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xx-xx-xx-Ordinance-Certificates of Obligation Series 2017 Contractual Obligations Wastewater Water Systems-03/06/2017 CITY OF SANGER, TEXAS $9,240,000 Combination Tax and Revenue Certificates of Obligation Series 2017 CITY OF SANGER, TEXAS $9,240,000 COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION SERIES 2017 INDEX OF CONTENTS CERTIFICATE PROCEEDINGS AND DOCUMENTS Resolution Authorizing Publication of Notice of Intention to Issue Celiificates Affidavit of Publication of Notice of Intent Ordinance Authorizing Issuance of the Celiificates Preliminary Official Statement Official Statement Purchase Agreement Paying Agent/Registrar Agreement CERTIFICATES General Certificate Signature Identification and No-Litigation Certificate Tax Exemption Certificate, Certificate of Underwriter and Form 8038G Closing Certificate Required by Purchase Agreement OPINIONS Opinion of Bond Counsel Supplemental Opinion of Bond Counsel Opinion of Attorney General of Texas with Celiificate of Comptroller of Public Accounts Opinion of Underwriter's Counsel OHSUSA:766779481.1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 BOND INSURANCE DOCUMENTS Municipal Bond Insurance Policy Tax Certificate Opinion of Counsel to Insurer Reliance Letter to Insurer Ratings Letters Specimen Certificate Bond Review Board Questionnaire Closing Memorandum OHSUSA:76677948!.! MISCELLANEOUS 16 17 18 19 20 21 22 23 CERTIFICATE FOR RESOLUTION THE STATE OF TEXAS COUNTY OF DENTON THE CITY OF SANGER We, the undersigned officers of the City of Sanger, Texas (the "City"), hereby certify as follows: 1. The City Council of the City convened in a regular meeting on March 6, 2017, at the regular meeting place thereof, within the City, and the roll was called of the duly constituted officers and members of the City Council, to wit: Thomas Muir Mayor Gary Bilyeu Councilman Lee Allison Councilman William Boutwell Councilman Allen Chick Councilman David Clark Councilman and all of such persons were present, thus constituting a quorum. Whereupon, among other business, the following was transacted at said meeting: a written RESOLUTION AUTHORIZING PUBLICATION OF NOTICE OF INTENTION TO ISSUE CERTIFICATES OF OBLIGATION IN A PRINCIPAL AMOUNT NOT TO EXCEED $10,000,000, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO (the "Resolution") was duly introduced for the consideration of the City Council and read in full. It was then duly moved and seconded that such Resolution be adopted; and, after due discussion, the motion, carrying with it the adoption of the Resolution, prevailed and carried by the following vote: AYES: 5 NAYS: 0 ABSTENTIONS: 0 2. That a true, full and correct copy of the Resolution adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate; that the Resolution has been duly recorded in the City Council's minutes of such meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the City Council's minutes of such meeting pertaining to the adoption of the Resolution; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of the City Council as indicated therein; that each of the officers and members of the City Council was duly and sufficiently notified officially and personally, in advance, of the date, hour, place and subject of the aforesaid meeting, and that the Resolution would be introduced and considered for adoption at such meeting, and each of such officers and members consented, in advance, to the holding of such meeting for such purpose; that such meeting was open to the public as required OHSUSA:766491209.2 by law; and that public notice of the date, hour, place and subject of such meeting was given- as re ,.aired by the Open Meetings Law, Chapter 551, Texas Government Code. SIGNED AND SEALED this March 6, 2017. City Sec et CITY OF 9ANGER, TEXAS 2 OHSUSA:766491209.1 Mayor CITY OF SANGER, TEXAS RESOLUTION RESOLUTION AUTHORIZING PUBLICATION OF NOTICE OF INTENTION TO ISSUE CERTIFICATES OF OBLIGATION IN A PRINCIPAL AMOUNT NOT TO EXCEED $10,000,000, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO THE STATE OF TEXAS § COUNTY OF DENTON § THE CITY OF SANGER § WHEREAS, the City Council (the "City Council") of the City of Sanger, Texas (the "City"), is authorized to issue certificates of obligation (a) to pay contractual obligations to be incurred for (i) restoration, replacement, rehabilitation and expansion of the wastewater and water systems including the treatment plant and (ii) street and drainage improvements and (b) for the payment of contractual obligations for professional services pursuant to Subchapter C of Chapter 271, Texas Local Government Code, as amended; WHEREAS, the City Council has determined that it is in the best interests of the City and otherwise desirable to issue certificates of obligation in a principal amount not to exceed $10,000,000 styled "City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017" (the "Certificates"); WHEREAS, in connection with the Certificates, the City Council intends to publish notice of intent to issue the Certificates (the "Notice") in a newspaper of general circulation in the City; and WHEREAS, the City Council has been presented with and has examined the proposed form of Notice and finds that the form and substance thereof are satisfactory, and that the recitals and findings contained therein are true, correct and complete. BE IT THEREFORE RESOLVED BY THE CITY COUNCIL OF THE CITY OF SANGER, TEXAS: Section 1. Preamble. The facts and recitations contained in the preamble of this Resolution are hereby found and declared to be true and correct. Section 2. Authorization of Notice. The City Secretary is hereby authorized and directed to execute and deliver the Notice set forth in Exhibit A hereto and to publish such Notice on behalf of the City once a week for two (2) consecutive weeks in a newspaper which is of general circulation in the City, the date of the first publication to be before the 30th day before the date tentatively set for the passage of the ordinance authorizing the issuance of the Certificates. Section 3. Engagement of Professionals. This City Council hereby approves the engagement of Orrick, Herrington & Sutcliffe LLP, as bond counsel ("Bond Counsel") in connection with the issuance of the Certificates. OHSUSA:766491209.2 Section 4. Authorization of Other Matters Relating Thereto. The Mayor, City Secretary and other officers and agents of the City are hereby authorized and directed to do any and all things necessary or desirable to carry out the provisions of this Resolution. Section 5. Effective Date. This Resolution shall take effect immediately upon passage. Section 6. Public Meeting. It is officially found, determined and declared that the meeting at which this Resolution is adopted was open to the public and public notice of the time, place and subject matter of the public business to be considered at such meeting, including this Resolution, was given all as required by the Texas Government Code, Chapter 551, as amended. [Remainder of Page Intentionally Left Blank] OHSUSA:766491209.2 PASSED AND APPROVED this 6ch day of March, 2017. Mayor City of Sanger, Texas ATTEST: City S cr y City of ger, Texas OHSUSA:766491209.1 EXHIBIT A NOTICE OF INTENTION TO ISSUE CERTIFICATES NOTICE IS HEREBY GIVEN that the City Council of the City of Sanger, Texas (the "City") will meet at its regular meeting place at City Hall, 502 Elm Street, Sanger, Texas 76266, at 7:00 p.m. on the 1st day of May, 2017, which is the time and place tentatively set for the passage of an ordinance and such other action as may be deemed necessary to authorize the issuance of the City's certificates of obligation, payable from ad valorem taxation and a limited (in an amount not to exceed $10,000) subordinate pledge of certain revenues of the water and sewer system of the City, in a principal amount not to exceed $10,000,000, bearing interest at any rate or rates not to exceed the maximum interest rate now or hereafter authorized by law, as shall be determined within the discretion of the City Council at the time of issuance and maturing over a period of years not to exceed forty (40) years from the date thereof, for the purpose of evidencing the indebtedness of the City (1) to pay contractual obligations to be incurred for (i) restoration, replacement, rehabilitation and expansion of the wastewater and water systems including the treatment plant and (ii) street and drainage improvements and (2) for the payment of contractual obligations for professional services pursuant to Subchapter C of Chapter 271, Texas Local Government Code, as amended. City Secretary City of Sanger, Texas OHSUSA:766491209.2 PUBLISHER'S AFFIDAVIT THE STATE OF TEXAS COUNTY OF DENTON 'tk a-4�r� . , being duly sworn on his/her oath states that he/she is the Q Ub k - s1I e4- of the "Denton Record Chronicle" a newspaper of general circulation in Denton County, Texas (the "Newspaper") and further state as follows: 1. This Affidavit is given pursuant to Section 2051,044 of the Texas Local Government Code. 2. The Newspaper devotes not less than 25% of its total column line inch to general interest items. The Newspaper is published at least once a week. 4. The Newspaper is entered as second class postal matter in Denton County, Texas, its county of publication. 5. The Newspaper has been published regularly and continuously for at least twelve months before the publishing of a notice entitled "Notice of Intention to Issue Certificates." 6. The attached Legal Notice appeared in the Newspaper in a conspicuous form and place on March k5 , 2017 and on March-) a-, 2017. Subscribed and sworn before me this a ak day of March, 2017. Name: —:'6. k k+ A, Title: �, A2 1, THE STATE OF TEXAS § COUNTY OF DENTON THIS INSTRUMENT was acknowledged before me on March ��, 2017, by N. s\xQr of the Denton Record Chronicle. JULIE K. HAMM(ii\D ",�, Notary Puh IC ; Notary Public Sta o Texas State of T. xis l ID#6,"-SS-2 re�0 My Comm. Err .. 1 i"05-2020 OHSUSA:766491216.1 NOTICE OF INTENTION TO ISSUE CERTIFICATES NOTICE IS HEREBY GIVEN that the City Council of the Ci of Sanger, Texas (the "Clty wilt meet at its regular meeting place at City Half 502 Elm Street, Sanger, Texas 76266, at 7:00 p.m. on the 1st day of May, 2017, which Is the time and place tentatively ast for the passage of an ordinance and such other action as may be deemed necessary to authorize the Issuance of the City's certificates of obligation, payable from ad vaiorern taxation and a limited (in an amount not to exceed $10,000) subordinate pledge of certain revenues of the water and sewer system of the City, In a principal amount not to exceed $10,000,000, bearing Interest at any rate or rates not to exceed the maximum interest rate now or hereafter authorized by law, as shall be determined within the discretion of the City Council at the time of issuance and maturing over a period of years not to exceed forty (40) years from the date thereof, for the purpose of evidencing the Indebtedness of the City (1) to pay contractual obligations to be incurred for (I) restoration, replacement, rehabilitation and expansion of the wastewater and water systems including the treatment plant and (IQ street and drainage Improvements and (2) for the payment of contractual obligations for professional services pursuant to �{ Subchapter C of Chapter 271, Taxes Local Govemment Code, as amended, City Secretary City of Sanger, Texas E 0 b C h w A DRC 3115, 312Y12017 NOTICE OF INTENTION TO ISSUE --CERTIFICA-tES NOTICE IS HEREBY GIVEN that the City Council of the C of Sanger, Tam (the °City) will meet at Its regular meeting Street, Sanglace at er, Taxes 76256 at 7:00 p.m. on the tat day of May, 2017, which is the time and place tentatively ad for the passage of an ordinance and such other action as may be deemed necessary to authorize the Issuance of the City e certificates of obligation, payable from ad valorem taxation and a limited (in an amount not to exceed .10,000) subordinate pledge of certain revenues of the water and newer system of the City, In a principal amount not to exceed $10,000,000, bearing interest at any We or rates not to exceed the maximum interest rate now or hereafter authorized by law, as shall be determined within the discretion of the City Council at the time of Issuance and maturing over a period of years not to exceed forty (40) Years from the date thereof, for the purpose of evidencing the Indebtedness of the City (1) to ry contractual obligations to incurred for (n restoration, replacement, rehabilitation and expansion of the wastewater and water systems Including the treatment plant and (IQ street and drainage Improvements and (2) for the Payment of contractual obilgadons for professional services pursuant to Subchapter C of Chapter 271, rem Local Government Code, is amended. City Secretary City of Sanger, Texas )RC 3115, 3/22/2017 CERTIFICATE FOR ORDINANCE THE STATE OF TEXAS § COUNTY OF DENTON § CITY OF SANGER § We, the undersigned officers of the City of Sanger, Texas (the "City"), hereby certify as follows: 1. The City Council of the City convened in a regular meeting on May 1, 2017, at the regular meeting place thereof, within the City, and the roil was called of the duly constituted officers and members of the City Council, to wit: Thomas Muir Mayor Gary Bilyeu Mayor Pro Tem Lee Allison Councilmember William Boutwell Councilmember Allen Chick Councilmember David Clark Councilmember and all of such persons were present, thus constituting a quorum. Whereupon, among other business, the following was transacted at said meeting: a written AN ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2017; PRESCRIBING THE TERMS AND FORM THEREOF; PROVIDING FOR THE PAYMENT OF THE PRINCIPAL THEREOF AND INTEREST THEREON; AWARDING THE SALE THEREOF; AUTHORIZING THE PREPARATION AND DISTRIBUTION OF AN OFFICIAL STATEMENT TO BE USED IN CONNECTION WITH THE SALE OF THE CERTIFICATES; MAKING OTHER PROVISIONS REGARDING SUCH CERTIFICATES, INCLUDING USE OF THE PROCEEDS THEREOF, AND MATTERS INCIDENT THERETO (the "Ordinance") was duly introduced for the consideration of the City Council and read in full. It was then duly moved and seconded that the Ordinance be adopted on first reading; and, after due discussion, such motion, carrying with it the adoption of the Ordinance, prevailed and carried by the following vote: AYES: 5 NAYS: 0 ABSTENTIONS: 0 2. That a true, full and correct copy of the Ordinance adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate; that the OHSUSA:766779483.2 Ordinance has been duly recorded in the City Council's minutes of such meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the City Council's minutes of such meeting pertaining to the adoption of the Ordinance; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of the City Council as indicated therein; that each of the officers and members of the City Council was duly and sufficiently notified officially and personally, in advance, of the date, hour, place and subject of the aforesaid meeting, and that the Ordinance would be introduced and considered for adoption at such meeting, and each of such officers and members consented, in advance, to the holding of such meeting for such purpose; that such meeting was open to the public as required by law; and that public notice of the date, hour, place and subject of such meeting was given as required by the Open Meetings Law, Chapter 551, Texas Government Code. SIGNED AND SEALED this May 1, 2017. City Sec y City of ger, Texas 2 014SUSA:766779483.1 Mayor City of Sanger, Texas ORDINANCE AN ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2017; PRESCRIBING THE TERMS AND FORM THEREOF; PROVIDING FOR THE PAYMENT OF THE PRINCIPAL THEREOF AND INTEREST THEREON; AWARDING THE SALE THEREOFAUTHORIZING THE PREPARATION AND DISTRIBUTION OF AN OFFICIAL STATEMENT TO BE USED IN CONNECTION WITH THE SALE OF THE CERTIFICATES; MAKING OTHER PROVISIONS REGARDING SUCH CERTIFICATES, INCLUDING USE OF THE PROCEEDS THEREOF, AND MATTERS INCIDENT THERETO BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF SANGER: ARTICLE I FINDINGS AND DETERMINATIONS Section 1. 1: Findings and Determinations. The City Council hereby officially finds and determines that: (a) The City of Sanger, Texas (the "City"), acting through its City Council, is authorized pursuant to and in accordance with the provisions of Texas Local Government Code, Chapter 271, Subchapter C, as amended (the "Act"), to issue certificates of obligation to provide all or part of the funds (1) to pay contractual obligations to be incurred for (i) restoration, replacement, rehabilitation and expansion of the wastewater and water systems including the treatment plant and (ii) street and drainage improvements and (2) for the payment of contractual obligations for professional services pursuant to Subchapter C of Chapter 271, Texas Local Government Code, as amended. (b) The City Council authorized the publication of a notice of intention to issue Combination Tax and Revenue Certificates of Obligation, Series 2017 (the "Certificates") to the effect that the City Council was tentatively scheduled to meet at 7:00 p.m. on May 1, 2017 at its regular meeting place to adopt an ordinance authorizing the issuance of the Certificates to be payable from (i) an ad valorem tax levied, within the limits prescribed by law, on the taxable property located within the City, and (ii) the surplus revenues to be derived from the City's water and sewer system (the "System") after the payment of all operation and maintenance expenses thereof (the "Net Revenues") in an amount not to exceed $10,000, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. OHSUSA:766779483.2 (c) Such notice was published at the times and in the manner required by the Act. (d) No petition signed by at least five percent (5%) of the qualified voters of the City has been filed with or presented to any official of the City protesting the issuance of such Certificates on or before May 1, 2017, or the date of passage of this Ordinance. (e) The City has determined that it is in the best interests of the City and that it is otherwise desirable to issue the Certificates to provide all or part of the funds to pay contractual obligations to be incurred for the purposes authorized by the Act. Ie��7111CYiri11 18"012111[!lr•F. �i�71111Ill.»7D111I_�IIl[!)1iy Section 2.1: Definitions. As used herein, the following terms shall have the meanings specified, unless the context clearly indicates otherwise: "Act" shall mean Texas Local Government Code, Chapter 271, Subchapter C, as amended. "Attorney General" shall mean the Attorney General of the State of Texas. "Bond Insurance Policy" shall mean the financial guaranty insurance policy issued by the Bond Insurer insuring the payment when due of the principal and interest on the Certificates as provided therein. "Bond Insurer" shall mean Build America Mutual Assurance Company. "Certificate" or "Certificates" shall mean any or all of the City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017, authorized by this Ordinance. "City" shall mean the City of Sanger, Texas and, where appropriate, it's City Council. "City Council" shall mean the governing body of the City. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Comptroller" shall mean the Comptroller of Public Accounts of the State of Texas. "DTC" shall mean The Depository Trust Company, New York, New York, or any successor securities depository. "DTC Participant" shall mean brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities transactions among DTC Participants. 2 OHSUSA:766779453.2 "Fiscal Year" shall mean the City's then designated fiscal year, which currently is the twelve-month period beginning on the first day of October of a calendar year and ending on the last day of September of the next succeeding calendar year and each such period may be designated with the number of the calendar year in which such period ends. "Interest Payment Date," when used in connection with any Certificate, shall mean May 15, 2018, and each May 15 and November 15 thereafter until maturity or earlier redemption of such Certificate. "Issuance Date" shall mean the date on which the Certificates are delivered to and paid for by the Underwriter. "Ordinance" shall mean this Ordinance and all amendments hereof and supplements hereto. "Outstanding," when used with reference to the Certificates, shall mean, as of a particular date, all Certificates theretofore and thereupon delivered pursuant to this Ordinance except: (a) any Certificates canceled by or on behalf of the City at or before such date; (b) any Certificates defeased pursuant to the defeasance provisions of this Ordinance or otherwise defeased as permitted by applicable law; and (c) any Certificates in lieu of or in substitution for which a replacement Certificate shall have been delivered pursuant to this Ordinance. "Paying Agent/Registrar" shall mean BOKF, NA, and its successors in that capacity. "Record Date" shall mean the last business day of the calendar month immediately preceding the applicable Interest Payment Date. "Register" shall mean the registration books for the Certificates kept by the Paying Agent/Registrar in which are maintained the names and addresses of, and the principal amounts registered to, each Registered Owner of Certificates. "Registered Owner" shall mean the person or entity in whose name any Certificate is registered in the Register. "Underwriter" shall mean the entity or entities specified in Section 7.1 hereof. Section 2.2: Interpretations. All terms defined herein and all pronouns used in this Ordinance shall be deemed to apply equally to singular and plural and to all genders. The titles and headings of the articles and sections of this Ordinance have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof. This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to sustain the validity of the Certificates and the validity of the levy of ad valorem taxes to pay the principal of and interest on the Certificates. 3 OHSUSA:766779483.2 ARTTCT.F. TTT TERMS OF THE CERTIFICATES Section 3.1: Amount, Purpose and Authorization. (a) The Certificates shall be issued in fully registered form, without coupons, under and pursuant to the authority of the Act in the total authorized aggregate principal amount of NINE MILLION TWO HUNDRED FORTY THOUSAND AND NO/100 DOLLARS ($9,240,000) for the purpose of providing all or part of the funds to pay contractual obligations to be incurred for the purposes described in paragraph 1.1(a) hereof. Section 3.2: Designation, Date and Interest Payment Dates. The Certificates shall be designated as the "City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017," and shall be dated May 1, 2017. The Certificates shall bear interest at the rates set forth in Section 3.3 below, from the date of delivery calculated on the basis of a 360-day year of twelve 30-day months, payable on May 15, 2018, and each May 15 and November 15 thereafter until maturity or earlier redemption. If interest on any Certificate is not paid on any Interest Payment Date and continues unpaid for thirty (30) days thereafter, the Paying Agent/Registrar shall establish a new record date for the payment of such interest, to be known as a Special Record Date. The Paying Agent/Registrar shall establish a Special Record Date when funds to make such interest payment are received from or on behalf of the City. Such Special Record Date shall be fifteen (15) days prior to the date fixed for payment of such past due interest, and notice of the date of payment and the Special Record Date shall be sent by United States mail, first class, postage prepaid, not later than five (5) days prior to the Special Record Date, to each affected Registered Owner as of the close of business on the day prior to mailing of such notice. Section 3.3: Numbers Denomination Interest Rates and Maturities. The Certificates shall be initially issued bearing the numbers, in the principal amounts and bearing interest at the rates set forth in the following schedule, and may be transferred and exchanged as set out in this Ordinance. The Certificates shall mature on the dates and in the amounts set out in such schedule. Certificates delivered in transfer of or in exchange for other Certificates shall be numbered in order of their authentication by the Paying Agent/Registrar, shall be in the denomination of $5,000 or integral multiples thereof and shall mature on the same date and bear interest at the same rate as the Certificate or Certificates in lieu of which they are delivered. Certificate Maturity Principal Interest Number 5( iL Amount Rate R-1 2022 $85,000 3.000% R-2 2023 100,000 3.000 R-3 2024 115,000 3.000 R-4 2025 115,000 4.000 R-5 2026 115,000 4.000 R-6 2027 390,000 4.000 R-7 2028 545,000 4.000 R-8 2029 560,000 4.000 0 OHSUSA:766779483.2 R-9 2030 585,000 4.000 R-10 2031 605,000 4.000 R-11 2032 630,000 4.000 R-12 2033 660,000 4.000 R-13 2034 1,010,000 4.000 R-14 2035 1,050,000 4.000 R-15 2036 1,090,000 4.000 R-16 2037 1,585,000 4.000 Section 3.4: Redemption Prior to Maturity. (a) The Certificates maturing on and after May 15, 2027 are subject to redemption prior to maturity, at the option of the City, in whole or in part, on May 15, 2026, or any date thereafter, at par plus accrued interest to the date fixed for redemption. (b) Certificates may be redeemed in part only in integral multiples of $5,000. If a Certificate subject to redemption is in a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of $5,000. In selecting portions of Certificates for redemption, each Certificate shall be treated as representing that number of Certificates of $5,000 denomination which is obtained by dividing the principal amount of such Certificate by $5,000. Upon presentation and surrender of any Certificate for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of this Ordinance, shall authenticate and deliver in exchange therefor a Certificate or Certificates of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered. (c) Notice of any redemption, identifying the Certificates or portions thereof to be redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shown on the Register, not less than thirty (30) days before the date fixed for such redemption. By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the redemption price of the Certificates called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Certificates which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being Outstanding except for the purpose of being paid with the funds so provided for such payment. Section 3.5: Manner of Payment, Characteristics, Execution and Authentication. The Paying Agent/Registrar is hereby appointed the paying agent for the Certificates. The Certificates shall be payable, shall have the characteristics and shall be executed, sealed, registered and authenticated, all as provided and in the manner indicated in the FORM OF CERTIFICATES set forth in Article IV of this Ordinance. If any officer of the City whose manual or facsimile signature shall appear on the Certificates shall cease to be such officer before the authentication of the Certificates or before the delivery of the Certificates, such manual or facsimile signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in such office. 5 OI-ISUSA:766779453.2 The approving legal opinion of Orrick, Herrington & Sutcliffe LLP, Houston, Texas, Bond Counsel, may be printed on the back of the Certificates over the certification of the City Secretary, which may be executed in facsimile. CUSIP numbers also may be printed on the Certificates, but errors or omissions in the printing of either the opinion or the numbers shall have no effect on the validity of the Certificates. Section 3.6: Authentication. Except for the Certificates to be initially issued, which need not be authenticated by the Registrar, only such Certificates as shall bear thereon a certificate of authentication, substantially in the form provided in Article IV of this Ordinance, manually executed by an authorized representative of the Paying Agent/Registrar, shall be entitled to the benefits of this Ordinance or shall be valid or obligatory for any purpose. Such duly executed certificate of authentication shall be conclusive evidence that the Certificate so authenticated was delivered by the Paying Agent/Registrar hereunder. Section 3.7: Ownership. The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Certificate is registered as the absolute owner of such Certificate for the purpose of making and receiving payment of the principal thereof and interest thereon and for all other purposes, whether or not such Certificate is overdue, and neither the City nor the Paying Agent/Registrar shall be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the Registered Owner of any Certificate in accordance with this Section shall be valid and effective and shall discharge the liability of the City and the Paying Agent/Registrar upon such Certificate to the extent of the sums paid. Section 3.8: Registration, Transfer and Exchange. The Paying Agent/Registrar is hereby appointed the registrar for the Certificates. So long as any Certificate remains Outstanding, the Paying Agent/Registrar shall keep the Register at the City Administrator's office in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of the Certificates in accordance with the terms of this Ordinance. Each Certificate shall be transferable only upon the presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar, accompanied by an assignment duly executed by the Registered Owner or his authorized representative in form satisfactory to the Paying Agent/Registrar. Upon due presentation of any Certificate for transfer, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor, within seventy-two (72) hours after such presentation, a new Certificate or Certificates, registered in the name of the transferee or transferees, in authorized denominations and of the same maturity and aggregate principal amount and bearing interest at the same rate as the Certificate or Certificates so presented and surrendered. All Certificates shall be exchangeable upon the presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar for a Certificate or Certificates, maturity and interest rate and in any authorized denomination, in an aggregate principal amount equal to the unpaid principal amount of the Certificate or Certificates presented for exchange. The Paying Agent/Registrar shall be and is hereby authorized to authenticate and deliver exchange Certificates in accordance with the provisions of this Section. Each Certificate delivered by the Paying Agent/Registrar in accordance with this Section shall be entitled to the 0 OHSUSA:766779483.2 benefits and security of this Ordinance to the same extent as the Certificate or Certificates in lieu of which such Certificate is delivered. All Certificates issued in transfer or exchange shall be delivered to the Registered Owners thereof at the principal corporate trust office of the Paying Agent/Registrar or sent by United States mail, first class, postage prepaid. The City or the Paying Agent/Registrar may require the Registered Owner of any Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of such Certificate. Any fee or charge of the Paying Agent/Registrar for such transfer or exchange shall be paid by the City. The Paying Agent/Registrar shall not be required to transfer or exchange any Certificate called for redemption in whole or in part during the forty-five (45) day period immediately prior to the date fixed for redemption; provided, however, that this restriction shall not apply to the transfer or exchange by the Registered Owner of the unredeemed portion of a Certificate called for redemption in part. Section 3.9: Book -Entry Only System. The definitive Certificates shall be initially issued in the form of a separate single fully registered Certificate for each of the maturities thereof. Upon initial issuance, the ownership of each such Certificate shall be registered in the name of Cede & Co., as nominee of DTC, and except as provided in Section 3.11 hereof, all of the Outstanding Certificates shall be registered in the name of Cede & Co., as nominee of DTC. 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 Owner at the close of business on the Record Date, the word "Cede & Co." in this Ordinance shall refer to such new nominee of DTC. With respect to Certificates 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 DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in the Certificates. Without limiting the immediately preceding sentence, the City and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (a) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Certificates, (b) the delivery to any DTC Participant or any other person, other than a Certificateholder, as shown on the Register, of any notice with respect to the Certificates, including any notice of redemption or (c) the payment to any DTC Participant or any other person, other than a Certificateholder as shown in the Register, of any amount with respect to principal of Certificates, premium, if any, or interest on the Certificates. Except as provided in Section 3.10 of this Ordinance, the City and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Certificate is registered in the Register as the absolute owner of such Certificate for the purpose of payment of principal of, premium, if any, and interest on Certificates, for the purpose of giving notices of redemption and other matters with respect to such Certificate, for the purpose of registering transfer with respect to such Certificate, and for all other purposes whatsoever. The Paying 7 OHSUSA:766779483.2 Agent/Registrar shall pay all principal of Certificates, premium, if any, and interest on the Certificates only to or upon the order of the respective owners, as shown in the Register 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, premium, if any, and interest on the Certificates to the extent of the sum or sums so paid. No person other than an owner shall receive a Certificate evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. Section 3.10: Payments and Notices to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, as long as any Certificates are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on the Certificates, and all notices with respect to such Certificates shall be made and given, respectively, in the manner provided in the representation letter of the City to DTC. Section 3.11: Successor Securities Depository; Transfer Outside Book -Entry System, _ In the event that the City or the Paying Agent/Registrar determines that DTC is incapable of discharging its responsibilities described herein and in the representation letter of the City to DTC, and that it is in the best interest of the beneficial owners of the Certificates that they be able to obtain certificated Certificates, the City or the Paying Agent/Registrar shall (a) 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 of the appointment of such successor securities depository and transfer one or more separate Certificates to such successor securities depository or (b) notify DTC of the availability through DTC of Certificates and transfer one or more separate Certificates to DTC Participants having Certificates credited to their DTC accounts. In such event, the Certificates shall no longer be restricted to being registered in the Register in the name of Cede & Co., as nominee of DTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names Certificateholders transferring or exchanging Certificates shall designate, in accordance with the provisions of this Ordinance. Section 3.12: Replacement Certificates. Upon the presentation and surrender to the Paying Agent/Registrar of a damaged or mutilated Certificate, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Certificate, of the same maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding. The City or the Paying Agent/Registrar may require the Registered Owner of such Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith and any other expenses connected therewith, including the fees `and expenses of the Paying Agent/Registrar and the City. If any Certificate is lost, apparently destroyed or wrongfully taken, the City, pursuant to the applicable laws of the State of Texas and ordinances of the City, and in the absence of notice or knowledge that such Certificate has been acquired by a bona fide purchaser, shall execute, and the Paying Agent/Registrar shall authenticate and deliver, a replacement Certificate of the same maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding, provided that the Registered Owner thereof shall have: 0 OHSUSA:766779483.2 (a) furnished to the City and the Paying Agent/Registrar satisfactory evidence of the ownership of and the circumstances of the loss, destruction or theft of such Certificate; (b) furnished such security or indemnity as may be required by the Paying Agent/Registrar and the City to save and hold them harmless; (c) paid all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Paying Agent/Registrar and any tax or other governmental charge that may be imposed; and (d) met any other reasonable requirements of the City and the Paying Agent/Registrar. If, after the delivery of such replacement Certificate, a bona fide purchaser of the original Certificate in lieu of which such replacement Certificate was issued presents for payment such original Certificate, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Certificate from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the City or the Paying Agent/Registrar in connection therewith. If any such mutilated, lost, apparently destroyed or wrongfully taken Certificate has become or is about to become due and payable, the City in its discretion may, instead of issuing a replacement Certificate, authorize the Paying Agent/Registrar to pay such Certificate. Each replacement Certificate delivered in accordance with this Section shall be entitled to the benefits and security of this Ordinance to the same extent as the Certificate or Certificates in lieu of which such replacement Certificate is delivered. Section 3.13: Cancellation. All Certificates paid or redeemed in accordance with this Ordinance, and all Certificates in lieu of which exchange Certificates or replacement Certificates are authenticated and delivered in accordance herewith, shall be canceled and destroyed upon the making of proper records regarding such payment or redemption. The Paying Agent/Registrar shall periodically furnish the City with certificates of destruction of such Certificates. ARTTCT F TV FORM OF CERTIFICATES The Certificates, including the Form of Comptroller's Registration Certificate, Form of Paying Agent/Registrar Authentication Certificate, Statement of Insurance and Form of Assignment, shall be in substantially the following forms, with such omissions, insertions and variations as may be necessary or desirable, and not prohibited by this Ordinance: 9 OHSUSA:766779483.2 UNITED STATES OF AMERICA STATE OF TEXAS NUMBER 1R- REGISTERED DENOMINATION REGISTERED CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATE OF OBLIGATION 2INTEREST RATE REGISTERED OWNER: PRINCIPAL AMOUNT: SERIES 2017 DELIVERY 2MATURITY DATE DATE May 18, 2017 , 20_ May 1, 2017 2CUSIP AND NO/100 DOLLARS 'THE CITY OF SANGER, TEXAS, a municipal corporation of the State of Texas (the "City"), for value received, hereby promises to pay to the Registered Owner identified above or its registered assigns, on the maturity date specified above (or on earlier redemption as herein provided), upon presentation and surrender of this Certificate at the principal corporate trust office of BOKF, NA, Austin, Texas, or its successor (the "Paying Agent/Registrar"), the principal amount identified above (or so much thereof as shall not have been paid or deemed to have been paid upon prior redemption) payable in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due to the United States of America, and to pay interest thereon at the rate shown above, calculated on a basis of a 360-day year composed of twelve 30-day months, from the date of delivery. Interest on this Certificate is payable on May 15, 2018, and each November 15 and May 15 thereafter until maturity or earlier redemption of this Certificate, by check sent by United States mail, first class, postage prepaid, by the Paying Agent/Registrar to the Registered Owner r Initial Certificate of Obligation shall be numbered T-I 2 Omitted from the Initial Certificate. s The first sentence of the Initial Certificate shall read as follows: "THE CITY OF SANGER, TEXAS, a municipal corporation of the State of Texas (the "City"), for value received, hereby promises to pay to the Registered Owner identified above or its registered assigns, on each of the dates until maturity or earlier redemption of this Certificate and in the principal amounts set forth in the following schedule: [Insert information regarding years of maturity, principal amounts and interest rates fiom Section 3.3 of the Ordinance], upon presentation and surrender of this Certificate at the principal corporate trust office of BOKF, NA, Austin, Texas, or its successor (the "Paying Agent/Registrar"), payable in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due to the United States of America, and to pay interest thereon at the rate shown above, calculated on a basis of a 360-day year composed of twelve 30-day months, from the date of delivery." 10 OHSUSA:766779483.2 of record as of the close of business on the last business day of the calendar month immediately preceding the applicable interest payment date, as shown on the registration books kept by the Paying Agent/Registrar. Any accrued interest payable at maturity or earlier redemption shall be paid upon presentation and surrender of this Certificate at the principal corporate trust office of the Paying Agent/Registrar. THIS CERTIFICATE IS ONE OF A DULY AUTHORIZED SERIES OF CERTIFICATES (the "Certificates") in the aggregate principal amount of $9,240,000 issued pursuant to an ordinance adopted by the City Council of the City on May 1, 2017 (the "Ordinance") for the purpose of providing all or part of the funds (1) to pay contractual obligations to be incurred for (i) restoration, replacement, rehabilitation and expansion of the wastewater and water systems including the treatment plant and (ii) street and drainage improvements and (2) for the payment of contractual obligations for professional services pursuant to Subchapter C of Chapter 271, Texas Local Government Code, as amended. THIS CERTIFICATE shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Certificate either (i) is registered by the Comptroller of Public Accounts of the State of Texas by due execution of the registration certificate endorsed hereon or (ii) is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. THE CITY RESERVES THE RIGHT, at its option, to redeem, prior to their maturity, Certificates maturing on and after May 15, 2027, in whole or in part, on May 15, 2026, or any date thereafter, at par plus accrued interest to the date fixed for redemption. CERTIFICATES MAY BE REDEEMED IN PART only in integral multiples of $5,000. If a Certificate subject to redemption is in a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of $5,000. In selecting portions of Certificates for redemption, each Certificate shall be treated as representing that number of Certificates of $5,000 denomination which is obtained by dividing the principal amount of such Certificate by $5,000. Upon surrender of any Certificate for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of the Ordinance, shall authenticate and deliver in exchange therefor a Certificate or Certificates of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered. NOTICE OF ANY SUCH REDEMPTION, identifying the Certificates or portions thereof to be redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shown on the books of registration kept by the Paying Agent/Registrar, not less than thirty (30) days before the date fixed for such redemption. By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the redemption price of the Certificates called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Certificates which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the purpose of being paid with the funds so provided for such payment. 11 OHSUSA:766779483.2 THIS CERTIFICATE IS TRANSFERABLE only upon presentation and surrender at the principal corporate trust office of the Paying Agent/Registrar, accompanied by an assignment duly executed by the Registered Owner or its authorized representative, subject to the terms and conditions of the Ordinance. THIS CERTIFICATE IS EXCHANGEABLE at the principal corporate trust office of the Paying Agent/Registrar for a Certificate or Certificates of the same maturity and interest rate and in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Ordinance. THE PAYING AGENT/REGISTRAR is not required to accept for transfer or exchange any Certificate called for redemption, in whole or in part, during the forty-five (45) day period immediately prior to the date fixed for redemption; provided, however, that such limitation shall not apply to the transfer or exchange by the Registered Owner of an unredeemed portion of a Certificate called for redemption in part. THE CITY OR PAYING AGENT/REGISTRAR may require the Registered Owner of any Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of a Certificate. Any fee or charge of the Paying Agent/Registrar for a transfer or exchange shall be paid by the City. THE REGISTERED OWNER of this Certificate by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Ordinance. IT IS HEREBY DECLARED AND REPRESENTED that this Certificate has been duly and validly issued and delivered; that all acts, conditions and things required or proper to be performed, exist and to be done precedent to or in the issuance and delivery of this Certificate have been performed, exist and have been done in accordance with law; that the Certificates do not exceed any constitutional or statutory limitation; and that annual ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Certificate, as such interest comes due and such principal matures, have been levied and ordered to be levied, within the limits prescribed by law, against all taxable property in the City and have been irrevocably pledged for such payment. IT IS FURTHER DECLARED AND REPRESENTED that the surplus revenues to be derived from the City's water and sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues"), in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. The City also reserves the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind, secured in whole or in part by a pledge of Net Revenues, that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. 12 OHSUSA:766779483.2 REFERENCE IS HEREBY MADE TO THE ORDINANCE, a copy of which is filed with the Paying Agent/Registrar, for the full provisions thereof, to all of which the Registered Owners of the Certificates assent by acceptance of the Certificates. IN WITNESS WHEREOF, the City has caused its corporate seal to be impressed or placed in facsimile hereon and this Certificate to be signed by the Mayor, countersigned by the City Secretary by their manual, lithographed or printed facsimile signatures. (SEAL) CITY OF SANGER, TEXAS Mayor COUNTERSIGNED: City Secretary FORM OF COMPTROLLER' S REGISTRATION CERTIFICATE The following form of Comptroller's Registration Certificate shall be attached or affixed to each of the Certificates initially delivered: THE STATE OF TEXAS REGISTER NO. OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS I hereby certify that this certificate has been examined, certified as to validity and approved by the Attorney General of the State of Texas, and that this certificate has been registered by the Comptroller of Public Accounts of the State of Texas. WITNESS MY SIGNATURE AND SEAL OF OFFICE this Comptroller of Public Accounts of the State of Texas [SEAL] 13 OHSUSA:766779483.2 FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE The following form of authentication certificate shall be printed on the face of each of the Certificates other than those initially delivered: AUTHENTICATION CERTIFICATE This Certificate is one of the Certificates described in and delivered pursuant to the within -mentioned Ordinance; and, except for the Certificates initially delivered, this Certificate has been issued in exchange for or replacement of a Certificate, Certificates, or a portion of a Certificate or Certificates of an issue 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. BOKF, NA 0-0 Authorized Signature Date of Authentication: STATEMENT OF INSURANCE Build America Mutual Assurance Company ("BAM"), New York, New York, has delivered its municipal bond insurance policy (the "Policy") with respect to the schedule payments due of principal and interest of this Certificate to BOKF, N.A., Austin, Texas, or its successor (the "Paying Agent/Registrar"). Said Policy is on file and available for inspection at the principal office of the Paying Agent/Registrar and a copy thereof may be obtained from BAM or the Paying Agent/Registrar. All payments required to be made under the Policy shall be made in accordance with the provision thereof. By its purchase of the Certificates, the owner acknowledges and consents to the subrogation and all other rights of BAM as more fully set forth in the Policy. 14 OHSUSA:766779483.2 FORM OF ASSIGNMENT The following form of assignment shall be printed on the back of each of the Certificates: ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto (Please print or type name, address, and zip code of Transferee) (Please insert Social Security or Taxpayer Identification Number of Transferee) the within bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer such bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature Guaranteed: NOTICE: Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. 15 Registered Owner NOTICE: The signature above must correspond to the name of the Registered Owner as shown on the face of this bond in every particular, without any alteration, enlargement or change whatsoever. OHSUSA:766779483.2 ARTICLE V SECURITY FOR THE CERTIFICATES Section 5.1: Pledge and Levy of Taxes and Revenues. (a) To provide for the payment of principal of and interest on the Certificates, there is hereby levied, within the limits prescribed by law, for the current year and each succeeding year thereafter, while the Certificates or any part of the principal thereof and the interest thereon remain outstanding and unpaid, an ad valorem tax upon all taxable property within the City sufficient to pay the interest on the Certificates and to create and provide a sinking fund of not less than 2% of the principal amount of the Certificates or not less than the principal payable out of such tax, whichever is greater, with full allowance being made for tax delinquencies and the costs of tax collection, and such taxes, when collected, shall be applied to the payment of principal of and interest on the Certificates by deposit to the Combination Tax and Revenue Certificates of Obligation, Series 2017 Debt Service Fund and to no other purpose. (b) The City hereby declares its purpose and intent to provide and levy a tax legally sufficient to pay the principal of and interest on the Certificates, it having been determined that the existing and available taxing authority of the City for such purpose is adequate to permit a legally sufficient tax. As long as any Certificates remain outstanding, all moneys on deposit in, or credited to, the Combination Tax and Revenue Certificates of Obligation, Series 2017 Debt Service Fund shall be secured by a pledge of security, as provided by law for cities in the State of Texas. (c) In addition, pursuant to the authority of Chapter 1502, Texas Government Code, as amended, the City also hereby pledges the surplus revenues to be derived from the City's water and sewer system , after the payment of all operation and maintenance expenses thereof (the "Net Revenues"), in an amount not to exceed $10,000, to the payment of the principal of and interest on the Certificates, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. The City also reserves the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind, secured in whole or in part by a pledge of Net Revenues, that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. Section 5.2: Debt Service Fund. The Combination Tax and Revenue Certificates of Obligation, Series 2017 Debt Service Fund is hereby created as a special fund solely for the benefit of the Certificates. The City shall establish and maintain such fund at an official City depository and shall keep such fund separate and apart from all other funds and accounts of the City. Any amount on deposit in the Combination Tax and Revenue Certificates of Obligation, Series 2017 Debt Service Fund shall be maintained by the City in trust for the Registered Owners of the Certificates. Such amount, plus any other amounts deposited by the City into such fund and any and all investment earnings on amounts on deposit in such fund, shall be used only to pay the principal of, premium, if any, and interest on the Certificates. 