance 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.

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(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,

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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.

ARTICLE SIXMISCELLANEOUS PROVISIONS

SECTION 6.01. AMENDMENT.

This Agreement may be amended only by an agreement in writing signed by both of theparties hereto.

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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.

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.

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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.


OFFICIAL STATEMENT Dated April 18, 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 Bonds (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” herein, including the alternative minimum tax on corporations.

$7,635,000 CITY OF LAREDO, TEXAS

(A Home Rule City located in Webb County) GENERAL OBLIGATION REFUNDING BONDS, SERIES 2012

Dated: April 15, 2012 Due: August 15, 2012 and February 15 in the years thereafter as shown on the inside cover PAYMENT TERMS . . . Interest on the City of Laredo, Texas (the “City” or the “Issuer”) $7,635,000 General Obligation Refunding Bonds, Series 2012 (the “Bonds”) will accrue from the Dated Date as shown above and will be payable on February 15 and August 15 of each year, commencing August 15, 2012, and will be calculated on the basis of a 360-day year of twelve 30-day months. The definitive Bonds 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 BONDS – Book-Entry-Only System”). Beneficial ownership of the Bonds may be acquired in beneficial denominations of $5,000 or any integral multiple thereof ("Authorized Denominations"). No physical delivery of the Bonds will be made to the owners thereof. Principal of and interest on the Bonds 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 Bonds (see "THE BONDS - Book-Entry-Only System"). The initial Paying Agent/Registrar is The Bank of New York Mellon Trust Company, N.A., Dallas, Texas (see "THE BONDS - Paying Agent/Registrar"). AUTHORITY FOR ISSUANCE . . . The Bonds are being issued by the City pursuant to the general laws of the State, particularly Chapter 1207, Texas Government Code, as amended, an ordinance adopted by the City Council of the City authorizing the issuance of the Bonds (the “Ordinance”), and are direct obligations of the City. In the Ordinance, the City Council of the City delegated to the Mayor or the City Manager the authority to execute a certificate (the “Approval Certificate”) evidencing the final terms of the Bonds. The Approval Certificate was duly executed on April 18, 2012. The Bonds 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 Ordinance (see "THE BONDS - Authority for Issuance of the Bonds" and "- Security for the Bonds"). PURPOSE . . . Proceeds from the sale of the Bonds will be used to (1) refund currently outstanding obligations of the City, as disclosed on Schedule I attached hereto, (the “Refunded Obligations”) in order to achieve a debt service savings; and (2) pay costs related to the issuance of the Bonds (see “PLAN OF FINANCING – Purpose of the Obligations”).

_____________

See Maturity Schedule on Reverse of this Page _____________

LEGALITY . . . The Bonds 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 (the “State” or “Texas”) and the opinion of McCall, Parkhurst & Horton L.L.P., San Antonio, Texas, Bond Counsel (see Appendix C – “Form of Bond Counsel's Opinion”). Certain legal matters will be passed upon for the Underwriters by Escamilla, Poneck & Cruz, LLP, Laredo, Texas. DELIVERY . . . It is expected that the Bonds will be available for delivery to the Underwriters through the facilities of the Depository Trust Company on or about May 22, 2012. CITIGROUP STIFEL, NICOLAUS & COMPANY, INCORPORATED

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MATURITY SCHEDULE CUSIP(1) Prefix: 516823

CUSIP(1)

Maturity Amount Rate Yield Suffix8/15/2012 110,000$ 3.000% 0.500% V322/15/2014 155,000 3.000% 0.700% W642/15/2015 155,000 3.000% 0.950% V402/15/2016 750,000 3.000% 1.220% V572/15/2017 770,000 3.000% 1.450% V652/15/2018 790,000 3.000% 1.690% V732/15/2019 810,000 3.000% 1.980% V812/15/2020 845,000 3.000% 2.220% V992/15/2021 870,000 3.000% 2.470% W232/15/2022 890,000 3.000% 2.700% W312/15/2023 920,000 3.000% 2.950% (2) W492/15/2024 570,000 3.000% 3.150% W56

(Accrued Interest from April 15, 2012 to be added)

OPTIONAL REDEMPTION OF THE BONDS . . . . The City reserves the right, at its option, to redeem the Bonds having stated maturities on and after February 15, 2023, in whole or in part in authorized denominations, on February 15, 2022, or any date thereafter, at the par value thereof plus accrued interest to the date fixed for redemption (see “THE BONDS - Optional Redemption” herein). ___________________________ (1) CUSIP numbers are included solely for the convenience of owners of the Bonds. 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. (2) Yield calculated based upon the assumption that the Bonds designated and sold at a premium will be redeemed on February 15, 2022, the first optional redemption date for the Bonds, at a redemption price of par plus accrued interest to the redemption date.

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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 Bonds 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 Bonds, 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 Bonds may be changed from time to time by the Underwriters after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering price, including sales to dealers who may sell the Bonds into investment accounts. In connection with the offering of the Bonds, the Underwriters may overallot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. THE BONDS 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 BONDS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTIONS IN WHICH THESE BONDS 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 BONDS 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.

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TABLE OF CONTENTS

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

Obligations........................................................... 10 Table 2 - Taxable Assessed Valuations by Category ... 11 Table 3 - Valuation and Ad Valorem Tax Debt

History ................................................................. 12 Table 4 - Tax Rate, Levy and Collection History......... 12 Table 5 - Ten Largest Taxpayers .................................. 13 Table 6 - Estimated Overlapping Debt.......................... 13 Table 7 - Tax Debt Interest and Sinking Fund Budget

Projection............................................................. 14 DEBT INFORMATION Table 8 - Ad Valorem Tax Debt Service

Requirements ....................................................... 15 Table 9 - Computation of Self-Supporting Debt........... 16 Anticipated Issuance of Ad Valorem Debt ................... 17 Table 10 - Other Obligations......................................... 17 RETIREMENT PLANS .................................................... 18 FINANCIAL INFORMATION Table 11 - General Fund Revenues and Expenditure

History ................................................................. 20 Table 12 - Municipal Sales Tax History........................ 21 Financial Policies........................................................... 21 Investments .................................................................... 22 Table 13 - Current Investments ..................................... 24 TAX MATTERS ................................................................ 24 OTHER RELEVANT INFORMATION Ratings ........................................................................... 25 Litigation........................................................................ 26 Registration and Qualification of Bonds for Sale ......... 26 Legal Investments and Eligibility to Secure Public

Funds in Texas..................................................... 26 Legal Opinions and No-Litigation Certificate .............. 26 Authenticity of Financial Data and Other Information 27 Continuing Disclosure of Information .......................... 27 Financial Advisor........................................................... 28 Underwriting .................................................................. 28 Verification of Arithmetical and Mathematical

Computations................................................................. 29 Forward - Looking Statements Disclaimer.................... 29

Authorization of the Official Statement........................ 29 Schedule I – Schedule of Refunded Obligations .......... 30 APPENDICES GENERAL INFORMATION REGARDING THE

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

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

FORM OF BOND COUNSEL'S OPINION...................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.

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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

8 Months Nov, 2012

Esteban Rangel Councilmember

1 Year Nov, 2014

Mike Garza Councilmember

6 Years Nov, 2014

Alejandro Perez, Jr. Councilmember

1 Year Nov, 2014

Charlie San Miguel Councilmember

1 Year 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 4 Years 42 Years (1) Cynthia Collazo Deputy City Manager 12 Years 34 Years Horacio De Leon Assistant City Manager 6 Years 18 Years Jesus M. Olivares Assistant City Manager 4 Years 9 Years (2) Gustavo Guevara, Jr. City Secretary 21 Years 21 Years Raul Casso City Attorney 4 Years 4 Years Rosario Cabello Director of Finance 12 Years 12 Years Martin Aleman Budget Manager 8 Years 17 Years Tomas Rodriguez Utility Director 4 Years 14 Years (3)

______ (1) Over 42 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 26 Years of local government experience, including 9 years with the City. (3) Over 24 years of local government experience, including 14 years with the City. CONSULTANTS AND ADVISORS Certified Public Accountants................................................................................................................. Canales, Garza and Baum, PLLC Laredo, Texas Bond Counsel....................................................................................................................................... McCall, Parkhurst & Horton L.L.P. San Antonio, Texas Financial Advisor..................................................................................................................................Estrada Hinojosa & Company, Inc. Dallas, Texas

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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

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OFFICIAL STATEMENT

Relating to

$7,635,000 CITY OF LAREDO, TEXAS

(A Home Rule City located in Webb County) GENERAL OBLIGATION REFUNDING BONDS, 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 $7,635,000 General Obligation Refunding Bonds, Series 2012 (the “Bonds”). Capitalized terms used in this Official Statement have the same meanings assigned to such terms in the ordinance authorizing the issuance of the Bonds (the “Ordinance”), except as otherwise indicated herein. There follows in this Official Statement descriptions of the Bonds 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 1990 Census population for the City was 122,899, while the 2000 Census population is 176,576. The estimated population for 2010 is 233,152. The City covers approximately 79.42 square miles.

PLAN OF FINANCING PURPOSE OF THE BONDS . . . Proceeds from the sale of the Bonds will be used to (1) refund currently outstanding obligations of the City, as disclosed on Schedule I attached hereto, (the “Refunded Obligations”) in order to achieve a debt service savings; and (2) pay costs related to the issuance of the Bonds. Refunded Obligations The Refunded Obligations, and interest due thereon, are to be paid from funds deposited with The Bank of New York Mellon Trust Company, N.A., Dallas, Texas, (the "Escrow Agent") or its successor. The Ordinance approves and authorizes the execution of an escrow agreement (the "Escrow Agreement") between the Issuer and the Escrow Agent. The Ordinance further provides that, from a portion of the proceeds of the sale of the Bonds and other lawfully available funds of the Issuer, if any, the Issuer will deposit with the Escrow Agent the amount, together with investment earnings thereon, sufficient to accomplish the discharge and final payment of the Refunded Obligations. Such amount will be held by the Escrow Agent in an escrow account (the "Escrow Fund") and used to purchase direct obligations of the United States of America (the "Escrowed Securities"). Simultaneously with the issuance of the Bonds, the City will give irrevocable instructions to provide notice to the owners of the Refunded Obligations that the Refunded Obligations will be redeemed prior to stated maturity on the first optional redemption date, on which date money will be made available to redeem the Refunded Obligations from money held under the Escrow Agreement. Grant Thornton LLP, certified public accountants, will verify the mathematical accuracy of schedules provided by the Financial Advisor at the time of delivery of the Bonds to the Underwriters and that the Escrowed Securities will mature at such times and yield interest in amounts, together with uninvested funds, if any, in the Escrow Fund, sufficient to pay the principal of and interest on the Refunded Obligations as the same shall become due by reason of stated maturity or earlier redemption (see “OTHER RELEVANT INFORMATION - Verification of Arithmetical and Mathematical Computations”). Under the Escrow Agreement, the Escrow Fund is irrevocably pledged to the payment of principal of and interest on the Refunded Obligations. Such maturing principal of and interest on the Escrowed Securities will not be available to pay principal of or interest on the Obligations.

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By the deposit of the Escrowed Securities and cash with the Escrow Agent pursuant to the Escrow Agreement, and in reliance on the report of Grant Thornton LLP, Bond Counsel is of the opinion that the Issuer will have entered into firm banking and financial arrangements for the final payment and discharge of the Refunded Obligations pursuant to the terms of the orders authorizing the issuance of the Refunded Obligations and in accordance with Texas law, and that the Refunded Obligations will be deemed to be no longer outstanding, except for the purpose of being paid from the funds held in such Escrow Fund.

THE BONDS GENERAL DESCRIPTION OF THE BONDS . . . The Bonds will be dated April 15, 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 Bonds 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 Bonds may be acquired in denominations of $5,000 or any integral multiple thereof (“Authorized Denominations”). The Bonds will bear interest from April 15, 2012, 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 August 15, 2012, calculated on the basis of a 360-day year of twelve 30-day months. AUTHORITY FOR ISSUANCE . . . The Bonds are being issued by the City pursuant to the City Charter and the general laws of the State, particularly Chapter 1207, Texas Government Code, as amended, and the Ordinance adopted by the City Council of the City authorizing the issuance of the Bonds. In the Ordinance, the City Council of the City delegated to the Mayor or the City Manager the authority to execute a certificate (the “Approval Certificate”) evidencing the final terms of the Bonds. The Approval Certificate was duly executed on April 18, 2012. SECURITY FOR THE BONDS . . . The Bonds 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 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 Bonds, 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 Bonds. 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 Bonds does not violate the constitutional restriction or the Texas Attorney General’s administrative policy. OPTIONAL REDEMPTION . . . . The City reserves the right, at its option, to redeem the Bonds having stated maturities on and after February 15, 2023, in whole or in part in authorized denominations, on February 15, 2022, or any date thereafter, at the par value thereof plus accrued interest to the date fixed for redemption. NOTICE OF REDEMPTION . . . At least 30 days prior to the date fixed for any redemption of Bonds or portions thereof prior to maturity, the City will cause a notice of such redemption to be sent by United States mail, first-class, postage prepaid, to the registered owners of each Bond or a portion thereof to be redeemed at its address as it appeared on the registration books of the Paying Agent/Registrar on the 45th day prior to such redemption date. If such notice of redemption is given and if provision for such payment is made, all as provided above, the Bonds or portions thereof which are to be redeemed thereby automatically will be treated as redeemed prior to their scheduled maturities, and they will not bear interest after the date fixed for redemption, and they will not be regarded as being outstanding except for the right of the registered owner to receive the redemption price from the Paying Agent/Registrar out of the funds provided for such payment.

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The Paying Agent/Registrar and the City, so long as a Book-Entry-Only System is used for the Bonds, will send any notice of redemption, notice of proposed amendment to the Ordinance or other notices with respect to the Bonds 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 Bonds called for redemption or any other action premised on any such notice. Redemption of portions of the Bonds by the City will reduce the outstanding principal amount of such Bonds held by DTC. In such event, DTC may implement, through its Book-Entry-Only System, a redemption of such Bonds 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 Bonds from the beneficial owners. Any such selection of Bonds 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 Bonds or the providing of notice to DTC participants, indirect participants, or beneficial owners of the selection of portions of the Bonds for redemption. (See “THE BONDS - Book-Entry-Only System” below.) BOOK-ENTRY-ONLY SYSTEM . . . This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by DTC (as defined below) while the Bonds 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 Bonds. The Bonds 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 Bonds, 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 a 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 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“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 Bonds 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 Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds 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.

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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 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds 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 Bonds shall be sent to DTC. If less than all of the Bonds within an issue 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 Bonds 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 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the 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 Bonds 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, certificates 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 Bonds 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 Bonds 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 Bonds will be made to DTC in its capacity as sole registered owner of the Bonds and (iii) except as described above, notices that are to be given to registered owners under the Ordinance will be given only to DTC. PAYING AGENT/REGISTRAR . . . The initial Paying Agent/Registrar for the Bonds 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 Bonds 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 Bonds. Upon any change in the Paying Agent/Registrar for the Bonds, the City will promptly cause a written notice thereof to be sent to each registered owner of the Bonds, 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 Bonds 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 Bonds 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 Bonds 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.

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TRANSFER, EXCHANGE, AND REGISTRATION . . . In the event the Book-Entry-Only System shall be discontinued, the Bonds 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. A Bond may be assigned by the execution of an assignment form on the Bond or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. A new Bond will be delivered by the Paying Agent/Registrar, in lieu of the Bond 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 Bond owner or his designee. To the extent possible, new Bonds issued in an exchange or transfer of Bonds 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 Bonds 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 Bonds 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 Bond(s) surrendered for exchange or transfer. The Paying Agent/Registrar is not required to make any such exchange, conversion or replacement of a Bond 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 Bond or portion thereof called for redemption prior to maturity within 45 days prior to its redemption date. 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 a Bond 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 Bonds. If the City defaults in the payment of the principal of or interest on the Bonds 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 Bonds 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 Bonds 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 Bondholders 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. Because it is unclear whether the Texas legislature has effectively waived the City’s sovereign immunity from a suit for money damages, Bondholders may not be able to bring such a suit against the City for breach of the Bonds or Ordinance covenants. 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 Bonds. 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 Bondholders 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 Bonds are qualified with respect to the customary rights of debtors relative to their creditors.

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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 Bonds 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 Bonds 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 Bond 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 Bond or interest thereon is payable, or in any other way modify the terms of payment of the principal of or interest on the Bonds, (2) give any preference to any Bond over any other Bond, (3) extend any waiver of default to subsequent defaults or (4) reduce the aggregate principal amount of Bonds required for consent to any amendment, addition, or waiver. DEFEASANCE . . .The Ordinance provides for the defeasance of the Bonds when the payment of the principal of and premium, if any, on the Bonds, 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 and/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 Bond. 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 Bond 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 Bonds, to call for redemption, at an earlier date, those Bonds which have been defeased to their maturity date, if the City: (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call the Bonds for redemption; (ii) gives notice of the reservation of the right to the owner of the Bonds 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 . . . The proceeds of the Bonds will be applied as follows:

Sources: Par Amount 7,635,000.00$ Accrued Interest 23,541.25 Net Premium 326,989.85 Total Sources of Funds 7,985,531.10$

Uses: Deposit to Escrow Fund Cash Deposit 1.50$ SLGS Purchases 7,773,923.00 Deposit to Interest & Sinking Fund 23,541.25 Costs of Issuance 128,970.45 Underwriters' Discount 59,094.90 Total Uses of Funds 7,985,531.10$

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.

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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. 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.

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“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. 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.

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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.


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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 April 12, 2012) General Obligation Bonds 49,535,000$ Certificates of Obligation 262,780,000 (2)

Contractual Obligations 9,800,000 The Bonds 7,635,000 Funded Debt Payable From Ad Valorem Taxes 329,750,000$

Less: Self-Supporting Debt(3)

Waterworks System General Obligation 13,175,079$ Waterworks System Certificates of Obligation 63,187,421 Waterworks System Public Property Contractual Obligations 191,079 Sewer System General Obligation Debt 8,485,086 Sewer System Certificates of Obligation 29,782,579 Sewer System Public Property Contractual Obligations 745,731 Parking System General Obligation 911,573 Parking System Certificates of Obligation 1,005,000 Mass Transit General Obligation Debt 435,531 Mass Transit Certificates of Obligation 4,305,000 Mass Transit Public Property Finance Contractual Obligations 2,555,000 Landfill General General Obligation 3,752,004 Landfill Certificates of Obligation 6,070,000 Landfill Public Property Finance Contractual Obligations 2,616,103 Police Trust Public Property Finance Contractual Obligations 1,318,000 Airport System Certificates of Obligation 6,135,000 Environmental Services Property Finance Contractual Obligations 397,088 CIF Bridge Transfer General Obligation 5,582,321 NPDES Transfer Certificates of Obligation 21,035,000 171,684,595$

Net General Purpose Funded Debt Payable from Ad Valorem Taxes 158,065,405$

Interest and Sinking Fund (as of September 30, 2011) 7,923,654$

Ratio Funded Debt to Taxable Assessed Valuation 3.13%Ratio Net General Purpose Funded Debt to Taxable Assessed Valuation 1.50%

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

Per Capita Funded Debt - 1,387$ Per Capita General Purpose Funded Debt - 665$

______ (1) Source: Texas Comptroller of Public Accounts. (2) Less the Refunded Obligations. (3) 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.

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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.

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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 44,368 322,705,000 (3) 3.06% 1,357

________ (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 Bonds and excludes the Refunded 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.


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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'sTax Year Tax Year Overlapping Authorized

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

Taxing Jurisdiction Valuation Rate Debt (1) Applicable 4/12/2012 12/1/2011City of Laredo 10,550,816,309$ 0.637000$ 329,750,000$ (2) 100.00% 329,750,000$ -$ Laredo Independent School District 2,208,434,168 1.274000 210,439,211 (3) 100.00% 210,439,211 - Laredo Community College District 10,614,922,560 0.258540 45,641,943 100.00% 45,641,943 - United Independent School District 10,296,645,310 1.194860 261,744,575 (4) 78.99% 206,752,040 74 Webb County 14,187,900,118 0.405824 82,403,000 77.45% 63,821,124 - Total Direct and Overlapping Tax Debt 856,404,317$ (5)

Ratio of Direct and Overlapping Tax Debt to Taxable Assessed Valuation 8.12%

Ratio of Direct and Overlapping Tax Debt to Taxable Assessed Valuation After State Aid 6.32%

Per Capita Overlapping Tax Debt 3,673$

Source: "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. (1) As of April 12, 2012. (2) Includes the Bonds and excludes the Refunded 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 Series 2001, 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 $666,539,479.

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TABLE 7 - TAX DEBT INTEREST AND SINKING FUND BUDGET PROJECTION

Debt Service Requirements, Fiscal Year Ending 09/30/2012 22,722,245$

Interest & Sinking Fund 09/30/2011 7,923,654$ Interest & Sinking Fund Tax Levy @ 95% Collection 13,021,955Paving Assessments 328,011Budgeted Transfers 7,356,444Estimated Investment Income 43,700 28,673,764

Estimated Balance 09/30/2012 5,951,519$


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DEBT INFORMATION TABLE 8 – AD VALOREM TAX DEBT SERVICE REQUIREMENTS

FiscalYear

Ending Principal9/30 Principal Interest Total Principal Interest Total Principal Interest Total Retired2012 20,265,000$ 15,693,118$ 35,958,118$ 110,000$ 76,350$ 186,350$ 20,375,000$ 15,769,468$ 36,144,468$ 2013 21,585,000 14,864,033 36,449,033 - 225,750 225,750 21,585,000 15,089,783 36,674,783 2014 21,335,000 14,069,710 35,404,710 155,000 223,425 378,425 21,490,000 14,293,135 35,783,135 2015 16,905,000 13,255,063 30,160,063 155,000 218,775 373,775 17,060,000 13,473,838 30,533,838 2016 17,075,000 12,519,993 29,594,993 750,000 205,200 955,200 17,825,000 12,725,193 30,550,193 28.67%2017 17,920,000 11,753,604 29,673,604 770,000 182,400 952,400 18,690,000 11,936,004 30,626,004 2018 17,555,000 10,923,926 28,478,926 790,000 159,000 949,000 18,345,000 11,082,926 29,427,926 2019 15,685,000 10,130,606 25,815,606 810,000 135,000 945,000 16,495,000 10,265,606 26,760,606 2020 16,090,000 9,420,711 25,510,711 845,000 110,175 955,175 16,935,000 9,530,886 26,465,886 2021 15,880,000 8,691,872 24,571,872 870,000 84,450 954,450 16,750,000 8,776,322 25,526,322 54.10%2022 15,845,000 7,930,418 23,775,418 890,000 58,050 948,050 16,735,000 7,988,468 24,723,468 2023 15,820,000 7,151,261 22,971,261 920,000 30,900 950,900 16,740,000 7,182,161 23,922,161 2024 16,390,000 6,330,988 22,720,988 570,000 8,550 578,550 16,960,000 6,339,538 23,299,538 2025 17,185,000 5,461,766 22,646,766 - 17,185,000 5,461,766 22,646,766 2026 16,810,000 4,556,553 21,366,553 - 16,810,000 4,556,553 21,366,553 78.72%2027 16,265,000 3,703,623 19,968,623 - 16,265,000 3,703,623 19,968,623 2028 10,350,000 3,013,380 13,363,380 - 10,350,000 3,013,380 13,363,380 2029 8,160,000 2,517,412 10,677,412 - 8,160,000 2,517,412 10,677,412 2030 5,840,000 2,132,494 7,972,494 - 5,840,000 2,132,494 7,972,494 2031 5,375,000 1,810,192 7,185,192 - 5,375,000 1,810,192 7,185,192 92.13%2032 5,630,000 1,508,989 7,138,989 - 5,630,000 1,508,989 7,138,989 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 97.52%2037 2,715,000 469,305 3,184,305 - 2,715,000 469,305 3,184,305 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 - - - - - -

335,335,000$ 171,921,763$ 507,256,763$ 7,635,000$ 1,718,025$ 9,353,025$ 342,970,000$ 173,639,788$ 516,609,788$

Existing Debt Service (1)Total General Obligation

Debt Service RequirementsGeneral Obligation Refunding

Bonds,Series 2012

(1) Less the Refunded Obligations.

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

Computation of Self-Supporting Debt - Airport

Net Revenue from Fiscal Year Ended 9-30-10 $ 1,105,416 Less: Airport Revenue Bond Requirements, 2011 Fiscal Year End -

Balance Available for Other Purposes $ 1,105,416 Airport General Obligation Bond Requirements, 2011 Fiscal Year End 495,696

Balance $ 609,720

Percentage of Airport General Obligation Bonds Self-Supporting 100.00%

Computation of Self-Supporting Debt - Sewer System

Net Revenue from Fiscal Year Ended 9-30-10 $ 10,717,452 Less: Sewer System Revenue Bond Requirements, 2011 Fiscal Year End 1,668,790

Balance Available for Other Purposes $ 9,048,662 Sewer System General Obligation Bond Requirements, 2011 Fiscal Year End 5,448,299

Balance $ 3,600,363

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

Computation of Self-Supporting Debt - Waterworks System

Net Revenue from Fiscal Year Ended 9-30-10 $ 11,934,322 Less: Waterworks Revenue Bond Requirements, 2011 Fiscal Year End 7,290,822

Balance Available for Other Purposes $ 4,643,500 Waterworks System General Obligation Bond Requirements, 2011 Fiscal Year End 8,504,004

Balance $ (3,860,504)

Percentage of Waterworks System General Obligation Bonds Self-Supporting 54.60%

Computation of Self-Supporting Debt - Hotel

Net Revenue from Fiscal Year Ended 9-30-10 $ - Less: Hotel Revenue Bond Requirements, 2011 Fiscal Year End -

Balance Available for Other Purposes $ - Hotel General Obligation Bond Requirements, 2011 Fiscal Year End -

Balance $ -

Percentage of Hotel 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.

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Computation of Self-Supporting Debt - Mass Transit

Net Revenue from Fiscal Year Ended 9-30-10 $ (1,570,071)Less: Mass Transit Revenue Bond Requirements, 2011 Fiscal Year End -

Balance Available for Other Purposes $ (1,570,071)Mass Transit General Obligation Bond Requirements, 2011 Fiscal Year End 1,271,023

Balance $ (2,841,094)

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

Computation of Self-Supporting Debt - Landfill

Net Revenue from Fiscal Year Ended 9-30-10 $ 1,444,804 Less: Landfill Revenue Bond Requirements, 2011 Fiscal Year End -

Balance Available for Other Purposes $ 1,444,804 Landfill General Obligation Bond Requirements, 2011 Fiscal Year End 1,518,573

Balance $ (73,769)

Percentage of Landfill General Obligation Bonds Self-Supporting 95.14% 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* The City anticipates the issuance of approximately $48,750,000* Subordinate Lien Waterworks and Sewer System Revenue Bonds, Series 2012 through the Texas Water Development Board within the next twelve months. _______________ *Preliminary, subject to change. TABLE 10 - OTHER OBLIGATIONS The City has several lease purchase agreements outstanding for various personal property. As of September 30, 2010 the minimum lease payments over the next two years for all governmental funds are as follows:

Fiscal Year EndedSeptember 30 Lease Payments

2011 420,559$ 2012 307,800 2013 307,801

Total Minimum Lease Payments 1,036,160$

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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 801 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, 2004 valuation is effective for rate beginning January 2006). (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 covers the firefighters in the Laredo Fire Department. 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 August 1, 2003 (in effect on the March 31, 2004 valuation date) provides a monthly normal service retirement benefit, payable in a Joint and Two-Thirds to Spouse form of annuity. The monthly benefit for firefighters hired prior to January 1, 1988 is equal to 3.03% of Final Average Monthly Salary for each year of service. The monthly benefit for firefighters hired on or after January 1, 1988 is equal to 2.88% 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.

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The costs of administering the plan are financed from the trust. For the Plan effective August 1, 2003, (Plan effective March 31, 2004), the funding policy of the Laredo Firefighters Retirement System requires contributions equal to 14% of pay by the firefighters. Effective April 1, 2003, required contributions by the City were 16.02% of pay for each firefighter hired before January 1, 1988 and 14.57% of pay for each firefighter hired on or after January 1, 1988. Effective April 1, 2004, required contributions by the City were 17.02% of pay for each firefighter hired before January 1, 1988 and 15.57% of pay for each firefighter hired on or after January 1, 1 988. Effective April 1, 2005, the City contribution rate will be 17.65% for firefighters hired before January 1, 1988 and 16.20% for firefighters hired on or after January 1, 1988. (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, 143 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).


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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,

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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 Bonds. 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.

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Use of Bond Proceeds, Bond 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. 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 or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State or the United States or their respective agencies and instrumentalities, 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 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 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; 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

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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. 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.

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TABLE 13 - CURRENT INVESTMENTS As of November 30, 2011, the City's investments were in government investment pools or Certificates of Deposit. The City’s investment portfolio had a weighted average maturity of 101 days to its final maturity. The City’s funds are invested as follows:

Investment Pools 95,053,896$ Certificates of Deposit 307,566,823

Total 402,620,719$

TAX MATTERS OPINION . . . On the date of initial delivery of the Bonds, 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 Bonds will be excludable from the "gross income" of the holders thereof, and (ii) the Bonds 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 Bonds. See Appendix C - Form of Bond Counsel’s Opinion. 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, (b) covenants of the Issuer contained in the Bond documents relating to certain matters, including arbitrage and the use of the proceeds of the Bonds and the property financed or refinanced therewith, and (c) the verification report prepared by Grant Thornton LLP, Certified Public Accountants. Failure by the Issuer to observe the aforementioned representations or covenants could cause the interest on the Bonds 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 Bonds in order for interest on the Bonds 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 Bonds to be included in gross income retroactively to the date of issuance of the Bonds. 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 Bonds. 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 Bonds. A ruling was not sought from the Internal Revenue Service by the Issuer with respect to the Bonds or the property financed or refinanced with proceeds of the Bonds. No assurances can be given as to whether the Internal Revenue Service will commence an audit of the Bonds, 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 Bondholders 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 Bonds may be less than the principal amount thereof or one or more periods for the payment of interest on the bonds may not be equal to the accrual period or be in excess of one year (the "Original Issue Discount Bonds"). In such event, the difference between (i) the "stated redemption price at maturity" of each Original Issue Discount Bond, and (ii) the initial offering price to the public of such Original Issue Discount Bond would constitute original issue discount. The "stated redemption price at maturity" means the sum of all payments to be made on the bonds 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 Bond 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 Bond 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.

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In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Bond prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Bond 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 Bond was held by such initial owner) is includable in gross income. Under existing law, the original issue discount on each Original Issue Discount Bond 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 Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. 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 Bond. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original Issue Discount Bonds 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 Bonds 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 Bonds 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 Bonds. 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 Bonds. 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 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 OBLIGATIONS BEFORE DETERMINING WHETHER TO PURCHASE THE BONDS. Interest on the Bonds 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 obligations, such as the Bonds, 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 taxexempt obligation, such as the Bonds, if such obligation was acquired at a "market discount" and if the fixed maturity of such obligation is equal to, or exceeds, one year from the date of issue. Such treatment applies to "market discount bonds" to the extent such gain 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 Bonds 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.