16 OHSUSA:766779483.2 Section 5.3: Further Proceedings. After the Certificates to be initially issued have been executed, it shall be the duty of the Mayor to deliver the Certificates to be initially issued and all pertinent records and proceedings to the Attorney General for examination and approval. After the Certificates to be initially issued shall have been approved by the Attorney General, they shall be delivered to the Comptroller for registration. Upon registration of the Certificates to be initially issued, the Comptroller (or a deputy lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's registration certificate prescribed herein to be affixed or attached to the Certificates to be initially issued, and the seal of said Comptroller shall be impressed, or placed in facsimile, thereon. ARTICLE VI CONCERNING THE PAYING AGENT/REGISTRAR Section 6.1: Acceptance. BOKF, NA, Austin, Texas, is hereby appointed as the initial Paying Agent/Registrar for the Certificates pursuant to the terms and provisions of the Paying Agent/Registrar Agreement by and between the City and the Paying Agent/Registrar. The Paying Agent/Registrar Agreement shall be substantially in the form attached hereto as Exhibit A, the terms and provisions of which are hereby approved, and the Mayor is hereby authorized to execute and deliver such Paying Agent/Registrar Agreement on behalf of the City in multiple counterparts and the City Secretary is hereby authorized to attest thereto and affix the City's seal. Such initial Paying Agent/Registrar and any successor Paying Agent/Registrar, by undertaking the performance of the duties of the Paying Agent/Registrar hereunder, and in consideration of the payment of any fees pursuant to the terms of any contract between the Paying Agent/Registrar and the City and/or the deposits of money pursuant to this Ordinance, shall be deemed to accept and agree to abide by the terms of this Ordinance. Section 6.2: Trust Funds. All money transferred to the Paying Agent/Registrar in its capacity as Paying Agent/Registrar for the Certificates under this Ordinance (except any sums representing Paying Agent/Registrar's fees) shall be held in trust for the benefit of the City, shall be the property of the City and shall be disbursed in accordance with this Ordinance. Section 6.3: Certificates Presented. Subject to the provisions of Section 6.4, all matured Certificates presented to the Paying Agent/Registrar for payment shall be paid without the necessity of further instructions from the City. Such Certificates shall be canceled as provided herein. Section 6.4: Unclaimed Funds Held by the Pang A eng t/Re istrar. Funds held by the Paying Agent/Registrar that represent principal of and interest on the Certificates remaining unclaimed by the Registered Owner thereof after the expiration of three years from the date such funds have become due and payable (a) shall be reported and disposed of by the Paying Agent/Registrar in accordance with the provisions of Title 6 of the Texas Property Code, as amended, to the extent such provisions are applicable to such funds, or (b) to the extent such provisions do not apply to the funds, such funds shall be paid by the Paying Agent/Registrar to the City upon receipt by the Paying Agent/Registrar of a written request therefor from the City. 17 OHSUSA:766779483.2 The Paying Agent/Registrar shall have no liability to the Registered Owners of the Certificates by virtue of actions taken in compliance with this Section. Section 6.5: Pang Agent/Registrar May Own Certificates. The Paying Agent/Registrar in its individual or any other capacity, may become the owner or pledgee of Certificates with the same rights it would have if it were not the Paying Agent/Registrar. Section 6.6: Successor Paying The City covenants that at all times while any Certificates are Outstanding it will provide a legally qualified bank, trust company, financial institution or other agency to act as Paying Agent/Registrar for the Certificates. The City reserves the right to change the Paying Agent/Registrar for the Certificates on not less than sixty (60) days' written notice to the Paying Agent/Registrar, as long as any such notice is effective not less than 60 days prior to the next succeeding principal or interest payment date on the Certificates. Promptly upon the appointment of any successor Paying Agent/Registrar, the previous Paying Agent/Registrar shall deliver the Register or a copy thereof to the new Paying Agent/Registrar, and the new Paying Agent/Registrar shall notify each Registered Owner, by United States mail, first class, postage prepaid, of such change and of the address of the new Paying Agent/Registrar. Each Paying Agent/Registrar hereunder, by acting in that capacity, shall be deemed to have agreed to the provisions of this Ordinance. ARTTCT.R VTT PROVISIONS CONCERNING SALE AND APPLICATION OF PROCEEDS OF CERTIFICATES Section 7.1: Sale of Certificates; Execution of Purchase Agreement; Insurance. The Certificates are hereby sold and shall be delivered to Oppenheimer & Co., Inc. for a price of $9,926,681.65 (representing the par value thereof, plus a net original issue premium of $757,696.65 on the Certificates, and less an underwriting discount of $71,015.00), in accordance with the terms of and conditions in the Purchase Agreement. The Purchase Agreement, substantially in the form attached hereto as Exhibit C, is hereby approved. The Mayor and other appropriate officials of the City are hereby authorized and directed to execute the Purchase Agreement on behalf of the City, and the Mayor and all other appropriate officials, agents and representatives of the City are hereby authorized to do any and all things necessary or desirable to satisfy the conditions set out therein and to provide for the issuance and delivery of the Certificates. It is hereby found and determined that the terms of the sale of the Certificates contained in the Purchase Agreement are the most advantageous terms reasonably obtainable by the City at this time. The City hereby acknowledges that the sale of the Certificates pursuant to the Purchase Agreement is contingent upon the issuance of a policy of municipal bond insurance from the Bond Insurer insuring the timely payment of principal of and interest on the Certificates. The terms and conditions of the Bond Insurance Policy, as set forth in Exhibit E hereto, are incorporated herein for all purposes for so long as such policy remains in effect. The purchase of such a policy and the payment of the premium therefor is hereby approved and the Mayor and other appropriate City officials are hereby authorized and directed to execute such documents and certificates and to do any and all things necessary or desirable to obtain such insurance and 18 OHSUSA:766779483.2 the printing on the Certificates of an appropriate legend or statement regarding such insurance, as provided by the Bond Insurer, is hereby approved. Section 7.2: Approval, Registration and Delivery. The Mayor is hereby authorized to have control and custody of the Certificates and all necessary records and proceedings pertaining thereto pending their delivery, and the Mayor and other officers and employees of the City are hereby authorized and directed to make such certifications and to execute such instruments as may be necessary to accomplish the delivery of the Certificates and to assure the investigation, examination and approval thereof by the Attorney General and the registration of the initial Certificates by the Comptroller. Upon registration of the Certificates, the Comptroller (or the Comptroller's certificates clerk or an assistant certificates clerk lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's Registration Certificates prescribed herein to be attached or affixed to each Certificates initially delivered and the seal of the Comptroller shall be impressed or printed or lithographed thereon. Section 7.3: Offering Documents; Ratings. The City hereby approves the form and contents of the Preliminary Official Statement and the final Official Statement, dated as of the date hereof, relating to the Certificates, and any addenda, supplement or amendment thereto, and ratifies and approves the distribution of such Preliminary Official Statement substantially in the form attached hereto as Exhibit B and Official Statement in the offer and sale of the Certificates and in the reoffering of the Certificates by the Underwriter, with such changes therein or additions thereto as the officials executing same may deem advisable, such determination to be conclusively evidenced by their execution thereof. The Mayor is hereby authorized and directed to execute, and the City Secretary is hereby authorized and directed to attest, the final Official Statement. It is further hereby officially found, determined and declared that the statements and representations contained in the Preliminary Official Statement and final Official Statement are true and correct in all material respects, to the best knowledge and belief of the City Council, and that, as of the date thereof, the Preliminary Official Statement was an official statement of the City with respect to the Certificates that was deemed "final" by an authorized official of the City except for the omission of no more than the information permitted by subsection (b)(1) of Rule 15c2-12 of the Securities and Exchange Commission. Further, the City Council hereby ratifies, authorizes and approves the actions of the Mayor, the City's financial advisor and other consultants in seeking a rating on the Certificates from Moody's Investors Service, Inc. and such actions are hereby ratified and confirmed. Section 7.4: Application of Proceeds of Certificates. Proceeds from the sale of the Certificates shall, promptly upon receipt by the City, be applied as follows: (1) $242,289.49 of shall be applied to pay expenses arising in connection with the issuance of the Certificates; (2) $9,755,407.16 of shall be applied to pay cost of the project, and (3) Any remaining proceeds shall be deposited into the Debt Service Fund. 19 OHSUSA:766779483.2 Section 7.5: Covenants to Maintain Tax Exempt Status. (a) Definitions. When used in this Section, the following terms have the following meanings: "Code" means the Internal Revenue Code of 1986, as amended by all legislation, if any, enacted on or before the Issue Date. "Computation Date" has the meaning stated in section 1.148-1(b) of the Regulations. "Gross Proceeds" has the meaning stated in section 1.148-1(b) of the Regulations. "Investment" has the meaning stated in section 1.148-1(b) of the Regulations. "Issue Date" for the Certificates or other obligations of the City is the respective date on which such obligations of the City are delivered against payment therefor. "Net Sale Proceeds" has the meaning stated in section 1.148-1(b) of the Regulations. "Nonpurpose Investment" has the meaning stated in section 1.148-1(b) of the Regulations. "Proceeds" has the meaning stated in section 1.148-1(b) of the Regulations. "Rebate Amount" has the meaning stated in section 1.148-3 of the Regulations. "Regulations" means the temporary or final Income Tax Regulations applicable to the Certificates issued pursuant to sections 141 through 150 of the Code. Any reference to a section of the Regulations shall also refer to any successor provision to such section hereafter promulgated by the Internal Revenue Service pursuant to sections 141 through 150 of the Code and applicable to the Certificates. "Yield of (1) any Investment shall be computed in accordance with section 1.148-5 of the Regulations, and (2) the Certificates shall be computed in accordance with section 1.148-4 of the Regulations. (b) Not to Cause Interest to Become Taxable. The City shall not use, permit the use of or omit to use Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner which, if made or omitted, respectively, would cause the interest on any Certificates to become includable in the gross income, as defined in section 61 of the Code, of the owner thereof for federal income tax purposes. Without 20 OHSUSA:766779483.2 limiting the generality of the foregoing, unless and until the City shall have received a written opinion of counsel nationally recognized in the field of municipal bond law to the effect that failure to comply with such covenant will not adversely affect the exemption from federal income tax of the interest on any Certificate, the City shall comply with each of the specific covenants in this Section. (c) No Private Use or Private Payments. Except as permitted by section 141 of the Code and the regulations and rulings thereunder, the City shall, at all times prior to the last stated maturity of the Certificates, (1) exclusively own, operate, and possess all property the acquisition, construction, or improvement of which is to be financed directly or indirectly with Gross Proceeds of the Certificates and not use or permit the use of such Gross Proceeds or any property acquired, constructed, or improved with such Gross Proceeds in any activity carried on by any person or entity other than a state or local government, unless such use is solely as a member of the general public, or (2) not directly or indirectly impose or accept any charge or other payment for use of Gross Proceeds of the Certificates or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with such Gross Proceeds other than taxes of general application and interest earned on investments acquired with such Gross Proceeds pending application for their intended purposes. (d) No Private Loan. Except to the extent permitted by section 141 of the Code and the regulations and rulings thereunder, the City shall not use Gross Proceeds of the Certificates to make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, Gross Proceeds are considered to be "loaned" to a person or entity if (1) property acquired, constructed or improved with Gross Proceeds is sold or leased to such person or entity in a transaction which creates a debt for federal income tax purposes, (2) capacity in or service from such property is committed to such person or entity under a take -or -pay, output, or similar contract or arrangement, or (3) indirect benefits, or burdens and benefits of ownership, of such Gross Proceeds or such property are otherwise transferred in a transaction which is the economic equivalent of a loan. (e) Not to Invest at Higher Yield. Except to the extent permitted by section 148 of the Code and the regulations and rulings thereunder, the City shall not, at any time prior to the earlier of the final stated maturity or final payment of the Certificates, directly or indirectly invest Gross Proceeds of such Certificates in any Investment (or use such Gross Proceeds to replace money so invested), if as a result of such investment the Yield of all Investments allocated to such Gross Proceeds whether then held or previously disposed of, exceeds the Yield on the Certificates. (f) Not Federally Guaranteed. Except to the extent permitted by section 149(b) of the Code and the regulations and rulings thereunder, the City shall not take or omit to take any action which would cause the Certificates to be federally 21 OHSUSA:766779483.2 guaranteed within the meaning of section 149(b) of the Code and the regulations and rulings thereunder. (g) Information Report. The City shall timely file with the Secretary of the Treasury the information required by section 149(e) of the Code with respect to the Certificates on such forms and in such place as such Secretary may prescribe. (h) Payment of Rebate Amount. Except to the extent otherwise provided in section 148(f) of the Code and the regulations and rulings thereunder, the City shall: (1) account for all Gross Proceeds (including all receipts, expenditures and investments thereof) on its books of account separately and apart from all other funds (and receipts, expenditures and investments thereof) and shall retain all records of such accounting for at least six years after the final Computation Date. The City may, however, to the extent permitted by law, commingle Gross Proceeds of the Certificates with other money of the City, provided that the City separately accounts for each receipt and expenditure of such Gross Proceeds and the obligations acquired therewith, (2) calculate the Rebate Amount with respect to the Certificates, not less frequently than each Computation Date, in accordance with rules set forth in section 148(f) of the Code, section 1.148-3 of the Regulations, and the rulings thereunder and shall maintain a copy of such calculations for at least six years after the final Computation Date, (3) as additional consideration for the purchase of the Certificates by the initial purchaser thereof and the loan of the money represented thereby, and in order to induce such purchase by measures designed to ensure the excludability of the interest thereon from the gross income of the owners thereof for federal income tax purposes, pay to the United States the amount described in paragraph (2) above at the times, in the installments, to the place, in the manner and accompanied by such forms or other information as is or may be required by section 148(f) of the Code and the regulations and rulings thereunder, and (4) exercise reasonable diligence to assure that no errors are made in the calculations required by paragraph (2) and, if such error is made, to discover and promptly to correct such error within a reasonable amount of time thereafter, including payment to the United States of any interest and any penalty required by the Regulations. (i) Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of the Code and the regulations and rulings thereunder, the City shall not, at any time prior to the earlier of the final stated maturity or final payment of the Certificates, enter into any transaction that reduces the amount required to be paid to the United States pursuant to Subsection (h) of this Section because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm's length and had the Yield of the Certificates not been relevant to either party. 22 OI-IS US A:766779483.2 (j) Not Hedge Bonds. The City will not invest more than 50 percent of the Proceeds of the Certificates in Nonpurpose Investments having a guaranteed yield for four years or more. On the Issue Date of the Certificates, the City will reasonably expect that at least 85 percent of the Net Sale Proceeds will be used to carry out the governmental purpose of such series within three years after such Issue Date. (k) The City will not issue or use the Certificates as part of an "abusive arbitrage device" (as defined in Section 1.148-10(a) of the Regulations). Without limiting the foregoing, the Certificates are not and will not be a part of a transaction or series of transactions that attempts to circumvent the provisions of Section 148 of the Code and the Regulations, by (i) enabling the City to exploit the difference between tax- exempt and taxable interest rates to gain a material financial advantage, or (ii) increasing the burden on the market for tax=exempt obligations. (1) Proper officers of the City charged with the responsibility for issuing the Certificates are hereby directed to make, execute and deliver certifications as to facts, estimates or circumstances in existence as of the date of issuance of the Certificates and stating whether there are facts, estimates or circumstances that would materially change the City's expectations. On or after the date of issuance of the Certificates, the City will take such actions as are necessary and appropriate to assure the continuous accuracy of the representations contained in such certificates. (m) The City hereby designates the Certificates as "qualified tax-exempt obligations" as defined in section 265(b)(3) of the Code. In furtherance of such designation, the City represents, covenants and warrants the following: (a) that during the calendar year in which the Certificates are issued, the City (including any subordinate entities) has not designated nor will designate obligations that when aggregated with the Certificates, will result in more than $10,000,000 of "qualified tax-exempt obligations" being issued; and (b) that the City reasonably anticipates that the amount of tax-exempt obligations issued, during the calendar year in which the Certificates are issued, by the City (or any subordinate entities) will not exceed $10,000,000. (n) The covenants and representations made or required by this Section are for the benefit of the Certificate holders and any subsequent Certificate holder, and may be relied upon by the Certificate holders and any subsequent Certificate holder and bond counsel to the City. (o) In complying with the foregoing covenants, the City may rely upon an unqualified opinion issued to the City by nationally recognized bond counsel that any action by the City or reliance upon any interpretation of the Code or Regulations contained in such opinion will not cause interest on the Certificates to be includable in gross income for federal income tax purposes under existing law. Notwithstanding any other provision of this Ordinance, the City's representations and obligations under the covenants and provisions of this Section 7.5 all survive the defeasance and discharge of the Certificates for as long as such matters are relevant to the exclusion of interest on the Certificates from the gross income of the owners for federal income tax purposes. 