OTHER RELEVANT INFORMATION RATINGS . . . Contract ratings on the Bonds have been obtained from Moody's Investors Service, Inc. (“Moody’s”), Standard & Poor's Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”), and Fitch Ratings (“Fitch”). The Bonds were rated and the presently outstanding tax supported debt of the City has an underlying rating of “Aa2” by Moody’s, “AA-” by S&P, and “AA” by Fitch. The City also has several series of obligations outstanding with enhanced ratings from various municipal bond insurance companies. Due to recent downgrades of some insurers, the insured ratings on these obligations range from “Aa3” to below investment grade. 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 Bonds.

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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 BONDS FOR SALE . . . The sale of the Bonds 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 Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds 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 Bonds 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 Bonds 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 Bonds 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 Bonds, 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 Bonds. The Bonds 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 Bonds for any of the foregoing purposes or limit the authority of such institutions or entities to purchase or invest in the Bonds for such purposes. The City has made no review of laws in other states to determine whether the Bonds are legal investments for various institutions in those states. 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 Bonds, including the unqualified approving legal opinions of the Attorney General of the State to the effect that the Bonds 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 Bonds are valid and legally binding obligations of the City and subject to the qualifications set forth herein under “TAX MATTERS”, the interest on the Bonds 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 Bonds, or which would affect the provision made for their payment or security, or in any manner questioning the validity of the Bonds 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 Bonds in the Official Statement under the captions “PLAN OF FINANCING”, “THE BONDS” (except “Sources and Uses of Funds”, “Default 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 Bonds 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 Bonds 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 Bonds, 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 Bonds are contingent on the sale and delivery of the Bonds. The legal opinion of Bond Counsel relating to the Bonds will be printed on, or will accompany the definitive Bonds and the form of such opinion is 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 Bonds 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.

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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 Bonds. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material 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 bondholder or other member of the public within a reasonable time on request upon payment of charges prescribed by the Texas General Services Commission. 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 2011. 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 Bonds, 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 Bonds, or other events affecting the tax-exempt status of the Bonds; (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 Bonds, if such event is material within the meaning of the federal securities laws: (1) non-payment related defaults; (2) modifications to rights of Bondholders; (3) Bond calls; (4) release, substitution, or sale of property securing repayment of the Bonds; (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.

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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 Bonds 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. 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 Bonds 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 Bonds 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 Bonds 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 Bonds 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 Bonds. 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 Bonds in the primary offering of the Bonds 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 Bonds. The Financial Advisor's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. 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 Bonds, 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 Bonds. UNDERWRITING . . . The Underwriters named on the cover page hereof have agreed, subject to certain conditions, to purchase the Bonds from the City, at a discount of $59,094.90 from the respective initial offering prices of the Bonds. The Underwriters will be obligated to purchase all of the Bonds if any Bonds are purchased. The Bonds to be offered to the public may be offered and sold to certain dealers (including the Underwriters and other dealers depositing Bonds into investment trusts) at prices lower than the public offering prices of such Bonds and such public offering prices may be changed, from time to time, by the Underwriters. "Citigroup Inc., parent company of Citigroup Global Markets Inc., an underwriter of the Bonds, has entered into a retail brokerage joint venture with Morgan Stanley. As part of the joint venture, Citigroup Global Markets Inc. will distribute municipal securities to retail investors through the financial advisor network of a new broker-dealer, Morgan Stanley Smith Barney LLC. This distribution arrangement became effective on June 1, 2009. As part of this arrangement, Citigroup Global Markets Inc. will compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the Bonds."

29

VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS . . . The arithmetical accuracy of certain computations included in the schedules provided by Estrada Hinojosa & Company, Inc. on behalf of the City was verified by Grant Thornton LLP, Minneapolis, Minnesota, certified public accountants (the “Accountants”). Such computations were based solely on assumptions and information supplied by Estrada Hinojosa & Company, Inc. on behalf of the City. The Accountants have restricted their procedures to verifying the arithmetical accuracy of certain computations and have not made any study or evaluation of the assumptions and information on which the computations are based, and accordingly, have not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome. The Accountants will verify from the information provided to them the mathematical accuracy as of the date of the closing on the Bonds of (i) the computations contained in the provided schedules to determine that the anticipated receipts from the Federal Securities and cash deposits listed in the schedules provided by Estrada Hinojosa & Company, Inc., to be held in the Escrow Fund, will be sufficient to pay, when due, the principal and interest requirements of the Refunded Obligations, and (ii) the computations of yield on both the Federal Securities and the Bonds contained in the provided schedules used by Bond Counsel in its determination that the interest on the Bonds is excludable from the gross income of the holders thereof and the effective defeasance of the Refunded Obligations. 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 Bonds 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 Bonds, 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


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


30

SCHEDULE I SCHEDULE OF REFUNDED OBLIGATIONS

Maturity Interest Par Call Call

Bond Date Rate Amount Date Price


Serials(1) 2/15/2014 3.800% 125,000.00$ 2/15/2013 100.00 2/15/2015 3.900% 130,000.00 2/15/2013 100.00 2/15/2016 4.000% 135,000.00 2/15/2013 100.00 2/15/2017 4.100% 140,000.00 2/15/2013 100.00 2/15/2018 4.200% 145,000.00 2/15/2013 100.00 2/15/2019 4.300% 150,000.00 2/15/2013 100.00 2/15/2020 4.350% 160,000.00 2/15/2013 100.00 2/15/2021 4.400% 165,000.00 2/15/2013 100.00 2/15/2022 4.500% 175,000.00 2/15/2013 100.00 2/15/2023 4.500% 185,000.00 2/15/2013 100.00

1,510,000.00$

Combination Tax and Sewer System Revenue Certificates of Obligation, Series 2003

Serials(1) 2/15/2014 3.800% 125,000.00$ 2/15/2013 100.00 2/15/2015 3.900% 130,000.00 2/15/2013 100.00 2/15/2016 4.000% 135,000.00 2/15/2013 100.00 2/15/2017 4.100% 140,000.00 2/15/2013 100.00 2/15/2018 4.200% 145,000.00 2/15/2013 100.00 2/15/2019 4.300% 150,000.00 2/15/2013 100.00 2/15/2020 4.350% 160,000.00 2/15/2013 100.00 2/15/2021 4.400% 170,000.00 2/15/2013 100.00 2/15/2022 4.500% 175,000.00 2/15/2013 100.00 2/15/2023 4.500% 180,000.00 2/15/2013 100.00

1,510,000.00$


Serials 2/15/2016 4.400% 390,000.00$ 2/15/2014 100.00 2/15/2017 4.500% 405,000.00 2/15/2014 100.00 2/15/2018 4.600% 425,000.00 2/15/2014 100.00 2/15/2019 4.700% 445,000.00 2/15/2014 100.00 2/15/2020 4.750% 470,000.00 2/15/2014 100.00 2/15/2021 4.850% 490,000.00 2/15/2014 100.00 2/15/2022 5.000% 510,000.00 2/15/2014 100.00 2/15/2023 5.000% 540,000.00 2/15/2014 100.00 2/15/2024 5.000% 565,000.00 2/15/2014 100.00

4,240,000.00$

7,260,000.00$

________ (1) Amounts listed indicate partial redemption of maturities.

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 1980 at 91,449, and in 1990 at 122,899. The City has a current estimated 2010 population of 233,152. 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, 2010:

Type of Number ofName Business Employees

United Independent School District Education 6,153 Laredo Independent School District Education 4,591 City of Laredo Government Entity 2,366 U.S. Border Patrol Government Entity 1,700 H. E. B. Grocery Grocery Chain 1,602 Webb County Government Entity 1,450 Laredo Medical Center Medical Services 1,433 McDonalds Restaurants Food Services 1,200 Texas A & M International University Education 1,195 Convergys Consulting Firm 1,009

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

September September September September2011 2010 2009 2008

Civilian Labor Force 94,391 90,832 89,783 88,649 Total Employed 88,166 84,014 82,698 83,629 Total Unemployed 6,225 6,818 7,085 5,020 % Unemployed 6.6% 7.5% 7.9% 5.7%% Unemployed Texas 7.2% 8.0% 7.9% 5.7%

___________ (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. On May 8, 2002, the City signed a utility system privatization agreement with United Water. The agreement, which took effect on October 1, 2002, transferred the maintenance and operations responsibilities of the following divisions of the City’s utility system to United Water: building, water treatment plant, water distribution, pollution control, wastewater treatment plant, and wastewater collection divisions. The City Council authorized the City Manager to negotiate a Mutual Dissolution Agreement with United Water and transition the operations and maintenance of the Water and Wastewater System and certain employees of United Water to the City, and settle all existing claims. The agreement included a settlement of $3,000,000 payable by United Water to the City. The effective date of the Mutual Dissolution Agreement was May 5, 2005. The City assumed the operations and maintenance of the System on May 6, 2005. 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.

A-4

GROWTH INDICES(1)

Fiscal YearEnded Bank Building9/30 Electric Gas Water Sewer Deposits Permits2001 61,487 23,366 47,402 46,508 5,596,945,000 212,393,574 2002 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

Connections

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

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 2010 was approximately 32.6 million gallons per day and peak demand for 2010 was 47.5 million gallons per day. Connections to the water system as of September 30, 2010 were 62,195. On May 8, 2002, the City signed a utility system privatization agreement with United Water. The agreement became effective on October 1, 2002, and transferred the maintenance and operations responsibilities of the following divisions of the City’s utility system to United Water: building, water treatment plant, water distribution, pollution control, wastewater treatment plant, and wastewater collection divisions. The City Council authorized the City Manager to negotiate a Mutual Dissolution Agreement with United Water and transition the operations and maintenance of the Waterworks and Sewer system and certain employees of United Water to the City, and settle all existing claims. The agreement included a settlement of $3,000,000 payable by United Water to the City. The effective date of the Mutual Dissolution Agreement was May 5, 2005. The City assumed the operations and maintenance of the System on May 6, 2005.


A-5

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 1 --- 1,000,000 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 gallons Total Treated Water Storage 45,161,000 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 681 miles of transmission and distribution lines. 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.

A-6

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)

2001 36,467 61,003 13,198,319 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

TEN LARGEST WATER USERS (GALLONS)

2010 WaterUser Consumption

Laredo Medical Center 99,753,900 Texas A&M International University 48,055,400 Laredo Community College 48,054,500 New Webb County Jail 22,338,200 Laredo Municipal Housing Corp. 21,730,600 Laredo Regional Medical Center 21,523,600 United High School 20,438,000 Towne North Mobil Homes 15,018,200 J C Evans Construction 14,334,900 CP&L Power Plant 12,262,000

323,509,300

MONTHLY WATER RATES (Effective October 1, 2010) Inside City Limits Residential Meter sized based minimum monthly water charges for metered consumption from zero to 2,000 gallons: 5/8” & ¾” meter .............................................................................................................................................. $7.85 1” meter ......................................................................................................................................................... $10.03 1 ½” meter ..................................................................................................................................................... $11.70 2” meter ......................................................................................................................................................... $14.85 Per 1,000 gallons (for the next 2,000 gallons) per month in excess of 2,000 gallons per month..................... $1.52 Per 1,000 gallons (for the next 6,000 gallons) per month in excess of 4,000 gallons per month..................... $1.63 Per 1,000 gallons (for the next 10,000 gallons) per month in excess of 10,000 gallons per month................. $1.70 Per 1,000 gallons (for the next 10,000 gallons) per month in excess of 20,000 gallons per month................. $1.81 Per 1,000 gallons (for the next 10,000 gallons) per month in excess of 30,000 gallons per month................. $1.91 Per 1,000 gallons (for the next 10,000 gallons) per month in excess of 40,000 gallons per month................ $2.00 Per 1,000 gallons per month in excess of 50,000 gallons per month............................................................... $3.99

A-7

Multi-Family and Commercial: Meter sized based minimum monthly water charges for metered consumption from zero to 2,000 gallons: 5/8” & ¾” meter ............................................................................................................................................ $29.51 1” meter ......................................................................................................................................................... $30.06 1 ½” meter ..................................................................................................................................................... $30.91 2” meter ......................................................................................................................................................... $34.11 3” meter ......................................................................................................................................................... $45.61 4” meter ......................................................................................................................................................... $57.41 6” meter ......................................................................................................................................................... $85.38 8” meter ....................................................................................................................................................... $115.19 Per 1,000 gallons (for the next 2,000 gallons) per month in excess of 2,000 gallons per month.................... $1.63 Per 1,000 gallons (for the next 6,000 gallons) per month in excess of 4,000 gallons per month..................... $1.76 Per 1,000 gallons (for the next 30,000 gallons) per month in excess of 10,000 gallons per month................. $2.11 Per 1,000 gallons (for the next 110,000 gallons) per month in excess of 40,000 gallons per month............... $2.39 Per 1,000 gallons (for the next 150,000 gallons) per month in excess of 150,000 gallons per month............. $2.68 Per 1,000 gallons (for the next 300,000 gallons) per month in excess of 300,000 gallons per month............. $3.19 Per 1,000 gallons (for the next 400,000 gallons) per month in excess of 600,000 gallons per month............. $3.77 Per 1,000 gallons per month in excess of 1,000,000 gallons per month .......................................................... $3.86 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

2010 2009 2008 2007 2006System Improvements $ 153,166,635 $ 145,432,603 $ 120,792,897 $ 113,881,674 $ 110,303,883 Vehicles and Equipment 7,512,781 6,914,288 6,811,377 5,449,703 4,464,891 Buildings 22,206,391 13,395,112 13,245,692 13,245,692 13,245,692 Land and Improvements 34,482,381 29,811,988 21,617,530 19,792,793 18,012,171 Easements 121,934 - - - - Construction in Progress 36,186,936 28,722,303 16,385,573 10,870,641 5,782,543

$ 253,677,058 $ 224,276,294 $ 178,853,069 $ 163,240,503 $ 151,809,180 Less: Total Depreciation 86,006,220 79,123,908 73,120,032 68,006,208 62,790,899 Value After Depreciation $ 167,670,838 $ 145,152,386 $ 105,733,037 $ 95,234,295 $ 89,018,281

For Fiscal Year Ended September 30,

A-8

CITY'S EQUITY IN WATERWORKS SYSTEM

2010 2009 2008 2007 2006Resources:Net System Value $167,670,838 $145,152,386 $105,733,037 $95,124,295 $89,018,281 Cash and Investments 81,639,476 91,353,207 73,341,316 57,112,032 46,788,214Other Sources 13,201,529 5,665,612 5,241,840 4,701,477 4,380,439

$262,511,843 $242,171,205 $184,316,193 $156,937,804 $140,186,934

Obligations:Revenue Bonds Payable $112,753,816 $107,802,522 $72,779,717 $51,247,410 $46,758,244 Less: Bond Funds 2,370,132 2,060,373 2,128,548 2,145,992 1,612,118

$110,383,684 $105,742,149 $70,651,169 $49,101,418 $45,146,126 Other Obligations(1) 18,296,292 14,185,069 11,215,993 10,178,418 8,590,035

$ 128,679,976 $ 119,927,218 $ 81,867,162 $ 59,279,836 $ 53,736,161

City's Equity in System $133,831,867 $122,243,987 $102,449,031 $97,657,968 $86,450,773 Percentage City's Equity in System 50.98% 50.48% 55.58% 62.23% 61.67%


_________ (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 21.141 million gallons per day (“MGD”). The Sewer System includes approximately 519 miles of sewer lines and 71 lift stations. The average daily treatment is 18.3 MGD with 58,726 sewer connections as of September 30, 2010. On May 8, 2002, the City signed a utility system privatization agreement with United Water. The agreement became effective on October 1, 2002, and transferred the maintenance and operations responsibilities of the following divisions of the City’s utility system to United Water: building, water treatment plant, water distribution, pollution control, wastewater treatment plant, and wastewater collection divisions. The City Council authorized the City Manager to negotiate a Mutual Dissolution Agreement with United Water and transition the operations and maintenance of the Waterworks and Sewer system and certain employees of United Water to the City, and settle all existing claims. The agreement included a settlement of $3,000,000 payable by United Water to the City. The effective date of the Mutual Dissolution Agreement was May 5, 2005. The City assumed the operations and maintenance of the System on May 6, 2005. SEWAGE FLOW (THOUSAND GALLONS)

Fiscal Year Ended 9-30

Average Daily Flow

Total Sewage Flow

2001 15,515 5,663,000 2002 15,435 5,634,000 2003 16,767 6,120,000 2004 17,015 6,211,000 2005 16,776 6,123,000 2006 16,796 6,130,000 2007 18,095 6,604,000 2008 17,899 6,533,000 2009 17,800 6,370,000 2010 18,256 6,663,368

A-9

TEN LARGEST SEWER CUSTOMERS (THOUSAND GALLONS)

2010 SewerUser Consumption

Laredo Medical Center 99,753,900 Texas A&M International University 48,055,400 Laredo Community College 48,054,500 New Webb County Jail 22,338,200 Laredo Municipal Housing Corp. 21,730,600 Laredo Regional Medical Center 21,523,600 United High School 20,438,000 Towne North Mobil Homes 15,018,200 J C Evans Construction 14,334,900 CP&L Power Plant 12,262,000

323,509,300

MONTHLY SEWER RATES (BASED ON WATER CONSUMPTION) (Effective October 1, 2010) 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...................................... $2.56 Per 1,000 gallons (for the next 6,000 gallons) per month in excess of 4,000 gallons...................................... $2.61 Per 1,000 gallons (for the next 10,000 gallons) per month in excess of 10,000 gallons.................................. $2.74 Per 1,000 gallons (for the next 10,000 gallons) per month in excess of 20,000 gallons.................................. $2.94 The maximum charge will be up to 30,000 gallons and the equivalent of $86.08. Outside City Limits The rates for sewer outside the City limits shall be two times those established for commercial rates. Commercial & Multifamily: Monthly minimum, including use of 2,000 gallons per month...................................................................... $20.65 Per 1,000 gallons (for the next 2,000 gallons) per month in excess of 2,000 gallons per month..................... $1.89 Per 1,000 gallons (for the next 6,000 gallons) per month in excess of 4,000 gallons per month..................... $2.00 Per 1,000 gallons (for the next 20,000 gallons) per month in excess of 10,000 gallons per month................. $2.10 Per 1,000 gallons (for the next 10,000 gallons) per month in excess of 30,000 gallons per month................. $2.29 Per 1,000 gallons (for the next 110,000 gallons) per month in excess of 40,000 gallons per month............... $2.37 Per 1,000 gallons (for the next 150,000 gallons) per month in excess of 150,000 gallons per month............. $2.64 Per 1,000 gallons (for the next 300,000 gallons) per month in excess of 300,000 gallons per month............. $2.92 Per 1,000 gallons (for the next 400,000 gallons) per month in excess of 600,000 gallons per month............. $3.46 Per 1,000 gallons per month in excess of 1,000,000 gallons per month .......................................................... $4.20 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-10

VALUE OF THE SEWER SYSTEM - FIXED ASSETS

2010 2009 2008 2007 2006Sewer System $ 114,484,049 $ 112,466,222 $ 93,917,054 $ 89,431,498 $ 74,321,403 Vehicles, Machinery, and Equipment 7,649,439 7,322,401 7,494,843 5,865,521 5,443,216 Buildings 21,224,034 21,209,597 18,308,734 18,308,734 17,759,212 Land and Improvements 4,531,525 4,531,525 4,531,525 4,531,525 4,531,252 Easements 201,395 - - - - Construction in Progress 24,817,915 11,528,447 7,948,202 4,769,294 15,180,078

$ 172,908,357 $ 157,058,192 $ 132,200,358 $ 122,906,572 $ 117,235,161 Less: Total Depreciation 55,378,617 49,705,564 44,615,508 39,990,212 35,956,413 Value After Depreciation $ 117,529,740 $ 107,352,628 $ 87,584,850 $ 82,916,360 $ 81,278,748


CITY'S EQUITY IN SEWER SYSTEM

2010 2009 2008 2007 2006Resources:Net System Value $ 117,529,740 $ 107,352,628 $ 87,584,850 $ 82,916,560 $ 81,279,021 Cash and Investments 44,109,722 56,418,094 50,294,270 34,294,373 25,619,286 Other Resources 4,155,250 3,520,180 4,000,808 2,513,872 2,420,388

$ 165,794,712 $ 167,290,902 $ 141,879,928 $ 119,724,805 $ 109,318,695

Obligations:Revenue Bonds Payable $ 62,641,553 $ 66,627,155 $ 59,144,593 $ 41,006,234 $ 34,686,718 Less: Bond Funds 1,531,444 1,546,107 1,583,837 1,624,617 980,733

$ 61,110,109 $ 65,081,048 $ 57,560,756 $ 39,381,617 $ 33,705,985 Other Obligations(1) 5,539,658 3,167,643 3,793,936 2,978,020 2,056,101

$ 66,649,767 $ 68,248,691 $ 61,354,692 $ 42,359,637 $ 35,762,086

City's Equity in System $ 99,144,945 $ 99,042,211 $ 80,525,236 $ 77,365,168 $ 73,556,609 Percentage City's Equity in System 59.80% 59.20% 56.76% 64.62% 67.29%_______(1) Does not include subordinated debt or the general obligation debt of the City issued for sewer purposes.


A-11

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 $ 25,455,038 $ 22,612,937 $ 48,067,975 $ 26,937,378 $ 19,819,164 $ 46,756,542 $ 26,265,698 $ 14,006,232 $ 40,271,930 Rental of Facilities 40,128 - 40,128 40,128 - 40,128 40,128 - 40,128 Interest 121,919 84,664 206,583 350,531 273,926 624,457 711,991 265,542 977,533 Miscellaneous 3,535,088 110,909 3,645,997 1,555,527 269,182 1,824,709 339,801 369,861 709,662 Total Revenues $ 29,152,173 $ 22,808,510 $ 51,960,683 $ 28,883,564 $ 20,362,272 $ 49,245,836 $ 27,357,618 $ 14,641,635 $ 41,999,253

Expenses:

Administrative $ 2,793,650 $ 4,038,665 $ 6,832,315 $ 2,991,019 $ 2,000,407 $ 4,991,426 $ 2,583,385 $ 2,097,387 $ 4,680,772 Utility Engineering 826,978 - 826,978 690,694 - 690,694 799,864 - 799,864 Utility Compliance - - - - - - - - - City Managed Employees - - - - - - - - - Utility Billing 2,929,649 - 2,929,649 2,818,275 - 2,818,275 2,724,036 - 2,724,036 Asset Management 260,108 - 260,108 234,988 - 234,988 247,660 - 247,660 Water Treatment Plant 6,414,438 - 6,414,438 6,819,136 - 6,819,136 6,742,276 - 6,742,276 Transmission and Distribution 3,600,821 - 3,600,821 3,835,000 - 3,835,000 3,495,224 - 3,495,224 Water Pollution Control 392,207 - 392,207 393,211 - 393,211 437,807 - 437,807 Wastewater Treatment - 5,319,244 5,319,244 - 4,765,446 4,765,446 - 4,792,566 4,792,566 Wastewater Collection - 2,733,149 2,733,149 - 2,665,461 2,665,461 - 2,620,294 2,620,294 Corrective Maintenance - - - - - - - - - Construction Salaries - - - - - - - - - Total Expenses $ 17,217,851 $ 12,091,058 $ 29,308,909 $ 17,782,323 $ 9,431,314 $ 27,213,637 $ 17,030,252 $ 9,510,247 $ 26,540,499

Net Available for Debt Service 11,934,322$ 10,717,452$ 22,651,774$ 11,101,241$ 10,930,958$ 22,032,199$ 10,327,366$ 5,131,388$ 15,458,754$

Number of Customers 62,195 58,726 61,171 57,903 60,519 57,851

2010 2009 2008

A-12

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 $ 24,977,835 $ 13,055,433 $ 38,033,268 $ 23,129,654 $ 14,108,373 $ 37,238,027 $ 16,894,576 $ 13,389,474 $ 30,284,050 Rental of Facilities 40,128 - 40,128 38,122 - 38,122 34,109 - 34,109 Interest 2,721,712 1,505,282 4,226,994 1,743,571 1,062,886 2,806,457 764,273 554,940 1,319,213 Miscellaneous 463,192 587,121 1,050,313 294,506 429,905 724,411 1,043,549 464,833 1,508,382 Total Revenues $ 28,202,867 $ 15,147,836 $ 43,350,703 $ 25,205,853 $ 15,601,164 $ 40,807,017 $ 18,736,507 $ 14,409,247 $ 33,145,754

Expenses:

Administrative $ 2,076,626 $ 2,872,599 $ 4,949,225 $ 1,779,174 $ 2,543,621 $ 4,322,795 $ 1,278,137 $ 1,846,066 $ 3,124,203 Utility Engineering 752,441 - 752,441 638,979 - 638,979 580,413 - 580,413 Utility Compliance - - - - - - 4,763,429 3,019,560 7,782,989 City Managed Employees - - - - - - 137,414 79,466 216,880 Utility Billing 2,368,785 - 2,368,785 1,950,102 - 1,950,102 707,008 - 707,008 Asset Management 270,448 - 270,448 246,510 - 246,510 121,035 - 121,035 Water Treatment Plant 5,956,680 - 5,956,680 6,090,084 - 6,090,084 1,956,422 - 1,956,422 Transmission and Distribution 3,144,501 - 3,144,501 2,803,090 - 2,803,090 1,262,552 - 1,262,552 Water Pollution Control 528,799 - 528,799 502,870 - 502,870 171,841 - 171,841 Wastewater Treatment - 4,133,862 4,133,862 - 3,662,090 3,662,090 - 1,064,536 1,064,536 Wastewater Collection - 2,526,732 2,526,732 - 2,280,698 2,280,698 - 769,719 769,719 Corrective Maintenance - - - - - - 13,083 32,014 45,097 Construction Salaries - - - - - - - - - Total Expenses $ 15,098,280 $ 9,533,193 $ 24,631,473 $ 14,010,809 $ 8,486,409 $ 22,497,218 $ 10,991,334 $ 6,811,361 $ 17,802,695

Net Available for Debt Service 13,104,587$ 5,614,643$ 18,719,230$ 11,195,044$ 7,114,755$ 18,309,799$ 7,745,173$ 7,597,886$ 15,343,059$

Number of Customers 59,409 56,065 57,489 54,568 55,252 52,565

2007 2006 2005

A-13

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

Average Annual Principal and Interest Requirements (2011-2041)........................................... $ 8,717,954 Coverage of Average Requirements by 2011 Net Income ......................................................... 3.83 Times Maximum Principal and Interest Requirements, 2013................................................................ $10,626,169

Coverage of Maximum Requirements by 2011 Net Income...................................................... 3.14 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 The City does not anticipate the issuance of additional Combined Waterworks System and Sewer System revenue debt within the next twelve months.


A-14

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-15

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-16

INTERNATIONAL TOLL BRIDGE SYSTEM CONDENSED STATEMENT OF OPERATIONS

REVENUES 2010 2009 2008 2007 2006Toll Receipts $ 42,820,134 $ 40,816,254 $ 45,576,258 $ 38,051,562 $ 39,101,761 Rental of Facilities 2,700,169 2,417,709 2,182,015 2,120,862 2,001,395 Miscellaneous 377,044 29,871 61,891 14,811 20,091 Total $ 45,897,347 $ 43,263,834 $ 47,820,164 $ 40,187,235 $ 41,123,247

EXPENSESPersonnel Services $ 6,950,196 $ 7,759,920 $ 7,646,420 $ 7,474,294 $ 6,801,387 Materials and Supplies 494,239 403,344 749,864 677,734 908,535 Contractual Services(1) 3,867,475 3,316,797 3,589,207 3,250,608 3,095,352 Other 52,093 15,593 15,229 18,268 41,395 Total $ 11,364,003 $ 11,495,654 $ 12,000,720 $ 11,420,904 $ 10,846,669

NON-OPERATING REVENUEInterest Earnings Restricted $ 163,246 $ 103,219 $ 762,427 $ 1,114,714 $ 1,369,477 Interest Earnings Unrestricted 37,064 369,021 204,796 259,386 252,161 Unrealized Gain/(Loss) on Investments - (11,939) (30,307) 81,636 12,279 Net Revenues Available For Debt Service $ 34,733,654 $ 32,228,481 $ 36,756,360 $ 30,222,067 $ 31,910,495 Debt Service 8,789,230 8,325,916 8,147,182 8,259,332 8,353,498 Surplus Revenues $ 25,944,424 $ 23,902,565 $ 28,609,178 $ 21,962,735 $ 23,556,997

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-17

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

2010 2009 2008 2007 2006Revenues:FAA $ - $ - $ - $ 388,321 $ 391,895 State Operating Grant 106,939 109,807 82,190 100,235 102,045 Rents 5,002,207 4,281,154 4,448,507 4,399,983 3,844,104 Interest Earnings 2,354 55 (59) 9,019 47,672 Proceeds from Asset Disposition - - - - - Miscellaneous 514,497 343,539 370,831 404,742 202,542 Total Revenues $ 5,625,997 $ 4,734,555 $ 4,901,469 $ 5,302,300 $ 4,588,258

Expenditures:Administration $ 2,530,733 $ 2,433,606 $ 2,192,701 $ 2,318,266 $ 2,389,787 Building Maintenance 638,191 618,010 568,963 654,188 389,809 Ground Maintenance 340,024 385,009 379,262 454,977 436,528 Control Tower - - - 684,924 491,684 Foreign Trade Zone 19,151 19,900 18,540 14,952 14,552 Airport Police 910,926 861,261 950,347 1,033,311 766,494 Total Expenditures $ 4,439,025 $ 4,317,786 $ 4,109,813 $ 5,160,618 $ 4,488,854

Net Operating Revenues $ 1,186,972 $ 416,769 $ 791,656 $ 141,682 $ 99,404

Other Sources (Uses):Debt Service (542,210) (729,105) (734,444) (407,640) (645,942)General Fund - 1,518 1,496 4,800 - Noise Abatement Fund 403,071 649,682 89,431 - - Airport Construction Fund (49,993) (49,887) (50,000) - - Capital Outlay 81,556 - (35,361) (302,285) (1,872,588)Communication System Fund - - - (270,000) (81,411)New Airport Terminal - - - 306,641 316,373 Total Other Sources (Uses) $ (107,576) $ (127,792) $ (728,878) $ (668,484) $ (2,283,568)

Excess (Deficiency) of Revenues Over Expenditures $ 1,079,396 $ 288,977 $ 62,778 $ (526,802) $ (2,184,164)Beginning Fund Balance (162,753) (451,730) (514,508) 12,294 2,131,789 Equity Transfers - - - - 64,669 Ending Fund Balance $ 916,643 $ (162,753) $ (451,730) $ (514,508) $ 12,294

Fiscal Years Ended September 30,

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AIRPORT DESCRIPTION The Airport consists of approximately 1,892 acres of which 900 acres are dedicated to aviation activities for passenger and air cargo terminals, hangars, navigational aids, runways, taxiways and aprons and 982 acres are dedicated for industrial, commercial, retail, institutional, and recreational. The Airport is currently being served by American Eagle to Dallas/Fort Worth, Express Jet and Chautaugua Airlines d/b/a Continental Express to Houston Bush Intercontinental and Allegiant Air to Las Vegas, Nevada. On average, the airlines have nine daily scheduled round trip flights. Furthermore, the passenger terminal also houses a full service restaurant, gift shop/duty free concession, ATM, five car rental companies and Federal Inspection Facility and Transportation Security Administration. Three scheduled air cargo companies and 15 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., and Contract Air. During the past fifteen (15) years the City and the Federal Aviation Administration have invested over $155.0 million in Laredo International Airport infrastructure and noise abatement program. The airport leases facilities and land to manufacturers, retailers, institutions and public entities. In December 2002, the University of Texas Health Science Center (UTHSC) inaugurated the first building of its medical research and education campus in Laredo. UTHSC is located adjacent to the approximate $145.0 million new Mercy Regional Medical Center. This area of the airport is fast becoming a regional medical campus. In July 2002 former Mayor Flores declared the month of July as “FLY WORLD CLASS FROM LAREDO” providing jet service to Houston, to Dallas/Fort Worth, and Mexico City from an airport with world class facilities, such as, new state of the art $24.0 million passenger terminal, new air carrier apron, new runway and new taxiway. The passenger terminal counts with excess capacity. The total capacity of the passenger terminal is 600 domestic passengers per hour and the Federal Inspection Station has capacity for 300 international arriving passengers per hour. The passenger terminal is master planned to expand from the original three gates with four passenger-boarding bridges to twenty gates by the year 2025.