23 OHSUSA:766779483.2 Section 7.6: Related Matters. In order that the City shall satisfy in a timely manner all of its obligations under this Ordinance, the Mayor, the Mayor, City Secretary and all other appropriate officers, agents, representatives and employees of the City are hereby authorized and directed to take all other actions that are reasonably necessary to provide for the issuance and delivery of the Certificates, including, without limitation, executing and delivering on behalf of the City all certificates, consents, receipts, requests, notices, and other documents as may be reasonably necessary to satisfy the City's obligations under this Ordinance and to direct the transfer and application of funds of the City consistent with the provisions of this Ordinance. ARTICLE VIII CONTINUING DISCLOSURE UNDERTAKING Section 8.1: Continuing Disclosure Undertaking. The City shall provide annually to the MSRB, within six (6) months after the end of each fiscal year and in an electronic format prescribed by the MSRB and available via the Electronic Municipal Market Access ("EMMA") system at www.emma.msrb.org, financial information and operating data with respect to the City of the general type described in the Official Statement, being the information described in Exhibit D attached hereto. Any financial statements so to be provided shall be (a) prepared in accordance with generally accepted accounting principles for governmental units as prescribed by the Government Accounting Standards Board from time to time, as such principles may be changed from time to time to comply with state or federal law or regulation and (b) 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 audited financial statements are not available at the time the financial information and operating data must be provided, then the City shall provide unaudited financial statements for the applicable fiscal year to the MSRB and shall provide to the MSRB audited financial statements, when and if the same become available. If the City changes its Fiscal Year, it will notify the MSRB of the change (and 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 Article. The financial information and operating data to be provided pursuant to this Article may be set forth in full in one or more documents or may be included by specific reference to documents (i) available to the public on the MSRB's internet web site or (ii) filed with the SEC. Section 8.2: Material Event Notices. The City shall notify the MSRB in an electronic format prescribed by the MSRB, in a timely manner (not in excess of ten (10) days after the occurrence of the event), of any of the following events with respect to the Certificates: (i) Principal and interest payment delinquencies; (ii) Non-payment related defaults, if material; (iii) Unscheduled draws on debt service reserves reflecting financial difficulties; (iv) Unscheduled draws on credit enhancements reflecting financial difficulties; 24 OHSUSA:766779483.2 (v) Substitution of credit or liquidity providers or their failure to perform; (vi) Adverse tax opinions, 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 status of the Certificates, or other material events affecting the tax status of the Certificates; (vii) Modifications to rights of holders of the Certificates, if material; (viii) Certificate calls, if material, and tender offers; (ix) Defeasances; (x) Release, substitution, or sale of property securing repayment of the Certificates, if material; (xi) Rating changes; (xii) Bankruptcy, insolvency, receivership or similar event of the City; (xiii) The consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, 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, if material; and (xiv) Appointment of a successor or additional trustee or the change of name of a trustee, if material. The City shall notify the MSRB in an electronic format prescribed by the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with Section 8.1 of this Ordinance by the time required by such Section. Section 8.3: ying Information. All documents provided to the MSRB shall be accompanied by identifying information, as prescribed by the MSRB. Section 8.4: Limitations Disclaimers and Amendments. The City shall be obligated to observe and perform the covenants specified in this Article for so long as, but only for so long as, the City remains an "obligated person" with respect to the Certificates within the meaning of the Rule, except that the City in any event will give the notice required by this Article of any Bond calls and defeasance that cause the City to be no longer such an "obligated person." The provisions of this Article are for the sole benefit of the Holders and beneficial owners of the Certificates, and nothing in this Article, 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, principal statements, and notices which it has expressly agreed to provide pursuant to this Article 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 Article or otherwise, except 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 Certificates at any future date. 25 OI-I S U S A:766779483.2 UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY CERTIFICATE OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS ARTICLE, 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 Article shall constitute a breach of or default under this Ordinance for purposes of any other provision of this Ordinance. Nothing in this Article is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities law. 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 the Certificates in the primary offering of the Certificates 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 (2) either (a) the Registered Owners 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 Certificates consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the Registered Owners and beneficial owners of the Certificates. 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 this Section an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information or operating data so provided. The City may also amend or repeal the provisions of this Section if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, and the City also may amend the provisions of this Section in its discretion in any other manner or circumstance, but in any case only if and to the extent that the provisions of this sentence would not have prevented an underwriter from lawfully purchasing or selling Certificates in the primary offering of the Certificates, giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. Section 8.5: Definitions. As used in this Article, the following terms have the meanings ascribed to such terms below: "MSRB" means the Municipal Securities Rulemaking Board. "Rule" means SEC Rule 15c2-12, as amended from time to time. 26 OHSUSA:766779483.2 "SEC" means the United States Securities and Exchange Commission. ARTICLE IX MISCELLANEOUS Section 9.1: Defeasance. Subject to Section 10.8 hereof, the City may defease the provisions of this Ordinance and discharge its obligations to the Registered Owners of any or all of the Certificates to pay the principal of and interest thereon in any manner permitted by law, including by depositing with the Paying Agent/Registrar or with the Comptroller of Public Accounts of the State of Texas either: (a) cash in an amount equal to the principal amount of such Certificates plus interest thereon to the date of maturity or redemption; or (b) pursuant to an escrow or trust agreement, cash and/or (i) direct noncallable obligations of 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, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the issuer adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent; or (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 governing body of the issuer adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, which, in the case of (i), (ii) or (iii), may be in book -entry form, and the principal of and interest on which will, when due or redeemable at the option of the holder, without further investment or reinvestment of either the principal amount thereof or the interest earnings thereon, provide money in an amount which, together with other moneys, if any, held in such escrow at the same time and available for such purpose, shall be sufficient to provide for the timely payment of the principal of and interest thereon to the date of maturity or earlier redemption; provided, however, that if any of the Certificates are to be redeemed prior to their respective dates of maturity, provision shall have been made for giving notice of redemption as provided in this Ordinance. Upon such deposit, such Certificates shall no longer be regarded to be Outstanding or unpaid. Any surplus amounts not required to accomplish such defeasance shall be returned to the City. Section 9.2: Ordinance a Contract - Amendments. This Ordinance shall constitute a contract with the Registered Owners from time to time, be binding on the City, and shall not be amended or repealed by the City so long as any Certificate remains Outstanding except as permitted in this Section. The City may, without the consent of or notice to any Registered Owners, from time to time and at any time, amend this Ordinance in any manner not detrimental to the interests of the Registered Owners, including the curing of any ambiguity, inconsistency, or formal defect or omission herein. In addition, the City may, with the consent of Registered 27 OHSUSA:766779483.2 Owners who own in the aggregate 51 % of the principal amount of the Certificates then Outstanding, amend, add to, or rescind any of the provisions of this Ordinance; provided that, without the consent of all Registered Owners of Outstanding Certificates, no such amendment, addition, or rescission shall (i) extend the time or times of payment of the principal of and interest on the Certificates, reduce the principal amount thereof, the redemption price, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of or interest on the Certificates, (ii) give any preference to any Certificate over any other Certificate, or (iii) reduce the aggregate principal amount of Certificates required to be held by Registered Owners for consent to any such amendment, addition, or rescission. Section 9.3: Legal Holidays. In any case where the date interest accrues and becomes payable on the Certificates or principal of the Certificates matures or the date fixed for redemption of any Certificates or a Record Date shall be in the City a Saturday, Sunday, legal holiday or a day on which banking institutions are authorized by law to close, then payment of interest or principal need not be made on such date, or the Record Date shall not occur on such date, but payment may be made or the Record Date shall occur on the next succeeding day which is not in the City a Saturday, Sunday, legal holiday or a day on which banking institutions are authorized by law to close with the same force and effect as if (i) made on the date of maturity or the date fixed for redemption and no interest shall accrue for the period from the date of maturity or redemption to the date of actual payment or (ii) the Record Date had occurred on the last business day of that calendar month. Section 9.4: No Recourse Against City Officials. No recourse shall be had for the payment of principal of or interest on any Certificates or for any claim based thereon or on this Ordinance against any official of the City or any person executing any Certificates. Section 9.5: Further Proceedings. The Mayor, Mayor Pro-Tem, City Secretary and other appropriate officials of the City are hereby authorized and directed to do any and all things necessary and/or convenient to carry out the terms of this Ordinance. Section 9.6: Severability. If any Section, paragraph, clause or provision of this Ordinance shall for any reason be held to be invalid or unenforceable, the invalidity or unenforceability of such Section, paragraph, clause or provision shall not affect any of the remaining provisions of this Ordinance. Section 9.7: Open Meeting. It is hereby found, determined and declared that a sufficient written notice of the date, hour, place and subject of the meeting of the City Council at which this Ordinance was adopted was posted at a place convenient and readily accessible at all times to the general public at City Hall for the time required by law preceding this meeting, as required by the Open Meetings Law, Chapter 551, Texas Government Code, and that this meeting has been open to the public as required by law at all times during which this Ordinance and the subject matter thereof has been discussed, considered and formally acted upon. The City Council further ratifies, approves and confirms such written notice and the contents and posting thereof. Section 9.8: Repealer. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency. FZ OHSUSA:766779483.2 Section 9.9: Effective Date. This Ordinance shall be in force and effect from and after its passage on the date shown below. IM OHSUSA:766779483.2 PASSED AND APPROVED on first reading this May 1, 2017. CITY OF SANGER, TEXAS ez�—:�� Mayor ATTEST Cl-ty 4�� L � : �nl� fflf,Jli A �EA.L _ r 4V1 F.:?ii1$��a'�AgcntlRegistrar Agreement Exhibit I - Prest liminary Official Statement Exhibit C - Purchase Agreement Exhibit D - Description of Annual Financial Information Exhibit E — Insurance Provisions OI-I S U S A: 7 66 779 4 S 3.1 PAYING AGENT/REGISTRAR AGREEMENT See Tab No. 7 OHSUSA:766779483.2 EXHIBIT B PRELIMINARY OFFICIAL STATEMENT See Tab No. 4 OHSUSA:766779483.2 EXHIBIT C PURCHASE AGREEMENT See Tab No. 6 OHSUSA:766779483.2 DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred in Article VIII 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 Article are as specified (and included in the Appendix or under the headings of the Official Statement referred to) below: (1) The financial statements of the City, portions of which are appended to the Official Statement as Appendix D, but for the most recently concluded fiscal year. (2) The information included under Tables 1 through 10, inclusive of Appendix A of the Official Statement. Accounting Principles The accounting principles referred to in such Article are generally those described in Appendix D to the Official Statement as such principles may be changed from time to time to comply with state law or regulation. OHSUSA:766779483.2 EXHIBIT E INSURANCE PROVISIONS OHSUSA:766779483.2 ISSUER MEMBER: Effective Date: MUNICIPAL BOND INSURANCE COMMITMENT City of Sanger, Texas City of Sanger, Texas April 7, 2017 Expiration Date: July 5, 2017 BONDS: Combination Tax and Revenue Certificates of Obligation, Series 2017 in aggregate principal amount not to exceed $9,320,000 Insurance Payment: 0.200% of the Total Debt Service on the Bonds BUILD AMERICA MUTUAL ASSURANCE COMPANY ("BAM") hereby commits, subject to the terms and conditions contained herein or added hereto, to issue its Municipal Bond Insurance Policy (the "Policy") relating to the Bonds referenced above (the "Bonds") issued by or on behalf of the Member. To keep this Commitment in effect after the Expiration Date set forth above, a written request for renewal must be submitted to BAM prior to such Expiration Date. BAM reserves the right to grant or deny a renewal in its sole discretion. THE MUNICIPAL BOND INSURANCE POLICY SHALL BE ISSUED IF THE FOLLOWING CONDITIONS ARE SATISFIED: 1. The documents to be executed and delivered in connection with the issuance and sale of the Bonds (collectively, the "Security Documents"), shall not contain any untrue or misleading statement of a material fact and shall not fail to state a material fact necessary in order to make the information contained therein not misleading. 2. No event shall occur which would permit any underwriter or purchaser of the Bonds, otherwise required, not to be required to underwrite or purchase the Bonds on the date scheduled for the issuance and delivery thereof (the "Closing Date"). 3. As of the Closing Date, there shall have been no material adverse change in, as to or affecting (i) the Member or the Bonds, including, without limitation, the security for the Bonds or (ii) any disclosure document relating to the Bonds (including any financial statements and other information included or incorporated by reference therein) (the "Official Statement"), the Security Documents to be executed and delivered with respect to the Bonds, any project to be financed with the proceeds of the Bonds (if applicable), the legal opinions to be delivered in connection with the issuance and sale of the Bonds, or any other information submitted to BAM with respect to the issuance and sale of the Bonds, including the proposed debt service schedule of the Bonds, from information previously provided to BAM in writing. 