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

_______ (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. 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.

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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.

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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



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

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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 Required

Discussion Financial Supplemental

And Statements Information

Analysis

Government- Fund Notes Wide Financial To the

Financial Summaries FinancialStatements Statements

Summary Detail

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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.

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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

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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$


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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

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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

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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

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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$


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

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19

CITY OF LAREDO, TEXASBALANCE SHEET

GOVERNMENTAL FUNDSSeptember 30, 2011

OTHER TOTAL

DEBT 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

LIABILITIES

Accounts 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

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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


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Acq

uisi

tion

and

cons

truc

tion

of c

apita

l ass

ets

(3,4

33,6

93)

-

-

(5,6

02,8

84)

(9,0

36,5

77)

-

Prin

cipa

l pai

d on

cap

ital d

ebt

(5,0

87,4

35)

(9,5

44,5

41)

(5,1

76,5

63)

(5,0

00,5

16)

(24,

809,

055)

-

I

nter

est p

aid

on c

apita

l deb

t(3

,698

,470

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(8

,473

,597

)

(3

,063

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(9

51,2

40)

(1

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-

Pro

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s fr

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of c

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2,60

8

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99

99

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23,4

88

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sed

) b

y ca

pit

al

a

nd

rel

ated

fin

anci

ng

act

ivit

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(12,

216,

990)

43

,100

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90,1

72)

(5,7

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94)

19,4

81,4

97

(2

79,5

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2,40

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8,82

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(7,4

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(1,8

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39)

(65,

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1,

401,

913

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82,3

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s2,

484,

754

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195,

798)

(7

,202

,181

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,777

)

(6

3,66

3,00

2)

1,42

8,86

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incr

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in c

ash

a

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(11,

400)

(200

)

-

(9,1

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(20,

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50

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d c

ash

eq

uiv

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ts, O

cto

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121

,400

2,15

0

300

13,5

58

37

,408

400

Cas

h a

nd

cas

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qu

ival

ents

, Sep

tem

ber

30

$10

,000

1,95

0

300

4,45

0

16,7

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45

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30

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Sep

tem

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30,

201

1(C

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SE

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n

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ash

pro

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use

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by

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O

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ting

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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)

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ustm

ents

to r

econ

cile

ope

ratin

g

inc

ome

to n

et c

ash

prov

ided

(us

ed)

b

y op

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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

(Inc

reas

e) d

ecre

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in la

ndfil

l clo

sure

and

pos

t clo

sure

cos

t-

-

-

46

2,98

9

462,

989

-

(I

ncre

ase)

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

(de

crea

se)

in a

llow

ance

for

unco

llect

ible

acc

ount

s(3

73)

64

,324

88,7

36

66

,450

219,

137

97

(Inc

reas

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ecre

ase

in in

vent

orie

s-

(2

13,3

09)

9,

272

22

,860

(181

,177

)

(12,

207)

(Inc

reas

e) d

ecre

ase

in p

repa

id it

ems

-

-

-

-

-

(21,

394)

Incr

ease

(de

crea

se)

in c

usto

mer

dep

osits

(36,

435)

208,

170

-

1,

127

17

2,86

2

-

Incr

ease

(de

crea

se)

in a

ccou

nts

paya

ble

344,

741

(7

62,5

73)

(1

,820

,918

)

(1

,210

,390

)

(3

,449

,140

)

17

4,78

9

Incr

ease

(de

crea

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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 (

decr

ease

) in

com

pens

ated

abs

ence

s pa

yabl

e50

,224

51,2

43

25

,817

12,6

82

13

9,96

6

(12,

825)

Incr

ease

(de

crea

se)

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 (

decr

ease

) in

cla

ims

& ju

dgem

ents

pay

able

s-

-

-

-

-

41

3,75

0

Tot

al a

djus

tmen

ts5,

344,

877

5,27

1,41

3

3,

752,

817

4,21

7,46

7

18

,586

,574

660,

836

Net

cas

h p

rovi

ded

(u

sed

) b

y o

per

atin

g a

ctiv

itie

s$

14,1

63,8

05

15

,831

,678

12,5

81,4

33

(4

,968

,544

)

37

,608

,372

568,

124

No

nca

sh in

vest

ing

, cap

ital

, an

d f

inan

cin

g a

ctiv

itie

s:

Bon

d is

suan

ce c

ost a

mor

tized

137,

365

41

,676

63,3

38

29

,870

272,

249

-

Con

tri b

utio

ns o

f cap

ital a

sset

s fr

om d

evel

oper

s &

oth

ers

-

1,28

9,80

8

1,

241,

715

-

2,53

1,52

3

-

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rent

Lan

dfill

Clo

sure

and

Pos

tclo

sure

cos

t-

-

-

46

2,98

9

462,

989

-

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s on

adv

ance

ref

undi

ng-

22

8,58

6

-

-

228,

586

-

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ease

(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 -


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 -


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 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


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


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


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


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.

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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.

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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.

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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

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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

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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

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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

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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:

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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.

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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:

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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:

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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:

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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

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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 $ - - - - - - - -

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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.

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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

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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

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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.

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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):

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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

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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).

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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

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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

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$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

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$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


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

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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:

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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:

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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

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$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


69


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


$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


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


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


71


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


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


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.

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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 $ -

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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

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76


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


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


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


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


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 OPINION

LAW OFFICES Draf t Dated: Apr i l 25, 2012

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 78701-3248

TELEPHONE: 214 754-9200 TELEPHONE: 210 225-2800 TELEPHONE: 512 478-3805

FACSIMILE: 214 754-9250 FACSIMILE: 210 225-2984 FACSIMILE: 512 472-0871

May __, 2012

CITY OF LAREDO, TEXASGENERAL OBLIGATION REFUNDING BONDS, SERIES 2012

DATED APRIL 15, 2012, IN THE PRINCIPAL AMOUNT OF $7,635,000

AS BOND COUNSEL FOR THE CITY OF LAREDO, TEXAS (the "City") in connection with theissuance of the Bonds described above (the "Bonds"), we have examined into the legality and validity of theBonds, which bear interest from the dates and mature on the dates, in accordance with the terms and conditionsstated in the text of the Bonds. Terms used herein and not otherwise defined shall have the meaning given in theordinance of the City authorizing the issuance and sale of the Bonds (the "Ordinance").

WE HAVE EXAMINED the applicable and pertinent provisions of the Constitution and laws of the Stateof Texas, a transcript of certified proceedings of the City, the Escrow Agreement dated as of April 15, 2012,between the City and The Bank of New York Mellon Trust Company, N.A., Dallas, Texas (the "EscrowAgreement"), and other pertinent instruments authorizing and relating to the issuance of the Bonds, including oneof the executed Bonds (Bond Number R-1).

BASED ON SAID EXAMINATION, IT IS OUR OPINION that the Escrow Agreement has been dulyauthorized, executed, and delivered and constitutes a binding and enforceable agreement in accordance with itsterms, and that the Refunded Bonds, as defined in the Ordinance of the City authorizing the Bonds, are outstandingonly for the purpose of receiving the funds provided by, and are secured by, and payable solely from, the EscrowAgreement and the cash and investments, including the income therefrom, held by The Bank of New York MellonTrust Company, N.A., Dallas, Texas, as Escrow Agent pursuant to the Escrow Agreement. In rendering thisopinion, we have relied upon the verification report of Grant Thornton LLP, as to the sufficiency of the cash andinvestments deposited with the Escrow Agent pursuant to the Escrow Agreement for the purpose of paying suchRefunded Bonds to be retired with the proceeds of the Bonds and the interest thereon.

BASED ON SAID EXAMINATION, IT IS OUR OPINION that the Bonds have been duly authorized,issued and delivered in accordance with law; and that except as the enforceability thereof may be limited bybankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws now or hereafter enactedrelating to creditors' rights generally or by general principles of equity which permit the exercise of judicialdiscretion, the Bonds constitute valid and legally binding obligations of the City; and that ad valorem taxessufficient to provide for the payment of the interest on and principal of said Bonds have been levied and pledgedfor such purpose, within the limit prescribed by law.

IT IS FURTHER OUR OPINION, except as discussed below, that the interest on the Bonds is excludablefrom the gross income of the owners for federal income tax purposes under the statutes, regulations, publishedrulings, and court decisions existing on the date of this opinion. We are further of the opinion that the Bonds arenot "specified private activity bonds" and that, accordingly, interest on the Bonds will not be included as anindividual or corporate alternative minimum tax preference item under section 57(a)(5) of the Internal RevenueCode of 1986 (the "Code"). In expressing the aforementioned opinions, we have relied on, certain representations,

City of Laredo, Texas General Obligation Refunding Bonds, Series 2010May ___, 2012Page 2

the accuracy of which we have not independently verified, and assume compliance with certain covenants,regarding the use and investment of the proceeds of the Bonds and the use of the property financed therewith. Wecall your attention to the fact that if such representations are determined to be inaccurate or upon a failure by theCity to comply with such covenants, interest on the Bonds may become includable in gross income retroactivelyto the date of issuance of the Bonds.

EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state or local taxconsequences of acquiring, carrying, owning or disposing of the Bonds.

WE CALL YOUR ATTENTION TO THE FACT that the interest on tax-exempt obligations, such as theBonds, is included in a corporation's alternative minimum taxable income for purposes of determining thealternative minimum tax imposed on corporations by section 55 of the Code.

WE EXPRESS NO OPINION as to any insurance policies issued with respect to the payments due forthe principal of and interest on the Bonds, nor as to any such insurance policies issued in the future.

OUR SOLE ENGAGEMENT in connection with the issuance of the Bonds is as Bond Counsel for theCity, and, in that capacity, we have been engaged by the City for the sole purpose of rendering an opinion withrespect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas, and withrespect to the exclusion from gross income of the interest on the Bonds for federal income tax purposes, and forno other reason or purpose. The foregoing opinions represent our legal judgment based upon a review of existinglegal authorities that we deem relevant to render such opinions and are not a guarantee of a result. We have notbeen requested to investigate or verify, and have not independently investigated or verified any records, data, orother material relating to the financial condition or capabilities of the City, or the disclosure thereof in connectionwith the sale of the Bonds, and have not assumed any responsibility with respect thereto. We express no opinionand make no comment with respect to the marketability of the Bonds and have relied solely on Bonds executedby officials of the City as to the current outstanding indebtedness of, and assessed valuation of taxable propertywithin, and the sufficiency of the pledged revenues of, the City. Our role in connection with the City's OfficialStatement prepared for use in connection with the sale of the Bonds has been limited as described therein.

OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Such opinions arefurther based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement ouropinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changesin any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result andare not binding on the Internal Revenue Service (the “Service”); rather, such opinions represent our legal judgmentbased upon our review of existing law and in reliance upon the representations and covenants referenced abovethat we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance withrules that relate to whether interest on state or local obligations is includable in gross income for federal incometax purposes. No assurance can be given whether or not the Service will commence an audit of the Bonds. If anaudit is commenced, in accordance with its current published procedures the Service is likely to treat the City asthe taxpayer. We observe that the City has covenanted not to take any action, or omit to take any action withinits control, that if taken or omitted, respectively, may result in the treatment of interest on the Bonds as includablein gross income for federal income tax purposes.

Respectfully,

Financial Advisory ServicesProvided By

ESTRADA HINOJOSAI N V E S T M E N T B A N K E R S

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 General Obligation Refunding Bonds, Series 2012 (the "Bonds"). The Bonds are being issued pursuant to an ordinance of the Issuer (the "Ordinance") adopted on the date of sale of the Bonds. The Ordinance is 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, among others, of issuing and delivering the Bonds.

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 Citigroup Global Markets Inc. in the Issue Price Certificate attached hereto as Exhibit "D", and by Estrada Hinojosa & Company, Inc. (the "Financial Advisor") in Subsections 2.2 and 4.1 of this Certificate and with respect to the Schedules attached hereto as Exhibit "E". 2. The Purpose of the Bonds and Useful Lives of Projects.

2.1. The purpose for the issuance of the Bonds, as more fully described in the Order, is to establish an Escrow Fund (the "Escrow Fund") pursuant to an Escrow Agreement (the "Escrow Agreement") between the Issuer and an escrow agent to advance refund the outstanding obligations of the Issuer as listed in Exhibit "B" to the Escrow Agreement (the "Outstanding Bonds") and to pay the related expenses of issuing the Bonds. The Escrow Agreement is included in the transcript for the Bonds and incorporated herein by reference.

2.2. The Financial Advisor has represented that the Issuer will realize a present value debt service savings (determined without regard to administrative expenses) in connection with the issuance of the Bonds and the refunding of the Outstanding Bonds. The Outstanding Bonds will be redeemed on the earliest date on which the Outstanding Bonds can be redeemed.

2.3. The Bonds are the first advance refunding of the Outstanding Bonds, which were originally issued by the Issuer after December 31, 1985.

2.4. The proceeds of the Outstanding Bonds were used to provide for the financing and refinancing of various municipal improvements (the "Outstanding Projects"). The Outstanding Projects remain in service and have not been sold or otherwise disposed of by the Issuer.

2.5. The Issuer expects that 120 percent of the aggregate useful lives of the Outstanding Projects, on the later of the respective date that the Outstanding Projects were placed in service or the respective date of issuance of the Outstanding Bonds, will exceed 13 years.

2.6. Other than members of the general public, the Issuer expects that throughout the lesser of the term of the Bonds, or the useful lives of the Outstanding Projects, the only user of the Outstanding Projects will be the Issuer or the Issuer's employees and agents. The Issuer will be the manager of the Outstanding

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Projects. In no event have the proceeds of the Outstanding Bonds in an amount greater than $15 million or facilities financed therewith be used for private business use.

2.7. Except as stated below, the Issuer expects not to sell or otherwise dispose of property constituting the Outstanding Projects prior to the earlier of the end of such property's useful life or the final maturity of the Bonds. The Ordinance provides that the Issuer will not sell or otherwise dispose of the Outstanding 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 Bonds.

2.8. For purposes of Subsection 2.7 hereof, the Issuer has not included the portion of the Outstanding 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. 3. Source and Disbursement of Funds.

3.1. The source and disbursement of the proceeds of the Bonds is shown in the report (the "Report") prepared by Grant Thornton, LLP, certified public accountants (the "Accountants"), which is included in the transcript for the Bonds and is incorporated herein by reference. The Report shows that a portion of the proceeds of the Bonds will be applied to acquire United States Treasury Obligations -- State and Local Government Series (the "Acquired Obligations") to be deposited in the Escrow Fund.

3.2. The principal of and interest on the Acquired Obligations and the beginning cash balance will not exceed the amount required to pay the principal of and interest on the Outstanding Bonds. The beginning cash balance will not be invested and the maturing principal of and interest on the Acquired Obligations will not be reinvested. Accordingly, after taking into account proceeds used to pay costs of issuance and accrued interest, the Issuer expects that "excess gross proceeds" within the meaning of section 1.148-10(c) of the Treasury Regulations will not exceed one percent of the sale proceeds of the Bonds. 4. Yields.

4.1. The Financial Advisor has prepared certain schedules (the "Schedules") relating to the Bonds, the refunding of the Outstanding Bonds, the yield of the Bonds and the yield of the Acquired Obligations. The Accountants have verified these Schedules. The Accountants' opinion states that the yield on the Bonds and the Acquired Obligations has been computed by determining the yield which when used in computing the present worth of all payments of principal and interest to be paid on the Bonds or the Acquired Obligations produces an amount equal to their purchase price. An adjustment has been made to the computation of yield on the Bonds as provided in section 1.148-4(b)(3) of the Treasury Regulations. In the case of the Bonds, the term "purchase price" means the initial offering price of the Bonds to the public plus accrued interest. In the case of the Acquired Obligations, the term "purchase price" means their cost. The Schedules show that the yield on the Acquired Obligations is less than the yield on the Bonds.

4.2. The issue price of the Bonds included in the Form 8038-G, is based on the Issue Price Certificate attached hereto.

4.3. The Issuer has not entered into any qualified guarantee or qualified hedge with respect to the Bonds. The yield on the Bonds 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

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hedge or into any transaction transferring, waiving or modifying any right that is part of the terms of any Bond. The Issuer will consult with nationally recognized bond counsel prior to entering into any of the foregoing transactions. 5. Transferred Proceeds, Excess Proceeds and Disposition Proceeds.

5.1. As of the date of this Certificate, all of the amounts received from the sale of the Outstanding Bonds and the investment earnings thereon have been expended.

5.2. The Issuer has no reason to believe nor has any expectation that a device has been or will be employed in connection with the issuance of the Bonds to obtain a material financial advantage (based on arbitrage) apart from savings attributable to lower interest rates. All of the proceeds of the Bonds, other than an amount, if any, which is less than one percent of the sale proceeds of the Bonds, will be used either to pay costs of issuance of the Bonds or to pay principal and interest on the Outstanding Bonds. 6. Interest and Sinking Fund.

6.1. A separate and special Interest and Sinking Fund has been created and established, other than as described herein, solely to pay the principal of and interest on the Bonds (the "Bona Fide Debt 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 Bonds for the previous year, or (b) the previous year's earnings on such portion of the Interest and Sinking Fund. Amounts deposited in the Interest and Sinking Fund 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 Fund will be spent within a one-year period beginning on the date of receipt.

6.2. Any money deposited in the Interest and Sinking Fund 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 Fund. The yield on any investments allocable to the portion of the Interest and Sinking Fund 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 Bonds or $100,000 will be restricted to a yield that does not exceed the yield on the Bonds. 7. Invested Sinking Fund Proceeds, Replacement Proceeds.

7.1. The Issuer has, in addition to the moneys received from the sale of the Bonds, 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.

7.2. Other than the Interest and Sinking Fund, there are, and will be, no other funds or accounts established, or to be established, by or on behalf of the Issuer that (a) are reasonably expected to be used, or to generate earnings to be used, to pay debt service on the Bonds, or (b) are reserved or pledged as collateral for payment of debt service on the Bonds 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 Bonds, within the meaning of section 148 of the Code.

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8. Other Obligations.

There are no other obligations of the Issuer, that (a) are sold at substantially the same time as the Bonds, i.e., within 15 days of the date of sale of the Bonds, (b) are sold pursuant to a common plan of financing with the Bonds, and (c) will be payable from the same source of funds as the Bonds. 9. 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 Bonds 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. 10. Record Retention and Private Business Use.

The Issuer has covenanted in the Ordinance that it will comply with the requirements of the Code

relating to the exclusion of the interest on the Bonds 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 BONDS UNDER SECTION 103 OF THE CODE ARE RETAINED FOR THE PERIODS BEGINNING ON THE RESPECTIVE ISSUE DATE OF THE OUTSTANDING BONDS OR, IN THE CASE OF A SEQUENCE OF REFUNDINGS, THE ISSUE DATE OF THE OBLIGATIONS ORIGINALLY FINANCING THE OUTSTANDING PROJECTS AND ENDING THREE YEARS AFTER THE DATE THE BONDS 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. 11. Rebate to United States.

The Issuer has covenanted in the Ordinance 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 Bonds in excess of the yield on the Bonds 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


700 N. ST. MARY'S STREET

SUITE 1525

SAN ANTONIO, TEXAS 78205-3503


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.


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


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


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


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


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.


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


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


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


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


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


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



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


717 NORTH HARWOOD

SUITE 900 DALLAS, TEXAS 75201-6587


700 N. ST. MARY'S STREET SUITE 1525

SAN ANTONIO, TEXAS 78205-3503 TELEPHONE: (210) 225-2800 FACSIMILE: (210) 225-2984

April 18, 2012

Rosario Cabello Director of Finance City of Laredo, Texas 1110 Houston Street Laredo, Texas 78040

Re: City of Laredo, Texas General Obligation Refunding Bonds, Series 2012

Dear Ms. Cabello:

As you know, the City of Laredo, Texas (the "Issuer") will issue the captioned bonds in order to provide for the refunding, in advance of their maturities, of portions of bonds previously issued by the Issuer. 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 fund for the captioned bonds. 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 bonds. 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 bonds. 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.

The Issuer has determined that there are no unexpended original and investment proceeds of the outstanding bonds deposited to the construction fund.

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 fund must be invested in obligations the combined yield on which does not exceed the yield on the bonds. Importantly, for purposes of administrative convenience, the bonds, 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 interest and sinking fund is made up of amounts which are received annually for the payment of current debt service on all the Issuer's outstanding bonds. Any taxes or revenues deposited to the interest and sinking fund which are to be used for the payment of current debt service on the captioned bonds, or any other outstanding bonds, 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.

Second, a portion of the interest and sinking fund is 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 fund. 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 bonds or $100,000.

Accordingly, you should review the current balance in the interest and sinking fund 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 fund. 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 bonds are issued by the Issuer, whether for new money projects or for refunding, these amounts will change in their proportion.

The ordinance contains 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 periods beginning on the respective issue date of the outstanding bonds, or, in the case of a sequence of refundings, the issue date of the obligations originally financing the refinanced projects and ending three years after the date the captioned bonds 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 bonds, 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 bonds, the Issuer should keep schedules evidencing the expenditure of bond 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 bond 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 ordinance contains 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 bonds), 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 bonds. 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 fund. Moreover, this letter does not address the rebate consequences with respect to the interest and sinking fund. 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]

Apr 18, 2012 1:13 pm Prepared by Estrada Hinojosa & Company, Inc. (Finance 6.022 Laredo_2007:_OO12A-CASE_C,Z12REFC) Page 1

SUMMARY OF REFUNDING RESULTS

City of Laredo, TexasGeneral Obligation Refunding Bonds, Series 2012

--FINAL PRICING #s: 04/18/2012, 12:30PM----VERIFIED: 04/18/2012, 1:30PM--

Dated Date 04/15/2012Delivery Date 05/22/2012Arbitrage yield 2.358477%Escrow yield 0.193232%

Bond Par Amount 7,635,000.00True Interest Cost 2.478666%Net Interest Cost 2.532204%Average Coupon 3.000000%Average Life 7.501

Par amount of refunded bonds 7,260,000.00Average coupon of refunded bonds 4.656871%Average life of refunded bonds 7.434

PV of prior debt to 05/22/2012 @ 2.358477% 8,464,644.17Net PV Savings 502,654.32Percentage savings of refunded bonds 6.923613%Percentage savings of refunding bonds 6.583554%


SOURCES AND USES OF FUNDS



Dated Date 04/15/2012Delivery Date 05/22/2012

Sources:

Bond Proceeds:Par Amount 7,635,000.00Accrued Interest 23,541.25Net Premium 326,989.85

7,985,531.10

Uses:

Refunding Escrow Deposits:Cash Deposit 1.50SLGS Purchases 7,773,923.00

7,773,924.50

Other Fund Deposits:Accrued Interest 23,541.25

Delivery Date Expenses:Cost of Issuance 128,970.45Underwriter's Discount 59,094.90

188,065.35

7,985,531.10


SAVINGS



Present ValuePrior Refunding Refunding Refunding to 05/22/2012

Date Debt Service Debt Service Receipts Net Cash Flow Savings @ 2.3584774%

09/30/2012 165,262.50 186,350.00 23,541.25 162,808.75 2,453.75 2,567.4409/30/2013 330,525.00 225,750.00 225,750.00 104,775.00 102,395.3709/30/2014 575,775.00 378,425.00 378,425.00 197,350.00 188,943.4609/30/2015 575,955.00 373,775.00 373,775.00 202,180.00 189,125.3409/30/2016 956,905.00 955,200.00 955,200.00 1,705.00 1,087.1309/30/2017 953,072.50 952,400.00 952,400.00 672.50 172.2809/30/2018 952,355.00 949,000.00 949,000.00 3,355.00 2,554.4409/30/2019 949,582.50 945,000.00 945,000.00 4,582.50 3,590.8909/30/2020 959,552.50 955,175.00 955,175.00 4,377.50 3,389.6309/30/2021 957,177.50 954,450.00 954,450.00 2,727.50 2,025.4209/30/2022 952,300.00 948,050.00 948,050.00 4,250.00 3,257.8909/30/2023 954,962.50 950,900.00 950,900.00 4,062.50 3,108.3109/30/2024 579,125.00 578,550.00 578,550.00 575.00 436.73

9,862,550.00 9,353,025.00 23,541.25 9,329,483.75 533,066.25 502,654.32

Savings Summary

Dated Date 04/15/2012Delivery Date 05/22/2012PV of savings from cash flow 502,654.32

Net PV Savings 502,654.32


BOND DEBT SERVICE




AnnualPeriod Debt DebtEnding Principal Coupon Interest Service Service

08/15/2012 110,000 3.000% 76,350 186,35009/30/2012 186,35002/15/2013 112,875 112,87508/15/2013 112,875 112,87509/30/2013 225,75002/15/2014 155,000 3.000% 112,875 267,87508/15/2014 110,550 110,55009/30/2014 378,42502/15/2015 155,000 3.000% 110,550 265,55008/15/2015 108,225 108,22509/30/2015 373,77502/15/2016 750,000 3.000% 108,225 858,22508/15/2016 96,975 96,97509/30/2016 955,20002/15/2017 770,000 3.000% 96,975 866,97508/15/2017 85,425 85,42509/30/2017 952,40002/15/2018 790,000 3.000% 85,425 875,42508/15/2018 73,575 73,57509/30/2018 949,00002/15/2019 810,000 3.000% 73,575 883,57508/15/2019 61,425 61,42509/30/2019 945,00002/15/2020 845,000 3.000% 61,425 906,42508/15/2020 48,750 48,75009/30/2020 955,17502/15/2021 870,000 3.000% 48,750 918,75008/15/2021 35,700 35,70009/30/2021 954,45002/15/2022 890,000 3.000% 35,700 925,70008/15/2022 22,350 22,35009/30/2022 948,05002/15/2023 920,000 3.000% 22,350 942,35008/15/2023 8,550 8,55009/30/2023 950,90002/15/2024 570,000 3.000% 8,550 578,55009/30/2024 578,550

7,635,000 1,718,025 9,353,025 9,353,025


SUMMARY OF BONDS REFUNDED



Maturity Interest Par Call CallBond Date Rate Amount Date Price

Comb. Tax & Rev C/O's, Series 2003 [CALLABLE], Z03:SERIALS 02/15/2014 3.800% 125,000.00 02/15/2013 100.000

02/15/2015 3.900% 130,000.00 02/15/2013 100.00002/15/2016 4.000% 135,000.00 02/15/2013 100.00002/15/2017 4.100% 140,000.00 02/15/2013 100.00002/15/2018 4.200% 145,000.00 02/15/2013 100.00002/15/2019 4.300% 150,000.00 02/15/2013 100.00002/15/2020 4.350% 160,000.00 02/15/2013 100.00002/15/2021 4.400% 165,000.00 02/15/2013 100.00002/15/2022 4.500% 175,000.00 02/15/2013 100.00002/15/2023 4.500% 185,000.00 02/15/2013 100.000

1,510,000.00

Comb. Tax & SS Rev C/O's, Series 2003 [CALLABLE], Z03SS:SERIALS 02/15/2014 3.800% 125,000.00 02/15/2013 100.000

02/15/2015 3.900% 130,000.00 02/15/2013 100.00002/15/2016 4.000% 135,000.00 02/15/2013 100.00002/15/2017 4.100% 140,000.00 02/15/2013 100.00002/15/2018 4.200% 145,000.00 02/15/2013 100.00002/15/2019 4.300% 150,000.00 02/15/2013 100.00002/15/2020 4.350% 160,000.00 02/15/2013 100.00002/15/2021 4.400% 170,000.00 02/15/2013 100.00002/15/2022 4.500% 175,000.00 02/15/2013 100.00002/15/2023 4.500% 180,000.00 02/15/2013 100.000

1,510,000.00

Comb. Tax & Rev C/O's, Series 2004 [CALLABLE], Z04:SERIALS 02/15/2016 4.400% 390,000.00 02/15/2014 100.000

02/15/2017 4.500% 405,000.00 02/15/2014 100.00002/15/2018 4.600% 425,000.00 02/15/2014 100.00002/15/2019 4.700% 445,000.00 02/15/2014 100.00002/15/2020 4.750% 470,000.00 02/15/2014 100.00002/15/2021 4.850% 490,000.00 02/15/2014 100.00002/15/2022 5.000% 510,000.00 02/15/2014 100.00002/15/2023 5.000% 540,000.00 02/15/2014 100.00002/15/2024 5.000% 565,000.00 02/15/2014 100.000

4,240,000.00

7,260,000.00


PRIOR BOND DEBT SERVICE




Period AnnualEnding Principal Coupon Interest Debt Service Debt Service

08/15/2012 165,262.50 165,262.5009/30/2012 165,262.5002/15/2013 165,262.50 165,262.5008/15/2013 165,262.50 165,262.5009/30/2013 330,525.0002/15/2014 250,000 3.800% 165,262.50 415,262.5008/15/2014 160,512.50 160,512.5009/30/2014 575,775.0002/15/2015 260,000 3.900% 160,512.50 420,512.5008/15/2015 155,442.50 155,442.5009/30/2015 575,955.0002/15/2016 660,000 ** % 155,442.50 815,442.5008/15/2016 141,462.50 141,462.5009/30/2016 956,905.0002/15/2017 685,000 ** % 141,462.50 826,462.5008/15/2017 126,610.00 126,610.0009/30/2017 953,072.5002/15/2018 715,000 ** % 126,610.00 841,610.0008/15/2018 110,745.00 110,745.0009/30/2018 952,355.0002/15/2019 745,000 ** % 110,745.00 855,745.0008/15/2019 93,837.50 93,837.5009/30/2019 949,582.5002/15/2020 790,000 ** % 93,837.50 883,837.5008/15/2020 75,715.00 75,715.0009/30/2020 959,552.5002/15/2021 825,000 ** % 75,715.00 900,715.0008/15/2021 56,462.50 56,462.5009/30/2021 957,177.5002/15/2022 860,000 ** % 56,462.50 916,462.5008/15/2022 35,837.50 35,837.5009/30/2022 952,300.0002/15/2023 905,000 ** % 35,837.50 940,837.5008/15/2023 14,125.00 14,125.0009/30/2023 954,962.5002/15/2024 565,000 5.000% 14,125.00 579,125.0009/30/2024 579,125.00