4. The Bonds shall contain no reference to BAM, the Policy or the insurance evidenced thereby except as may be approved in writing by BAM. BOND PROOFS SHALL BE APPROVED IN WRITING BY BAM PRIOR TO PRINTING. The Bonds shall bear a Statement of Insurance in the form found on BAM's website (www.buildamerica.com) and in Exhibit A hereto entitled "DOCUMENT, PRINTING AND DISCLOSURE INFORMATION FOR PUBLIC FINANCE TRANSACTIONS". 5. The Official Statement shall contain the language provided by BAM and only such other references to BAM as BAM shall supply or approve in writing, and BAM shall be provided with final drafts of any preliminary and final Official Statement at least two business days prior to printing/electronic posting. BAM SHALL BE PROVIDED WITH AN ELECTRONIC COPY OF THE OFFICIAL STATEMENT SEVEN (7) DAYS PRIOR TO CLOSING, unless BAM shall agree in writing to a shorter period. 6. BAM shall be provided with: (a) Copies of all Security Document drafts prepared subsequent to the date of this Commitment (blacklined to reflect all revisions from previously reviewed drafts) for review and approval. Final drafts of such documents shall be provided at least three (3) business days prior to the issuance of the Policy, unless BAM shall agree in writing to a shorter period. Copies of all drafts of the Security Documents shall be delivered to the BAM contacts specified in Exhibit 1. (b) Copies of any consulting reports, feasibility studies, rate reports, engineer's reports or similar expert reports for review and approval, along with any revisions thereto (blacklined to reflect all revisions from previously reviewed drafts). Final drafts of such documents shall be provided at least three (3) business days prior to the issuance of the Policy, unless BAM shall agree in writing to a shorter period. (c) The amortization schedule for, and final maturity date of, 'the Bonds, which schedule shall be acceptable to BAM. Please be aware that BAM will only insure fixed rate Bonds. (d) A No -Litigation Certificate or a description of any material pending litigation relating to the Member or the Bonds and any opinions BAM shall request in connection therewith. (e) A description of any material change in the Member's financial position from and after the date of the financial statements provided to BAM. (f) Executed copies of all Security Documents, the Official Statement and the various legal opinions delivered in connection with the issuance and sale of the Bonds (which shall be dated the Closing Date and which, except for the opinions of counsel relating to the adequacy of disclosure, shall be addressed to BAM or accompanied by a letter of such counsel permitting BAM to rely on such opinion as if such opinion were addressed to BAM), including, without limitation, the unqualified approving opinion of bond counsel, in form and substance satisfactory to BAM. The foregoing shall be in form and substance acceptable to BAM. (For your information, the form of legal opinion, primary market disclosure certificate and officer's certificate to be delivered by BAM at Closing is attached hereto as Exhibit B.) (g) Evidence of wire transfer in federal funds of an amount equal to the Insurance Payment, unless alternative arrangements for the payment of such amount acceptable to BAM have been made prior to the Closing Date. 7. Bonds must have an underlying, long-term rating of at least: NR Standard and Poor's Al Moody's Investors Service NR Fitch Ratings 8. Promptly, but in no event more than thirty (30) days after the Closing Date, BAM shall receive two (2) CD-ROMs, which contain the final closing transcript of proceedings or if CD- ROMs are not available, such other electronic form as BAM shall accept. 9. To maintain this commitment until the Expiration Date set forth above, BAM must receive a copy of the signature page of this Commitment fully executed by an authorized officer of the undersigned by the earlier of the date on which the Official Statement containing disclosure language regarding BAM is circulated and ten (10) days after the date of this Commitment. REPRESENTATION AND AGREEMENT BY BAM (a) BAM is a mutual insurance corporation organized under the laws of, and domiciled in, the State of New York. (b) BAM covenants that it will only insure obligations of states, political subdivisions, an integral part of states or political subdivisions or entities otherwise eligible for the exclusion of income under Section 115 of the Internal Revenue Code of 1986, as amended, or any successor thereto. (c) BAM covenants that it will not seek to convert to a stock insurance corporation. (d) The issuance of the Policy qualifies the Member as a member of BAM until the Bonds are no longer outstanding. As a member of BAM, the Member is entitled to certain rights and privileges as provided in BAM's charter and by-laws and as may otherwise be provided under New York law, including the right to receive dividends if and when declared by BAM's Board of Directors. No dividends have been paid to date, and BAM has no current expectation that any dividends will be paid. (e) The Policy is non -assessable and creates no contingent mutual liability. (f) Refundings. If (1) the Security Documents relating to the Bonds permit a legal defeasance (such that the bonds are no longer treated as outstanding under the Security Documents), (2) refunding bonds ("Refunding Bonds") will be issued for the purpose of legally defeasing such then outstanding BAM-insured Bonds (in this context, the "Refunded Bonds") and (3) upon their issuance (A) such Refunding Bonds have a final maturity date that is not later than the final Maturity Date of the Refunded Bonds, (B) the average annual debt service on the Refunding Bonds does not exceed the average annual debt service on the Refunded Bonds, and (C) the net proceeds of such Refunding Bonds are applied solely towards the legal defeasance of the Refunded Bonds and related costs of issuance, then, if BAM is requested to, and in its sole discretion determines to, offer a municipal bond insurance policy covering the Refunding Bonds (the "Refunding Policy") BAM will credit the then available Member Surplus Contribution for the Refunded Bonds against the insurance payment then charged with respect to the Refunding Bonds. If the Security Documents are silent on the matter of a legal defeasance, BAM may, in its sole and absolute discretion, accept such certificates, opinions and reports from or on behalf of the Member in connection with the issuance of such Refunding Bonds in order to establish to its satisfaction that the Refunding Bonds will be issued to retire the outstanding Refunded Bonds and that the Refunding Bonds comply with the criteria set forth in clause (3) of the preceding sentence for the purpose of determining whether a supplemental Member Surplus Contribution is or is not required to be made at that time. (g) BAM covenants that it will provide notice to the Member (as soon as reasonably possible) of a change in the rating of BAM's financial strength by Standard & Poor's Rating zn Services. BUILD AMERICA MUTUAL ASSURANCE COMPANY a0 Authorized Officer April 7, 2017 Date AGREED AND ACCEPTED The undersigned agrees and accepts the conditions set forth above and further agrees that (i) if the Bonds (and any of the Bonds to be issued on the same date and for which BAM has issued a commitment) are insured by a policy of municipal bond insurance, such insurance shall be provided by BAM in accordance with the terms of this Commitment; (ii) it has made an independent investigation and decision as to whether to insure the payment when due of the principal of and interest on the Bonds and whether the Policy is appropriate or proper for it based upon its judgment and upon advice from such legal and financial advisers as it has deemed necessary; (iii) BAM has not made, and therefore it is not relying on, any recommendation from BAM that the Bonds be insured or that a Policy be obtained, it being understood and agreed that any communications from BAM (whether written or oral) referring to, containing information about or negotiating the terms and conditions of the Policy, and any related insurance document or the documentation governing the Bonds, do not constitute a recommendation to insure the Bonds or obtain the Policy; (iv) the undersigned acknowledges that BAM has not made any representation, warranty or undertaking, and has not given any assurance or guaranty, in each case, expressed or implied, as to its future financial strength or the rating of BAM's financial strength by the rating agency; (v) the undersigned acknowledges that a credit or claims -paying rating of BAM assigned by a Rating Agency reflects only the views of, and an explanation of the significance of any such rating may be obtained only from, the assigning Rating Agency, any such rating may change or be suspended, placed under review or withdrawn by such Rating Agency if circumstances so warrant, and BAM compensates a Rating Agency to maintain a credit or claims -paying ability rating thereon, but such payment is not in exchange for any specific rating or for a rating within any particular range; (vi) the undersigned acknowledges that BAM may in its sole and absolute discretion at any time request that a Rating Agency withdraw any rating maintained in respect of BAM; and (vii) BAM has made no representation that any dividend will be declared or paid while the Bonds are outstanding, the undersigned has no reason for expecting that any dividend will be declared or paid and the potential receipt of any dividend was not a reason for acquiring the Policy. Notwithstanding anything to the contrary set forth herein, upon issuance of the Policy, the provisions set forth under subparagraphs (ii) through (vii) above and the representations and agreements of BAM shall survive the expiration or termination of this Commitment. CITY OF SANGER, TEXAS By: Authorized Officer ,511117 m D to EXHIBIT A DOCUMENT, PRINTING AND DISCLOSURE INFORMATION FOR PUBLIC FINANCE TRANSACTIONS BUILD AMERICA MUTUAL ASSURANCE COMPANY This information is intended for use by bond counsel, the underwriters, financial advisors, printers and preparers of municipal bond offerings that will be insured in whole or in part by Build America Mutual Assurance Company ("BAM"). Prior to any reference to BAM in your marketing efforts, including, but not limited to any preliminary or final Official Statement and any rating agency presentation, in respect of a BAM-insured issue, BAM must receive an executed copy of its Commitment Letter. Blacklined copies of each draft of each transaction document, preliminary and final official statements with Appendices, and bond form(s) should be delivered to BAM for review and comment with reasonable opportunity to submit any comments prior to printing or execution, but in any event not less than three business days prior to execution. Such documents shall be delivered to the BAM attorney working on the transaction. If you are uncertain of the proper person to whom to deliver the documents, please email the documents to: documents@buildamerica.com. Please identify the issuer, obligor and issue name in the subject line of the email. BAM will deliver to Bond Counsel, at the pre -closing for any such municipal bond offering (such offering to the extent insured by BAM, the "Insured Obligations"), assuming the requirements of the Commitment Letter have been met, • an opinion of counsel as to the validity of the policy, • a disclosure, no default and tax certificate of BAM, the executed policy and • other certificates, if any, required in the transaction. Prior to closing, BAM will obtain the rating letter from Standard & Poor's Ratings Services, a Standard & Poor's Financial Services LLC business, relating to any Insured Obligations. Note that any questions with regards to rating agency fees should be directed to the rating agency. INDEX EXHIBIT NO. DIRECTORY LegalDepartment Directory ..................................................................................................................... ...... 1 OFFICIAL STATEMENT BAM Disclosure Information (for inclusion in the Official Statement) ................................. I ....... I .............................................. 2 Specimen: Municipal Bond Insurance Policy .... ....................... — .................................................................................... 3 BOND FORM Statement of Insurance (Language for Bond Form) ............................................................................... 4 WIRE INSTRUCTIONS Procedures For Premium Payment (including wire -transfer instructions) .................................................................................................... 5 EXHIBIT 1 BAM DIRECTORY Name Title Tele hone Email BAM ATTORNEYS Jeffrey Fried Deputy Counsel 212-235-2514 jfried@buildamerica.com CLOSING COORDINATORS Nolan Miller 212-235-2511 nmiller@buildamerica.com BAM ANALYST Greg Pacifico 212-235-2523 I gpacifico@buildamerica.com EXHIBIT 2 BUILD AMERICA MUTUAL ASSURANCE COMPANY ("BAM") DISCLOSURE INFORMATION (FOR INCLUSION IN THE OFFICIAL STATEMENT) The following are BAM's requirements for printing the preliminary and final official statements: 1. Both the preliminary and final official statements must contain the information set forth in these Exhibits and BAM must be provided with final drafts for its approval and sign off thereon at least two business days prior to the printing thereof; 2. Any changes made to the BAM Disclosure Information for inclusion in the preliminary and final official statements must first be approved by BAM, and 3. BAM must receive an electronic copy of the final official statement seven (7) days prior to closing, unless BAM shall have agreed to some shorter period. TO BE PRINTED ON THE COVER OF THE OFFICIAL STATEMENT: The following language should be used when insuring: 1. THE ENTIRE ISSUE: The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Bonds by BUILD AMERICA MUTUAL ASSURANCE COMPANY. 2. CAPITAL APPRECIATION BONDS: The scheduled payment of principal of (or, in the case of Capital Appreciation Bonds, the accreted value) and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Bonds by BUILD AMERICA MUTUAL ASSURANCE COMPANY. 3. PARTIAL MATURITIES (LESS THAN ENTIRE ISSUE): The scheduled payment of principal of and interest on the Bonds maturing on of the years through , inclusive, with CUSIP #('s) (collectively, the "Insured Bonds"), when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Insured Bonds by BUILD AMERICA MUTUAL ASSURANCE COMPANY. 4. CERTIFICATES OR NOTES: Change all references from the Bonds to Certificates or Notes wherever necessary, but DO NOT change the reference to the policy from Municipal Bond Insurance Policy. PRINTER'S NOTE: USE BUILD AMERICA MUTUAL ASSURANCE COMPANY LOGO AND INK #PMS BLUE 2736; REDS 199,201 AND 1817. THE LOGO MAY BE OBTAINED FROM BAM'S WEBSITE W WW.BUILDAMERICA.COM TO BE PRINTED IN THE BODY OF THE OFFICIAL STATEMENT OR AS AN EXHIBIT USE THE FOLLOWING LANGUAGE WHEN INSURING THE ENTIRE ISSUE: NOTE: The language under the subheading "Bond Insurance Policy" should be modified when insuring Capital Appreciation Bonds, Partial Maturities (less than the entire issue), Certificates and/or Notes. BOND INSURANCE BOND INSURANCE POLICY Concurrently with the issuance of the Bonds, Build America Mutual Assurance Company ("BAM") will issue its Municipal Bond Insurance Policy for the Bonds (the "Policy"). The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. BUILD AMERICA MUTUAL ASSURANCE COMPANY BAM is a New York domiciled mutual insurance corporation. BAM provides credit enhancement products solely to issuers in the U.S. public finance markets. BAM will only insure obligations of states, political subdivisions, integral parts of states or political subdivisions or entities otherwise eligible for the exclusion of income under section 115 of the U.S. Internal Revenue Code of 1986, as amended. No member of BAM is liable for the obligations of BAM. The address of the principal executive offices of BAM is: 200 Liberty Street, 27th Floor, New York, New York 10281, its telephone number is: 212-235-2500, and its website is located at: www.buildamerica.com. BAM is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York and in particular Articles 41 and 69 of the New York Insurance Law. BAM's financial strength is rated "AA/Stable" by S&P Global Ratings, a business unit of Standard & Poor's Financial Services LLC ("S&P"). An explanation of the significance of the rating and current reports may be obtained from S&P at www.standardandpoors.com. The rating of BAM should be evaluated independently. The rating reflects the S&P's current assessment of the creditworthiness of BAM and its ability to pay claims on its policies of insurance. The above rating is not a recommendation to buy, sell or hold the Bonds, and such rating is subject to revision or withdrawal at any time by S&P, including withdrawal initiated at the request of BAM in its sole discretion. Any downward revision or withdrawal of the above rating may have an adverse effect on the market price of the Bonds. BAM only guarantees scheduled principal and scheduled interest payments payable by the issuer of the Bonds on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the Policy), and BAM does not guarantee the market price or liquidity of the Bonds, nor does it guarantee that the rating on the Bonds will not be revised or withdrawn. Capitalization of BAM BAM's total admitted assets, total liabilities, and total capital and surplus, as of December 31, 2016 and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $496.7 million, $65.2 million and $431.5 million, respectively. BAM is party to a first loss reinsurance treaty that provides first loss protection up to a maximum of 15% of the par amount outstanding for each policy issued by BAM, subject to certain limitations and restrictions. BAM's most recent Statutory Annual Statement, which has been filed with the New York State Insurance Department and posted on BAM's website at www.buildamerica.com, is incorporated herein by reference and may be obtained, without charge, upon request to BAM at its address provided above (Attention: Finance Department). Future financial statements will similarly be made available when published. BAM makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading "BOND INSURANCE". Additional Information Available from BAM Credit Insights Videos. For certain BAM-insured issues, BAM produces and posts a brief Credit Insights video that provides a discussion of the obligor and some of the key factors BAM's analysts and credit committee considered when approving the credit for insurance. The Credit Insights videos are easily accessible on BAM's website at buildamerica.com/creditinsights/. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.) Credit Profiles. Prior to the pricing of bonds that BAM has been selected to insure, BAM may prepare a pre -sale Credit Profile for those bonds. These pre -sale Credit Profiles provide information about the sector designation (e.g. general obligation, sales tax); a preliminary summary of financial information and key ratios; and demographic and economic data relevant to the obligor, if available. Subsequent to closing, for any offering that includes bonds insured by BAM, any pre -sale Credit Profile will be updated and superseded by a final Credit Profile to include information about the gross par insured by CUSIP, maturity and coupon. BAM pre -sale and final Credit Profiles are easily accessible on BAM's website at buildamerica.com/obligor/. BAM will produce a Credit Profile for all bonds insured by BAM, whether or not a pre -sale Credit Profile has been prepared for such bonds. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.) Disclaimers. The Credit Profiles and the Credit Insights videos and the information contained therein are not recommendations to purchase, hold or sell securities or to make any investment decisions. Credit -related and other analyses and statements in the Credit Profiles and the Credit Insights videos are statements of opinion as of the date expressed, and BAM assumes no responsibility to update the content of such material. The Credit Profiles and Credit Insight videos are prepared by BAM; they have not been reviewed or approved by the issuer of or the underwriter for the Bonds, and the issuer and underwriter assume no responsibility for their content. BAM receives compensation (an insurance premium) for the insurance that it is providing with respect to the Bonds. Neither BAM nor any affiliate of BAM has purchased, or committed to purchase, any of the Bonds, whether at the initial offering or otherwise. The Bond Insurance language for the Official Statement under the subheading `Bond Insurance Policy" should be replaced with the following language when insuring: Concurrently with the issuance of the Bonds, Build America Mutual Assurance Company ("BAM") will issue its Municipal Bond Insurance Policy for the Bonds (the "Policy"). The Policy guarantees the scheduled payment of principal of (or, in the case of Capital Appreciation Bonds, the accreted value) and interest on the Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement. 2. PARTIAL MATURITIES (LESS THAN THE ENTIRE ISSUE): Concurrently with the issuance of the Bonds, Build America Mutual Assurance Company ("BAM") will issue its Municipal Bond Insurance Policy (the "Policy") for the Bonds maturing on of the years through inclusive, with CUSIP Ws_ (collectively, the "Insured Bonds"). The Policy guarantees the scheduled payment of principal of and interest on the Insured Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement 3. CERTIFICATES OR NOTES: Change all references from the Bonds to Certificates or Notes wherever necessary, but DO NOT change the reference to the policy from Municipal Bond Insurance Policy. TO BE PRINTED ON THE INSIDE COVER OF OFFICIAL STATEMENT AS PART OF THE DISCLAIMER STATEMENT: Build America Mutual Assurance Company ("BAM") makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading "Bond Insurance" and "Exhibit _ - Specimen Municipal Bond Insurance Policy". EXHIBIT 3 Specimen Municipal Bond Insurance Policy BAM ISSUER: [NAME OF ISSUER] MEMBER: [NAME OF MEMBER] BONDS: S in aggregate principal amount of [NAME OF TRANSACTION] [and maturing on] MUNICIPAL BOND INSURANCE POLICY Policy No: Effective Date: Risk Pre Member Surplus Total InE BUILD AMERICA MUTUAL ASSURANCE COMPANY ("BAM");;for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the "Trustee") or paying agent (the "Paying,Agent") for,the Bonds named above (as set forth in the documentation providing for the issuance and securing of the Bonds), for the` beheft`of the Owners 'or, at the election of BAM, directly to each Owner, subject only to the terms of this Policy (which includes each cr dorsememt hereto), that'portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason oonp f Nayment by the issuer. On the later of the day on which such principal and interest becomes°Due for Payment or the first Business Day following the Business Day on which BAM shall have received Notice of Nonpayment;;A B'Vfivill disbuse{but Without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of the'Bonds, the face amount of principal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner's right to receive payment of sueli principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner's,".rights�with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will be'dee ned received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed'reeeived on the`next Business Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any -of whom may -submit an amended Notice of Nonpayment. Upon disbursement under this Policy in respect of a Bond and to the extent of such payment, BAM shall become -the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or interest on such`,Bond and shall be fully subrogated to the rights of the Owner, including the Owner's right to receive payments under such Bond,- Payment by BAM either to the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpayment shall discharge the obligation of BAM under this Policy with respect to said Nonpayment. Except to the extent; expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. `Business Day"'means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer's`Fiscal Agent (as deemed herein) are authorized or required by law or executive order to remain closed. "Due for Payment" means (a) when referring to the principal of a,b6iid, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund"redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sulking, fund redemption), acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due —upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. "Nonpayment" means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Truste&;or;, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. "Nonpayment" shall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction. "Notice" means delivery to BAM of a notice of claim and certificate, by certified mail, email or telecopy as set forth on the attached Schedule or other acceptable electronic delivery, in a form satisfactory to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, (d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. "Owner" means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that "Owner" shall not include the Issuer, the Member or any other person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds. BAM may appoint a fiscal agent (the "Insurer's Fiscal Agent") for purposes of this Policy by giving written notice to the Trustee, the Paying Agent, the Member and the Issuer specifying the name and notice address of the Insurer's Fiscal Agent. From and after the date of receipt of such notice by the Trustee, the Paying Agent, the Member or the Issuer (a) copies of all notices required to be delivered to BAM pursuant to this Policy shall be simultaneously delivered to the Insurer's Fiscal Agent and to BAM and shall not be deemed received until received by both and (b) all payments required to be made by BAM under this Policy may be made directly by BAM or by the Insurer's Fiscal Agent on behalf of BAM. The Insurer's Fiscal Agent is the agent of BAM only, and the Insurer's Fiscal Agent shall in no event be liable to the Trustee, Paying Agent or any Owner for any act of the Insurer's Fiscal Agent or any failure of BAM to deposit or cause to be deposited sufficient funds to make payments due under this Policy. To the fullest extent permitted by applicable law, BAM agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses (including, without limitation, the defense of fraud),,:ihether acquired by subrogation, assignment or otherwise, to the extent that such rights and defenses maybe available to BAM to avoid paymenfof is obligations under this Policy in accordance with the express provisions of this Policy. This Policy may not be canceled or revoked. This Policy sets forth in full the undertaking of BAM and shall not be modified, altered or affected by any, other agreement�or'instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto; -.any preimum paid in respect of , this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds prior to maturity. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND, SPECIFIEDIMARTICLE 76 OF THE NEW YORK INSURANCE LAW. THIS POLICY IS ISSUED WITHOUT CONTINGENT MUTUAL LIABILITY FOR ASSESSMENT. In witness whereof, BUILD AMERICA MUTUAL ASSURANCE COMPANY has caused this Policy=t6 be, executed on its behalf by its Authorized Officer.: -kNY Notices (Unless Otherwise Specified by BAM) Email: claims(abuildamerica.com Address: 200 Liberty Street, 27th floor New York, New York 10281 Telecopy: 212-962-1524 (attention: Claims) EXHIBIT 4 STATEMENT OF INSURANCE (Language for the Bond Form) This form is not to he included in the Official Statement. The Bonds shall bear a Statement of Insurance in the following form. The following language should be used when insuring 1. THE ENTIRE ISSUE: Build America Mutual Assurance Company ("BAM"), New York, New York, has delivered its municipal bond insurance policy (the "Policy") with respect to the scheduled payments due of principal of and interest on this Bond to {insert name of paying agent or trustee), {city or county}, {state}, or its successor, [as paying agent for the Bonds (the "Paying Agent")] [as trustee for the Bonds (the "Trustee")]. Said Policy is on file and available for inspection at the principal office of the [Paying Agent] [Trustee] and a copy thereof may be obtained from BAM or the [Paying Agent] [Trustee]. All payments required to be made under the Policy shall be made in accordance with the provisions thereof. By its purchase of these Bonds, the owner acknowledges and consents to the subrogation and all other rights of BAM as more fully set forth in the Policy. Z. CAPITAL APPRECIATION BONDS: Build America Mutual Assurance Company ("BAM"), New York, New York, has delivered its municipal bond insurance policy (the "Policy") in respect of the scheduled payments due of principal of (or, in the case of Capital Appreciation Bonds, the accreted value) and interest on this Bond to {insert name of paying agent or trustee), {city or county), {state}, or its successor, as [paying agent for the Bonds (the "Paying Agent")] as trustee for the Bonds (the "Trustee"). Said Policy is on file and available for inspection at the principal office of the [Paying Agent][Trustee] and a copy thereof may be obtained from BAM or the [Paying Agent][Trustee]. All payments required to be made under the Policy shall be made in accordance with the provisions thereof. By its purchase of these Bonds, the owner acknowledges and consents to the subrogation and all other rights of BAM as more fully set forth in the Policy. 3. PARTIAL MATURITIES (LESS THAN ENTIRE ISSUE): Build America Mutual Assurance Company ("BAM"), New York, New York, has delivered its municipal bond insurance policy (the "Policy") with respect to the scheduled payments due of principal of and interest on the Bonds maturing on of the years through , inclusive (the "Insured Bonds"), to {insert name of paying agent or trustee}, {city or county}, {state}, or its successor, [as paying agent for the Insured Bonds (the "Paying Agent")] [as trustee for the Insured Bonds (the "Trustee"). Said Policy is on file and available for inspection at the principal office of the [Paying Agent] [Trustee] and a copy thereof may be obtained from BAM or the [Paying Agent] [Trustee]. All payments required to be made under the Policy shall be made in accordance with the provisions thereof. By its purchase of these Insured Bonds, the owner acknowledges and consents to the subrogation and all other rights of BAM as more fully set forth in the Policy. 4. CERTIFICATES OR NOTES: Change all references from the Bonds to Certificates or Notes wherever necessary, but DO NOT change the reference to the policy from Municipal Bond Insurance Policy. EXHIBIT 5 PROCEDURES FOR PREMIUM PAYMENT TO BAM This form is not to be included in the Official Statement. BAM's issuance of its municipal bond insurance policy at bond closing is contingent upon payment and receipt of the premium. NO POLICY MAY BE RELEASED UNTIL PAYMENT OF SUCH AMOUNT HAS BEEN CONFIRMED. Set forth below are the procedures to be followed for confirming the amount of the premium to be paid and for paying such amount: Upon determination of the final debt service schedule, email or fax such schedule to the appropriate BAM Underwriter Greg Pacifico Phone No.: 212-235-2523 Email: gpacifico@buildamerica.com Confirm with the individual in our underwriting department that you are in agreement with respect to par and premium on the transaction prior to the closing date. Payment Date: Date of Delivery of the Insured Bonds. Method of Payment: Wire transfer of Federal Funds, Wire Transfer Instructions: Bank: First Republic Bank ABA#: 321081669 Acct. Name: Build America Mutual Assurance Company Account No.: 80001613703 Policy No.: [To Be Assigned] - (Include in OBI Field) CONFIRMATION OF PREMIUM BAM will accept as confirmation of the premium payment a wire transfer number and the name of the sending bank, to be communicated to the Closing Coordinator on the closing date: Miranda Ganzer Patrice James Claudette Littlejohn Nolan Miller (212) 235-2535 (212) 235-2559 (212) 235-2572 (212) 235-2511 BAM LEGAL OPINION AND CERTIFICATE [CLOSING DATE] [ADDRESSEES (ISSUER, UNDERWRITER AND TRUSTEE)] Re: Municipal Bond Insurance Policy No. [POLICY NO.] With Respect to $ [Name of Issuer] (the "Issuer") Bonds, Series (the "Bonds") Ladies and Gentlemen: I am Counsel of Build America Mutual Assurance Company, a New York mutual insurance company ("BAM"). You have requested my opinion in such capacity as to the matters set forth below in connection with the issuance by BAM of its above - referenced policy (the "Policy"). In that regard, and for purposes of this opinion, I have examined such corporate records, documents and proceedings as I have deemed necessary and appropriate. Based upon the foregoing, I am of the opinion that: 1. BAM is a mutual insurance company duly organized and validly existing under the laws of the State of New York and authorized to transact financial guaranty insurance business therein. 2. The Policy has been duly authorized, executed and delivered by BAM. 3. The Policy constitutes the valid and binding obligation of BAM, enforceable in accordance with its terms, subject, as to the enforcement of remedies, to bankruptcy, insolvency, reorganization, rehabilitation, moratorium and other similar laws affecting the enforceability of creditors' rights generally applicable in the event of the bankruptcy or insolvency of BAM and to the application of general principles of equity. 