7,260,000 2,602,550.00 9,862,550.00 9,862,550.00


ESCROW REQUIREMENTS



Period PrincipalEnding Interest Redeemed Total

08/15/2012 165,262.50 165,262.5002/15/2013 165,262.50 3,020,000.00 3,185,262.5008/15/2013 101,345.00 101,345.0002/15/2014 101,345.00 4,240,000.00 4,341,345.00

533,215.00 7,260,000.00 7,793,215.00


ESCROW DESCRIPTIONS DETAIL



Type of Type of Maturity First Int Par MaxSecurity SLGS Date Pmt Date Amount Rate Rate

Global Proceeds Escrow, May 22, 2012:SLGS Certificate 08/15/2012 08/15/2012 163,075 0.060% 0.060%SLGS Certificate 02/15/2013 02/15/2013 3,177,348 0.140% 0.140%SLGS Note 08/15/2013 08/15/2012 96,709 0.170% 0.170%SLGS Note 02/15/2014 08/15/2012 4,336,791 0.210% 0.210%

7,773,923

SLGS Summary

SLGS Rates File 18APR12Total Certificates of Indebtedness 3,340,423.00Total Notes 4,433,500.00

Total original SLGS 7,773,923.00


ESCROW COST DETAIL



Type of Maturity Par TotalSecurity Date Amount Rate Cost

Global Proceeds Escrow:SLGS 08/15/2012 163,075 0.060% 163,075.00SLGS 02/15/2013 3,177,348 0.140% 3,177,348.00SLGS 08/15/2013 96,709 0.170% 96,709.00SLGS 02/15/2014 4,336,791 0.210% 4,336,791.00

7,773,923 7,773,923.00

Purchase Cost of Cash TotalDate Securities Deposit Escrow Cost Yield

Global Proceeds Escrow:05/22/2012 7,773,923 1.50 7,773,924.50 0.193232%

7,773,923 1.50 7,773,924.50


ESCROW CASH FLOW



Present ValueNet Escrow to 05/22/2012

Date Principal Interest Receipts @ 0.1932319%

08/15/2012 163,075.00 2,187.88 165,262.88 165,189.3102/15/2013 3,177,348.00 7,914.16 3,185,262.16 3,180,770.9708/15/2013 96,709.00 4,635.83 101,344.83 101,104.2502/15/2014 4,336,791.00 4,553.63 4,341,344.63 4,326,858.47

7,773,923.00 19,291.50 7,793,214.50 7,773,923.00

Escrow Cost Summary

Purchase date 05/22/2012Purchase cost of securities 7,773,923.00

Target for yield calculation 7,773,923.00


ESCROW SUFFICIENCY



Escrow Net Escrow Excess ExcessDate Requirement Receipts Receipts Balance

05/22/2012 1.50 1.50 1.5008/15/2012 165,262.50 165,262.88 0.38 1.8802/15/2013 3,185,262.50 3,185,262.16 -0.34 1.5408/15/2013 101,345.00 101,344.83 -0.17 1.3702/15/2014 4,341,345.00 4,341,344.63 -0.37 1.00

7,793,215.00 7,793,216.00 1.00


PROOF OF ARBITRAGE YIELD



Present Valueto 05/22/2012

Date Debt Service @ 2.3584774%

08/15/2012 186,350.00 185,345.3502/15/2013 112,875.00 110,958.0108/15/2013 112,875.00 109,664.8002/15/2014 267,875.00 257,223.2708/15/2014 110,550.00 104,916.8902/15/2015 265,550.00 249,081.5508/15/2015 108,225.00 100,330.1502/15/2016 858,225.00 786,345.8608/15/2016 96,975.00 87,817.4502/15/2017 866,975.00 775,954.4108/15/2017 85,425.00 75,565.4402/15/2018 875,425.00 765,360.0008/15/2018 73,575.00 63,574.9002/15/2019 883,575.00 754,583.7008/15/2019 61,425.00 51,846.3002/15/2020 906,425.00 756,158.8908/15/2020 48,750.00 40,194.2902/15/2021 918,750.00 748,679.1208/15/2021 35,700.00 28,752.4702/15/2022 925,700.00 736,861.4208/15/2022 22,350.00 17,583.3502/15/2023 942,350.00 732,731.7008/15/2023 8,550.00 6,570.6402/15/2024 578,550.00 439,431.14

9,353,025.00 7,985,531.10

Proceeds Summary

Delivery date 05/22/2012Par Value 7,635,000.00Accrued interest 23,541.25Premium (Discount) 326,989.85



PROOF OF COMPOSITE ESCROW YIELD



All restricted escrows funded by bond proceeds

Present ValueSecurity to 05/22/2012

Date Receipts @ 0.1932319%

08/15/2012 165,262.88 165,189.3102/15/2013 3,185,262.16 3,180,770.9708/15/2013 101,344.83 101,104.2502/15/2014 4,341,344.63 4,326,858.47

7,793,214.50 7,773,923.00

Escrow Cost Summary

Purchase date 05/22/2012Purchase cost of securities 7,773,923.00



ESCROW STATISTICS



Modified Yield to Yield to Perfect Value ofTotal Duration Receipt Disbursement Escrow Negative Cost of

Escrow Cost (years) Date Date Cost Arbitrage Dead Time

Global Proceeds Escrow:7,773,924.50 1.282 0.193232% 0.193232% 7,562,718.01 211,206.43 0.06

7,773,924.50 7,562,718.01 211,206.43 0.06

Delivery date 05/22/2012Arbitrage yield 2.358477%


BOND PRICING



Maturity Yield to Call Call PremiumBond Component Date # Bonds Amount Rate Yield Price Maturity Date Price (-Discount)

SERIALS:08/15/2012 22 110,000 3.000% 0.500% 100.574 631.4002/15/2014 31 155,000 3.000% 0.700% 103.948 6,119.4002/15/2015 31 155,000 3.000% 0.950% 105.511 8,542.0502/15/2016 150 750,000 3.000% 1.220% 106.471 48,532.5002/15/2017 154 770,000 3.000% 1.450% 107.060 54,362.0002/15/2018 158 790,000 3.000% 1.690% 107.124 56,279.6002/15/2019 162 810,000 3.000% 1.980% 106.395 51,799.5002/15/2020 169 845,000 3.000% 2.220% 105.510 46,559.5002/15/2021 174 870,000 3.000% 2.470% 104.137 35,991.9002/15/2022 178 890,000 3.000% 2.700% 102.549 22,686.1002/15/2023 184 920,000 3.000% 2.950% 100.417 C 2.954% 02/15/2022 100.000 3,836.4002/15/2024 114 570,000 3.000% 3.150% 98.535 -8,350.50

1,527 7,635,000 326,989.85


BOND PRICING



Takedown

1.2502.5002.5003.7503.7503.7505.0005.0005.0005.0005.0005.000


BOND PRICING



Dated Date 04/15/2012Delivery Date 05/22/2012First Coupon 08/15/2012

Par Amount 7,635,000.00Premium 326,989.85

Production 7,961,989.85 104.282775%Underwriter's Discount -59,094.90 -0.774000%

Purchase Price 7,902,894.95 103.508775%Accrued Interest 23,541.25

Net Proceeds 7,926,436.20


AVERAGE TAKEDOWN




Maturity Par Takedown TakedownBond Component Date Amount $/Bond Amount

SERIALS:08/15/2012 110,000 1.2500 137.5002/15/2014 155,000 2.5000 387.5002/15/2015 155,000 2.5000 387.5002/15/2016 750,000 3.7500 2,812.5002/15/2017 770,000 3.7500 2,887.5002/15/2018 790,000 3.7500 2,962.5002/15/2019 810,000 5.0000 4,050.0002/15/2020 845,000 5.0000 4,225.0002/15/2021 870,000 5.0000 4,350.0002/15/2022 890,000 5.0000 4,450.0002/15/2023 920,000 5.0000 4,600.0002/15/2024 570,000 5.0000 2,850.00

7,635,000 4.4663 34,100.00

Rounded Takedown

$/Bond 4.47Total amount 34,128.45


UNDERWRITER'S DISCOUNT



Underwriter's Discount $/1000 Amount

Average Takedown 4.47 34,128.45Management Fee 1.00 7,635.00Expenses 0.32 2,443.20Underwriters Counsel 1.31 10,001.85Underwriters Risk 0.64 4,886.40

7.74 59,094.90


FORM 8038 STATISTICS




RedemptionBond Component Date Principal Coupon Price Issue Price at Maturity

SERIALS:08/15/2012 110,000.00 3.000% 100.574 110,631.40 110,000.0002/15/2014 155,000.00 3.000% 103.948 161,119.40 155,000.0002/15/2015 155,000.00 3.000% 105.511 163,542.05 155,000.0002/15/2016 750,000.00 3.000% 106.471 798,532.50 750,000.0002/15/2017 770,000.00 3.000% 107.060 824,362.00 770,000.0002/15/2018 790,000.00 3.000% 107.124 846,279.60 790,000.0002/15/2019 810,000.00 3.000% 106.395 861,799.50 810,000.0002/15/2020 845,000.00 3.000% 105.510 891,559.50 845,000.0002/15/2021 870,000.00 3.000% 104.137 905,991.90 870,000.0002/15/2022 890,000.00 3.000% 102.549 912,686.10 890,000.0002/15/2023 920,000.00 3.000% 100.417 923,836.40 920,000.0002/15/2024 570,000.00 3.000% 98.535 561,649.50 570,000.00

7,635,000.00 7,961,989.85 7,635,000.00

Stated WeightedMaturity Interest Issue Redemption Average

Date Rate Price at Maturity Maturity Yield

Final Maturity 02/15/2024 3.000% 561,649.50 570,000.00Entire Issue 7,961,989.85 7,635,000.00 7.3429 2.3585%

Proceeds used for accrued interest 23,541.25Proceeds used for bond issuance costs (including underwriters' discount) 188,065.35Proceeds used for credit enhancement 0.00Proceeds allocated to reasonably required reserve or replacement fund 0.00Proceeds used to currently refund prior issues 0.00Proceeds used to advance refund prior issues 7,773,924.50Remaining weighted average maturity of the bonds to be currently refunded 0.0000Remaining weighted average maturity of the bonds to be advance refunded 7.4344





Refunded Bonds

BondComponent Date Principal Coupon Price Issue Price

Comb. Tax & Rev C/O's, Series 2003 [CALLABLE]:SERIALS 02/15/2014 125,000.00 3.800% 100.000 125,000.00SERIALS 02/15/2015 130,000.00 3.900% 100.000 130,000.00SERIALS 02/15/2016 135,000.00 4.000% 100.000 135,000.00SERIALS 02/15/2017 140,000.00 4.100% 100.000 140,000.00SERIALS 02/15/2018 145,000.00 4.200% 100.000 145,000.00SERIALS 02/15/2019 150,000.00 4.300% 100.000 150,000.00SERIALS 02/15/2020 160,000.00 4.350% 100.000 160,000.00SERIALS 02/15/2021 165,000.00 4.400% 100.000 165,000.00SERIALS 02/15/2022 175,000.00 4.500% 100.000 175,000.00SERIALS 02/15/2023 185,000.00 4.500% 100.000 185,000.00

1,510,000.00 1,510,000.00

Comb. Tax & SS Rev C/O's, Series 2003 [CALLABLE]:SERIALS 02/15/2014 125,000.00 3.800% 100.000 125,000.00SERIALS 02/15/2015 130,000.00 3.900% 100.000 130,000.00SERIALS 02/15/2016 135,000.00 4.000% 100.000 135,000.00SERIALS 02/15/2017 140,000.00 4.100% 100.000 140,000.00SERIALS 02/15/2018 145,000.00 4.200% 100.000 145,000.00SERIALS 02/15/2019 150,000.00 4.300% 100.000 150,000.00SERIALS 02/15/2020 160,000.00 4.350% 100.000 160,000.00SERIALS 02/15/2021 170,000.00 4.400% 100.000 170,000.00SERIALS 02/15/2022 175,000.00 4.500% 100.000 175,000.00SERIALS 02/15/2023 180,000.00 4.500% 100.000 180,000.00

1,510,000.00 1,510,000.00

Comb. Tax & Rev C/O's, Series 2004 [CALLABLE]:SERIALS 02/15/2016 390,000.00 4.400% 100.000 390,000.00SERIALS 02/15/2017 405,000.00 4.500% 100.000 405,000.00SERIALS 02/15/2018 425,000.00 4.600% 100.000 425,000.00SERIALS 02/15/2019 445,000.00 4.700% 100.000 445,000.00SERIALS 02/15/2020 470,000.00 4.750% 100.000 470,000.00SERIALS 02/15/2021 490,000.00 4.850% 100.000 490,000.00SERIALS 02/15/2022 510,000.00 5.000% 100.000 510,000.00SERIALS 02/15/2023 540,000.00 5.000% 100.000 540,000.00SERIALS 02/15/2024 565,000.00 5.000% 100.000 565,000.00

4,240,000.00 4,240,000.00

7,260,000.00 7,260,000.00

RemainingLast WeightedCall Issue AverageDate Date Maturity

Comb. Tax & Rev C/O's, Series 2003 [CALLABLE] 02/15/2013 05/29/2003 6.5849





RemainingLast WeightedCall Issue AverageDate Date Maturity

Comb. Tax & SS Rev C/O's, Series 2003 [CALLABLE] 02/15/2013 05/29/2003 6.5782Comb. Tax & Rev C/O's, Series 2004 [CALLABLE] 02/15/2014 07/08/2004 8.0419All Refunded Issues 02/15/2014 7.4344

GENERAL CERTIFICATE

THE STATE OF TEXAS §COUNTY OF WEBB §CITY OF LAREDO §

We, the undersigned, hereby officially certify that we are the Mayor and City Secretary,respectively, of the CITY OF LAREDO TEXAS (the “City”) and we further certify as follows:

1. This certificate is given for the benefit of the Attorney General of the State of Texas andall parties interested in the “City of Laredo Texas General Obligation Refunding Bonds, Series2012” in the aggregate principal amount of $7,635,000 (the “Bonds”), dated as of April 15, 2012,and authorized by an ordinance passed by the City Council of the City on February 6, 2012.

2. The City is a duly incorporated Home Rule City, having more than 5,000 inhabitants,operating and existing under the Constitution and laws of the State of Texas and the duly adoptedHome Rule Charter of the City, which Charter has not been changed or amended since May 1994.

3. No litigation of any nature has ever been filed pertaining to, affecting or contesting: (a)the issuance, delivery, payment, security or validity of the proposed Bonds; (b) the authority of theofficers of the City to issue, execute and deliver the Bonds; or (c) the validity of the corporateexistence, the current Tax Rolls, or the Charter of the City; and no litigation is pending pertainingto, affecting or contesting the boundaries of the City.

4. The currently effective ad valorem tax appraisal roll of the City (the “Tax Roll”) is theTax Roll prepared and approved during the calendar year 2011, being the most recently approvedTax Roll of the City; that the taxable property in the 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 the City as requiredby Texas law, and has been approved and recorded by the City Council; and according to the TaxRoll for said year the net aggregate taxable value of taxable property in the City (after deducting theamount of all applicable exemptions required or authorized under Texas law), upon which the annualad valorem tax of the City has been or will be imposed and levied, is $10,550,816,309.

5. Attached hereto as Exhibit A is a true, full and correct schedule and statement of theaforesaid proposed Bonds, and of all presently outstanding tax bond indebtedness of the City andattached hereto as Exhibit B is a combined debt service schedule for all outstanding tax bondindebtedness of the City.

6. The City is not in default as to any covenant, condition, or obligation in connection withany of the outstanding obligations (as described in Exhibit A) of the City including the obligationsbeing refunded by the Bonds (the “Refunded Obligations”), or the ordinances authorizing same.

7. None of the Refunded Obligations have been held in, or purchased for the account of, therespective Interest and Sinking Funds created and maintained for the benefit of the RefundedObligations, or purchased with any money collected from any revenues collected or taxes levied forthe benefit thereof.

2

8. Sufficient funds have been budgeted and appropriated to pay the principal andinterest on the Bonds coming due on August 15, 2012 and the City shall transfer on or before suchinterest payment date available funds to the Interest and Sinking Fund in an amount sufficient to paythe interest 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 "City of Laredo,Texas General Obligation Refunding Bonds, Series 2012" dated April 15, 2012, in the aggregateprincipal amount of $7,635,000, authorized by an ordinance passed by the City Council of the Cityon February 6, 2012 (the "Bonds").

(b) Each of us signed the Bonds by manually executing or causing facsimiles of ourmanual signatures to be printed or lithographed on each of the Bonds, 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 Bonds.

(c) The Bonds are substantially in the form, and each of them has been duly executedand signed in the manner, prescribed in the ordinance authorizing the issuance thereof.

(d) At the time we so executed and signed the Bonds 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 Bonds, or which would affectthe provision made for their payment or security, or in any manner questioning the proceedings orauthority concerning the issuance of the Bonds, and that so far as we know and believe no suchlitigation 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 Bonds; and noauthority or proceedings for the issuance of any of the Bonds have been repealed, revoked, orrescinded.

(g) We have caused the official seal of the City to be impressed, or printed, orlithographed on each of the Bonds; and said seal on each of the Bonds has been duly adopted as, andis hereby declared to be, the official seal of the City.

1

Sylvia Ibarra

From: [email protected]: Wednesday, August 08, 2012 10:10 AMTo: Sylvia IbarraSubject: Published Submission Confirmation

Your Continuing Disclosure Submission has been published. SubmissionId: EP556641 Disclosure Type: EVENT FILING Bond Call: Laredo 2003 CO's and 2003 Sewer CO's dated 08/08/2012 Document Name: Event Filing dated 08/08/2012 dated 08/08/2012 2003 CO & SS CO Notice of Redemption.pdf posted 08/08/2012 11:06:09 AM The following Issuers are associated with this Continuing Disclosure Submission: CUSIP6 State Issuer Name 516823 TX LAREDO TEX The following 20 Securities have been published with this Continuing Disclosure Submission: Security: CUSIP - 5168232A8, Maturity Date - 02/15/2021 Security: CUSIP - 5168232B6, Maturity Date - 02/15/2022 Security: CUSIP - 5168232C4, Maturity Date - 02/15/2023 Security: CUSIP - 516823W72, Maturity Date - 02/15/2014 Security: CUSIP - 516823W80, Maturity Date - 02/15/2015 Security: CUSIP - 516823W98, Maturity Date - 02/15/2016 Security: CUSIP - 516823X22, Maturity Date - 02/15/2017 Security: CUSIP - 516823X30, Maturity Date - 02/15/2018 Security: CUSIP - 516823X48, Maturity Date - 02/15/2019 Security: CUSIP - 516823X55, Maturity Date - 02/15/2020 Security: CUSIP - 516823X63, Maturity Date - 02/15/2021 Security: CUSIP - 516823X71, Maturity Date - 02/15/2022 Security: CUSIP - 516823X89, Maturity Date - 02/15/2023 Security: CUSIP - 516823Z38, Maturity Date - 02/15/2014 Security: CUSIP - 516823Z46, Maturity Date - 02/15/2015 Security: CUSIP - 516823Z53, Maturity Date - 02/15/2016 Security: CUSIP - 516823Z61, Maturity Date - 02/15/2017 Security: CUSIP - 516823Z79, Maturity Date - 02/15/2018 Security: CUSIP - 516823Z87, Maturity Date - 02/15/2019 Security: CUSIP - 516823Z95, Maturity Date - 02/15/2020 Please follow the link to view this submission:

2

http://emma.msrb.org/ContinuingDisclosureView/ContinuingDisclosureDetails.aspx?submissionId=EP556641 Please follow the link to make changes to this submission: http://dataport.emma.msrb.org/Submission/ContinuingDisclosureTypeSelect.aspx?sid=EP556641 PLEASE DO NOT REPLY. This is a system-generated e-mail. If you need assistance please contact the MSRB at 703-797-6668 or you may obtain more information at www.msrb.org.




Original Dated Date




05/01/2003 02/15/2014 3.800% $125,000 $125,000 02/15/2013 05/01/2003 02/15/2015 3.900 130,000 130,000 02/15/2013 05/01/2003 02/15/2016 4.000 135,000 135,000 02/15/2013 05/01/2003 02/15/2017 4.100 140,000 140,000 02/15/2013 05/01/2003 02/15/2018 4.200 145,000 145,000 02/15/2013 05/01/2003 02/15/2019 4.300 150,000 150,000 02/15/2013 05/01/2003 02/15/2020 4.350 160,000 160,000 02/15/2013 05/01/2003 02/15/2021 4.400 165,000 165,000 02/15/2013 05/01/2003 02/15/2022 4.500 175,000 175,000 02/15/2013 05/01/2003 02/15/2023 4.500 185,000 185,000 02/15/2013

$1,510,000 $1,510,000


Combination Tax and Sewer System Revenue Certificates of Obligation, Series 2003 Original Dated Date




05/01/2003 02/15/2014 3.800% $125,000 $125,000 02/15/2013 05/01/2003 02/15/2015 3.900 130,000 130,000 02/15/2013 05/01/2003 02/15/2016 4.000 135,000 135,000 02/15/2013 05/01/2003 02/15/2017 4.100 140,000 140,000 02/15/2013 05/01/2003 02/15/2018 4.200 145,000 145,000 02/15/2013 05/01/2003 02/15/2019 4.300 150,000 150,000 02/15/2013 05/01/2003 02/15/2020 4.350 160,000 160,000 02/15/2013 05/01/2003 02/15/2021 4.400 170,000 170,000 02/15/2013 05/01/2003 02/15/2022 4.500 175,000 175,000 02/15/2013 05/01/2003 02/15/2023 4.500 180,000 180,000 02/15/2013

$1,510,000 $1,510,000




1

Sylvia Ibarra

From: [email protected]: Wednesday, August 08, 2012 10:20 AMTo: Sylvia IbarraSubject: Published Submission Confirmation

Your Continuing Disclosure Submission has been published. SubmissionId: EP556643 Disclosure Type: EVENT FILING Bond Call: Laredo 2004 Certificates of Obligation dated 08/08/2012 Document Name: Event Filing dated 08/08/2012 dated 08/08/2012 2004 CO Notice of Redemption.pdf posted 08/08/2012 11:10:08 AM The following Issuers are associated with this Continuing Disclosure Submission: CUSIP6 State Issuer Name 516823 TX LAREDO TEX The following 9 Securities have been published with this Continuing Disclosure Submission: Security: CUSIP - 516823WT4, Maturity Date - 02/15/2016 Security: CUSIP - 516823WU1, Maturity Date - 02/15/2017 Security: CUSIP - 516823WV9, Maturity Date - 02/15/2018 Security: CUSIP - 516823WW7, Maturity Date - 02/15/2019 Security: CUSIP - 516823WX5, Maturity Date - 02/15/2020 Security: CUSIP - 516823WY3, Maturity Date - 02/15/2021 Security: CUSIP - 516823WZ0, Maturity Date - 02/15/2022 Security: CUSIP - 516823XA4, Maturity Date - 02/15/2023 Security: CUSIP - 516823XB2, Maturity Date - 02/15/2024 Please follow the link to view this submission: http://emma.msrb.org/ContinuingDisclosureView/ContinuingDisclosureDetails.aspx?submissionId=EP556643 Please follow the link to make changes to this submission: http://dataport.emma.msrb.org/Submission/ContinuingDisclosureTypeSelect.aspx?sid=EP556643 PLEASE DO NOT REPLY. This is a system-generated e-mail. If you need assistance please contact the MSRB at 703-797-6668 or you may obtain more information at www.msrb.org.




Original Dated Date




06/01/2004 02/15/2016 4.400% $390,000 $390,000 02/15/2014 06/01/2004 02/15/2017 4.500 405,000 405,000 02/15/2014 06/01/2004 02/15/2018 4.600 425,000 425,000 02/15/2014 06/01/2004 02/15/2019 4.700 445,000 445,000 02/15/2014 06/01/2004 02/15/2020 4.750 470,000 470,000 02/15/2014 06/01/2004 02/15/2021 4.850 490,000 490,000 02/15/2014 06/01/2004 02/15/2022 5.000 510,000 510,000 02/15/2014 06/01/2004 02/15/2023 5.000 540,000 540,000 02/15/2014 06/01/2004 02/15/2024 5.000 565,000 565,000 02/15/2014

$4,240,000 $4,240,000








FINAL 5/17/2012, 10:35 AM

May 17, 2012 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

$7,635,000 GENERAL OBLIGATION REFUNDING BONDS,

SERIES 2012

Date of Closing: Tuesday, May 22, 2012

Time of Closing: 10:00 A.M. (CDT)

Location of Closing: McCall, Parkhurst & Horton L.L.P. 1525 One Riverwalk Place San Antonio, Texas 78205 Mr. Noel Valdez Tel: (210) 225-2800 Fax: (210) 225-2984 [email protected]

A. RECEIPTS

1. Bond Proceeds Citigroup Global Markets Inc. on behalf of itself and Stifel, Nicolaus & Company, Incorporated, (collectively the “Purchaser”), will pay the City of Laredo, Texas (the “Issuer”) for its General Obligation Refunding Bonds, Series 2012 (the “Bonds”) the amount of $7,926,436.20, computed as follows:

Principal Amount of the Bonds $7,635,000.00 Plus: Accrued Interest 23,541.25 Plus: Net Premium 326,989.85 Less: Underwriter’s Discount (59,094.90) Total Paid by the Purchaser for the Bonds $7,926,436.20

FINAL 5/17/2012, 10:35 AM

The Purchaser will wire-transfer, no later than 10:00 a.m. on the date of closing, $7,926,436.20 to The Bank of New York Mellon Trust Company, N.A. (the “Paying Agent” and “Escrow Agent”) at the following account:

Bank: The Bank of New York Mellon Trust Company, N.A. ABA #: 021 000 018 Acct Name: Dallas Issuer Administrative Services Account: GLA211-065 F/F/C: TAS# 428493 Contact: Michelle Baldwin (214) 468-6254

Funds will not be disbursed into any accounts until the Bond issue is closed. The Paying Agent and Citigroup shall be parties to the conversation with the Depository Trust Company to release the Bonds and only after that time may the Paying Agent disburse the remaining funds. B. DISBURSEMENTS

The proceeds available, as described above, will be treated as follows: 1. The Escrow Agent will internally transfer $7,773,924.50 into the “Escrow Fund”, as

defined in the Escrow Agreement between the Issuer and the Escrow Agent, to be applied in accordance with the terms of the Escrow Agreement for the defeasance of the “Refunded Obligations” identified in Schedule I hereto.

Cash Deposit 1.50$ SLGS Purchases 7,773,923.00 Total 7,773,924.50$

2. The Paying Agent will wire-transfer $23,541.25 (representing accrued interest on the

Bonds) to the Issuer as follows:

Bank: First National Bank ABA #: 114 921 415 Account #: 37000-2377 Account Name: Investment Account Attn: Cain Caceres

FINAL 5/17/2012, 10:35 AM

3. The Paying Agent will wire transfer $126,370.45 to the following to pay certain cost of issuance expenses related to the sale of the Bonds:

ABA#: 113 010 547 Bank Name: Compass Bank Preston Road, Dallas, Texas Account #: 2533879740 REF: Estrada Hinojosa & Company, Inc.

Estrada Hinojosa is requested and instructed to provide an accounting for all expenses associated with cost of issuance to the Issuer.

4. The Paying Agent will retain a total of $2,600.00, representing $500.00 for Paying Agent

Fees, $1,500.00 for Escrow Agent fees, and $600.00 for bond call fees.

The following is a summary of the disbursements: Disbursements:

Deposit to Escrow Account 7,773,924.50 Deposit to Issuer (accrued interest) 23,541.25 Costs of Issuance 126,370.45 Paying Agent, Escrow Agent and bond call fees 2,600.00 Total $7,926,436.20

If there are any questions regarding the above information, please call (214) 658-1670.

FINAL 5/17/2012, 10:35 AM

SCHEDULE II

SUMMARY OF REFUNDED OBLIGATIONS

Maturity Interest Par Call CallBond Date Rate Amount Date Price

Comb. Tax and Revenue Certficiates of Obligation, Series 2003

Serials 2/15/2014 3.800% 125,000$ 2/15/2013 100.00 2/15/2015 3.900% 130,000 2/15/2013 100.00 2/15/2016 4.000% 135,000 2/15/2013 100.00 2/15/2017 4.100% 140,000 2/15/2013 100.00 2/15/2018 4.200% 145,000 2/15/2013 100.00 2/15/2019 4.300% 150,000 2/15/2013 100.00 2/15/2020 4.350% 160,000 2/15/2013 100.00 2/15/2021 4.400% 165,000 2/15/2013 100.00 2/15/2022 4.500% 175,000 2/15/2013 100.00 2/15/2023 4.500% 185,000 2/15/2013 100.00

1,510,000$

Comb. Tax and Sewer System Revenue Certificates of Obligation, Series 2003

Serials 2/15/2014 3.800% 125,000$ 2/15/2013 100.00 2/15/2015 3.900% 130,000 2/15/2013 100.00 2/15/2016 4.000% 135,000 2/15/2013 100.00 2/15/2017 4.100% 140,000 2/15/2013 100.00 2/15/2018 4.200% 145,000 2/15/2013 100.00 2/15/2019 4.300% 150,000 2/15/2013 100.00 2/15/2020 4.350% 160,000 2/15/2013 100.00 2/15/2021 4.400% 170,000 2/15/2013 100.00 2/15/2022 4.500% 175,000 2/15/2013 100.00 2/15/2023 4.500% 180,000 2/15/2013 100.00

1,510,000$

Comb. Tax and Revenue Certficiates of Obligation, Series 2004

Serials 2/15/2016 4.400% 390,000$ 2/15/2014 100.00 2/15/2017 4.500% 405,000 2/15/2014 100.00 2/15/2018 4.600% 425,000 2/15/2014 100.00 2/15/2019 4.700% 445,000 2/15/2014 100.00 2/15/2020 4.750% 470,000 2/15/2014 100.00 2/15/2021 4.850% 490,000 2/15/2014 100.00 2/15/2022 5.000% 510,000 2/15/2014 100.00 2/15/2023 5.000% 540,000 2/15/2014 100.00 2/15/2024 5.000% 565,000 2/15/2014 100.00

4,240,000$

7,260,000$

March 6, 2012

City of Laredo 1110 Houston Street Laredo, TX 78040 Attention: Ms. Rosario Camarillo Cabello, Director of Finance Re: US$13,985,000 Laredo, Texas, General Obligation Refunding Bonds, Series 2012, dated:

March 15, 2012, due: February 15, 2025 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.: 1207093

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 [email protected] 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. Adrian Galvan

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


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


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.


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.

March 9, 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.

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JS/mc

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Jeff Schaub

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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/

09-Mar-2012

RO:StaNew RatingLong Term AALaredo (TX) GO rfdg bonds ser 2012

RO: Rating Outlook, RW: Rating Watch; Pos: Positive, Neg: Negative, Sta: Stable, Evo: EvolvingKey:

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