4. The issuance of the Policy qualifies [the Issuer] as a member of BAM until [the Bonds] are no longer outstanding. As a member of BAM, [the Issuer] is entitled to certain rights and privileges as provided in BAM's charter and by-laws and as may otherwise be provided under New York law. The Policy is non -assessable and creates no contingent mutual liability. In addition, please be advised that I have reviewed the description of the Policy under the caption "BOND INSURANCE" in the official statement relating to the above -referenced Bonds dated [DATE] (the "Official Statement"). There has not come to my attention any information which would cause me to believe that the description of the Policy referred to above, as of the date of the Official Statement or as of the date of this opinion, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Please be advised that I express no opinion with respect to any information contained in, or omitted from, "the Official Statement". I am a member of the Bar of the State of New York, and do not express any opinion as to any law other than the laws of the State of New York. This letter and the legal opinions herein are intended for the information solely of the addresses hereof and solely for the purposes of the transactions described in the Official Statement and are not to be relied upon by any other person or entity (including, without limitation, any person or entity that acquires bonds from an addressee of this letter.) I do not undertake to advise you of matters that may come to my attention subsequent to the date hereof that may affect the conclusions expressed herein. Very truly yours, 4 DISCLOSURE, NO DEFAULT AND TAX CERTIFICATE OF BUILD AMERICA MUTUAL ASSURANCE COMPANY The undersigned hereby certifies on behalf of BUILD AMERICA MUTUAL ASSURANCE COMPANY ("BAM"), in connection with the issuance by BAM of its Policy No. [POLICY NO.] (the "Policy") in respect of the [$AMOUNT] [NAME OF TRANSACTION] (the "Bonds") that: (i) The information set forth under the caption "BOND INSURANCE -BUILD AMERICA MUTUAL ASSURANCE COMPANY" in the official statement dated [DATE], relating to the Bonds (the "Official Statement") is true and correct; (ii) BAM is not currently in default nor has BAM ever been in default under any policy or obligation guaranteeing the payment of principal of or interest on an obligation; (iii) The Policy is an unconditional and recourse obligation of BAM (enforceable by or on behalf of the holders of the Bonds) to pay the scheduled principal of and interest on the Bonds when due in the event of Nonpayment by the Issuer (as set forth in the Policy); (iv) The insurance payment (inclusive of the sum of the Risk Premium and the Member Surplus Contribution) (the "Insurance Payment") is solely a charge for the transfer of credit risk and was determined in arm's length negotiations and is required to be paid to BAM as a condition to the issuance of the Policy; (v) BAM will, for federal income tax purposes, treat the Insurance Payment as solely in consideration for the insurance risk it assumes in the Policy and not as consideration for an investment in BAM or its assets; (vi) No portion of such Insurance Payment represents an indirect payment of costs of issuance, including rating agency fees, other than fees paid by BAM to maintain its rating, which, together with all other overhead expenses of BAM, are taken into account in the formulation of its rate structure, or for the provision of additional services by BAM, or represents a direct or indirect payment for any goods or services provided to the Issuer (including the right to receive a dividend), or the direct or indirect payment for a cost, risk or other element that is not customarily borne by insurers of tax-exempt bonds (in transactions in which the guarantor has no involvement other than as a guarantor); (vii) BAM is not providing any services in connection with the Bonds other than providing the Policy, and except for the Insurance Payment, BAM will not use any portion of the Bond proceeds; (viii) Except for payments under the Policy in the case of Nonpayment by the Issuer, there is no obligation to pay any amount of principal or interest on the Bonds by BAM; (ix) (a) BAM has not paid any dividends to date, (b) BAM's Board of Directors has resolved that BAM's priorities for surplus, as it accumulates, will be to preserve capital strength and claims paying resources for the benefit of its members and secondarily to return value by reducing premiums charged for its insurance, and (c) BAM has no current expectation that any dividends will be paid; (x) BAM does not expect that a claim or any other payment will be made on or with respect to the Policy or by BAM to the Issuer; and (xi) Neither the Issuer nor any other Obligor is entitled to a refund of the Insurance Payment for the Policy in the event a Bond is retired before the final maturity date. BAM makes no representation as to the nature of the interest to be paid on the Bonds or the treatment of the Policy under Section 1.148-4(f) of the Income Tax Regulations. Dated: [CLOSING DATE] BUILD AMERICA MUTUAL ASSURANCE COMPANY Authorized Officer 2 Primary Market Disclosure Certificate [Bond Description] (the "Insured Bonds") For the benefit of (the "Issuer"), and acknowledging that the Issuer will be relying on the contents hereof in addressing certain tax and disclosure items and for other matters, Build America Mutual Assurance Company ("Build America") makes the following representations and warranties as of the date hereof: 1. Neither Build America nor any affiliate of Build America has purchased, or has committed to purchase, any of the Insured Bonds, whether at the initial offering or otherwise; Z. Neither Build America nor any affiliate of Build America has entered into any agreement or understanding regarding the purchase or sale of the Insured Bonds, except for the insurance policies that Build America has provided regarding payments due under the Insured Bonds and the documentation associated with said insurance policies. For the purposes of this certificate, "affiliate of Build America" means a person or entity that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, Build America. [dated as of the closing date] Build America Mutual Assurance Company Authorized Officer PRELIMINARY OFFICIAL STATEMENT Dated: April 26, 2017 NEW ISSUE: Book-Entry-Only Rating: S&P Insured (anticipated) “AA” Moody’s Underlying “A1” (See “RATINGS” herein) In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Certificates is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986. In the further opinion of Bond Counsel, interest on the Certificates is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counse l expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Certificates. See “TAX MATTERS. THE CERTIFICATES WILL BE DESIGNATED AS “QUALIFIED TAX-EXEMPT OBLIGATIONS” FOR FINANCIAL INSTITUTIONS. $9,320,000* CITY OF SANGER, TEXAS (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2017 Interest to accrue from date of delivery Due: May 15, as shown on inside cover Interest on the $9,320,000* City of Sanger, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2017 (the “Certificates”), will accrue from their delivery date to the underwriters listed below (the “Underwriters”) and will be payable on May 15 and November 15 of each year, commencing on May 15, 2018. The Certificates will be issued only in fully registered form in principal denominations of $5,000 or any integral multiple thereof. Principal of the Certificates will be payable to the registered owner (the “Owner”) at maturity or prior redemption upon presentation at the principal corporate office of the paying agent/registrar (the “Paying Agent/Registrar”), initially BOKF, NA, Austin, Texas. The Certificates will be initially registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York (“DTC”). DTC will be responsible for distributing the principal and interest payments to the participating members of DTC and the participating members will be responsible for distributing the payment to the owners of beneficial interests in the Certificates. See “BOOK-ENTRY-ONLY SYSTEM” herein. The scheduled payment of principal and interest on the Certificates when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Certificates by BUILD AMERICA MUTUAL ASSURANCE COMPANY. Proceeds from the sale of the Certificates will be used to pay contractual obligations to be incurred for (1) the restoration, replacement, rehabilitation and expansion of the wastewater and water systems, including the treatment plant; (2) street and drainage and improvements; and (3) professional services related thereto. See “THE CERTIFICATES – Sources and Uses of Funds” herein. The Certificates maturing on and after May 15, 20__, are subject to optional redemption in whole or in part on May 15, 20__, or on any date thereafter at a redemption price equal to the principal amount thereof plus accrued interest as more fully described herein. See “THE CERTIFICATES – Optional Redemption” herein. The Certificates will constitute direct obligations of the City of Sanger, Texas (the “City”), payable from ad valorem taxes levied against all taxable property within the City within the limits prescribed by law, and from a limited subordinate pledge (not to exceed $10,000) of surplus net revenues of the City’s water and sewer system as provided in the ordinance authorizing the Certificates. See Principal Amounts, Maturities, Interest Rates, and Prices on the Inside Cover Page The Certificates are offered when, as and if issued, subject to the approval of legality by the Attorney General of the State of Texas and Orrick, Herrington & Sutcliffe LLP, Bond Counsel, Houston, Texas. Certain legal matters will be passed upon for the Underwriters by their counsel, Andrews Kurth Kenyon LLP, Houston, Texas. The Certificates are expected to be available for delivery to the Underwriters through DTC on or about May 18, 2017. OPPENHEIMER & CO. WILLIAM BLAIR * Preliminary, subject to change. Th i s P r e l i m i n a r y O f f i c i a l S t a t e m e n t a n d t h e i n f o r m a t i o n c o n t a i n e d h e r e i n a r e su b j e c t t o c o m p l e t i o n o r a m e n d m e n t . T h e s e s e c u r i t i e s m a y n o t b e s o l d n o r m a y o f f e r s t o b u y b e a c c e p t e d p r i o r t o t h e t i m e t h e Of f i c i a l St a t e m e n t i s d e l i v e r e d i n f i n a l f o r m . U n d e r n o c i r c u m s t a n c e s s h a l l t h i s P r e l i m i n a r y O f f i c i a l S t a t e m e n t c o n s t i t u t e a n o f fe r t o s e l l o r t h e s o l i c i t a t i o n o f a n o f f e r t o b u y n o r s h a l l t h e r e b e a n y s a l e o f t h e s e s e c u r i t i e s i n an y j u r i s d i c t i o n i n w h i c h s u c h o f f e r , s o l i c i t a t i o n , o r s a l e w o u l d b e u n l a w f u l p r i o r t o r e g i s t r a t i o n o r q u a l i f i c a t i o n u n d e r t h e s e c u r i t i e s l a w s o f a n y s u c h ju r i s d i c t i o n . MATURITY SCHEDULE* $9,320,000* Combination Tax and Revenue Certificates of Obligation , Series 2017 Maturity (May 15) (a) Principal Amount Interest Rate Initial Yield/Price(b) CUSIP(c) 2022 $ 455,000 2023 480,000 2024 505,000 2025 525,000 2026 535,000 2027 825,000 2028 990,000 2029 1,020,000 2030 1,065,000 2031 1,105,000 2032 1,150,000 2033 665,000 ____________________________ * Preliminary, subject to change. (a) The Certificates maturing on and after May 15, 20__, are subject to optional redemption, in whole or in part, on May 15, 20__, or any date thereafter, at a price equal to the par value thereof, plus accrued interest from the most recent interest payment date to the date or redemption. (See “THE CERTIFICATES – Optional Redemption”). (b) The initial yields and prices are established by, and are the sole responsibility of the Underwriters and may subsequently be changed. (c) CUSIP numbers have been assigned to this issue by the CUSIP Global Services managed by Standard and Poor’s Financial Services LLC on behalf of the American Bankers Association and are included solely for the convenience of the purchasers of the Certificates. Neither the City, the Financial Advisor, nor the Underwriters shall be responsible for the selection or correctness of the CUSIP numbers set forth herein. i CITY OF SANGER, TEXAS CITY COUNCIL Thomas Muir Mayor Lee Allison Councilmember, Place 1 Gary Bilyeu Councilmember, Place 2 William Boutwell Councilmember, Place 3 Allen Chick Councilmember, Place 4 David Clark Councilmember, Place 5 ADMINISTRATIVE OFFICERS Mike Brice City Manager Cheryl Price City Secretary Robert L. Dillard III, Esq. Nichols Jackson Dillard Hagar & Smith Dallas, Texas City Attorney CONSULTANTS, ADVISORS AND INDEPENDENT AUDITORS Orrick, Herrington & Sutcliffe LLP, Houston, Texas Bond Counsel BrooksCardiel, PLLC, The Woodlands, Texas Independent Auditor Government Capital Securities Corporation, Southlake, Texas Financial Advisor For additional information regarding the City, please contact: Mike Brice City Manager City of Sanger, Texas P.O. Box 1729 Sanger, Texas 76266 (940) 458-7930 mbrice@sangertexas.org Ted Christensen Government Capital Securities Corporation 559 Silicon Drive, Suite 102 Southlake, TX 76092 (817) 722-0239 tchristensen@govcapsecurities.com ii USE OF INFORMATION IN OFFICIAL STATEMENT For purposes of compliance with Rule 15c2-12 of the United States Securities and Exchange Commission, this document constitutes an Official Statement of the City with respect to the Certificates that has been deemed “final” by the City as of its date except for the omission of no more than the information permitted by Rule 15c2-12. This document, when further supplemented by adding information specifying the interest rates and certain other information relating to the Certificates, shall constitute a “final official statement” of the City with respect to the Certificates, as such term is defined in Rule 15c2-12. This Official Statement is not to be used in connection with an offer to sell or the solicitation of an offer to buy 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. Any information and expressions of opinion herein contained are subject to change without notice, and neither the delivery of the 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 or other matters described herein since the date hereof. See “CONTINUING DISCLOSURE OF INFORMATION” for a description of the City’s undertaking to provide certain information on a continuing basis. THE CERTIFICATES ARE EXEMPTED FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE CERTIFICATES IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTION IN WHICH THESE SECURITIES HAVE BEEN REGISTERED OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The agreements of the City and others related to the Certificates are contained solely in the contracts described herein. Neither this Official Statement nor any other statement made in connection with the offer or sale of the Certificates is to be construed as constituting an agreement with the purchasers of the Certificates. INVESTORS SHOULD READ THE ENTIRE OFFICIAL STATEMENT, INCLUDING ALL SCHEDULES AND APPENDICES ATTACHED HERETO, TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information set forth in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. Neither the City, the Financial Advisor nor the Underwriters make any representation as to the accuracy, completeness or adequacy of the information contained in this Official Statement regarding The Depository Trust Company or its Book-Entry- Only System. Build America Mutual Assurance Company (“BAM”) makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading “Bond Insurance” and “Appendix E - Specimen Municipal Bond Insurance Policy.” iii TABLE OF CONTENTS SUMMARY STATEMENT .............................................. iv Bond INSURANCE ........................................................... iv Bond Insurance Policy .......................................... iv Build America Mutual Assurance Company ........ iv SELECTED FINANCIAL INFORMATION ................... vii INTRODUCTORY STATEMENT .................................... 1 THE CERTIFICATES ........................................................ 1 Purpose .................................................................. 1 Authorization ......................................................... 1 Security for the Certificates ................................... 1 Optional Redemption ............................................. 1 Notice of Redemption ............................................ 2 Sources and Uses of Funds .................................... 2 GENERAL INFORMATION REGARDING THE CERTIFICATES ........................................................... 2 General Description ............................................... 2 Legality .................................................................. 3 Defeasance ............................................................. 3 Amendments to the Ordinance ............................... 3 OWNERSHIP ..................................................................... 3 OWNER’S REMEDIES ..................................................... 4 BOOK-ENTRY-ONLY SYSTEM ..................................... 4 REGISTRATION, TRANSFER AND EXCHANGE ......... 6 Paying Agent/Registrar .......................................... 6 Future Registration ................................................ 6 Record Date for Interest Payment .......................... 6 Limitation on Transfer of Certificates ................... 7 Replacement of Certificates ................................... 7 TAX INFORMATION ....................................................... 7 Effective Tax Rate And Rollback Tax Rate ........... 9 Property Assessment And Tax Payment ................ 9 Penalties And Interest ............................................ 9 City Application of Property Tax Code ............... 10 Municipal Sales Tax ............................................ 10 TAX RATE LIMITATIONS ............................................ 10 RETIREMENT PLAN ..................................................... 11 INVESTMENT POLICIES .............................................. 11 Accounting Principles Generally Accepted in the United States ............................................. 11 Legal Investments ................................................ 11 Investment Policies .............................................. 12 Additional Provisions........................................... 12 Current Investments ............................................. 13 RATINGS ........................................................................ 13 PENDING LITIGATION................................................. 13 LEGAL MATTERS ......................................................... 13 TAX MATTERS .............................................................. 14 LEGAL INVESTMENTS IN TEXAS ............................. 15 REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE ..................................................... 15 CONTINUING DISCLOSURE OF INFORMATION ..... 15 Annual Reports .................................................... 15 Material Event Notices ........................................ 16 Limitations and Amendments .............................. 16 Compliance with Prior Undertakings ................... 16 other information .............................................................. 17 Financial Advisor ................................................. 17 Audited Financial Statements .............................. 17 Underwriting ........................................................ 17 Forward-Looking Statements ............................... 17 Concluding statement........................................... 17 Financial Information Regarding the City of Sanger, Texas Appendix A General Information Regarding the City of Sanger, Texas Appendix B Form of Opinion of Bond Counsel Appendix C Audited Financial Statements for the Fiscal Year Ended September 30, 2016 Appendix D Specimen Municipal Bond Insurance Policy Appendix E iv BOND INSURANCE Bond Insurance Policy Concurrently with the issuance of the Certificates, Build America Mutual Assurance Company (“BAM”) will issue its Municipal Bond Insurance Policy for the Certificates (the “Policy”). The Policy guarantees the scheduled payment of princip al of and interest on the Certificates when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Build America Mutual Assurance Company BAM is a New York domiciled mutual insurance corporation. BAM provides credit enhancement products solely to issuers in the U.S. public finance markets. BAM will only insure obligations of states, political subdivisions, integral parts of states or political subdivisions or entities otherwise eligible for the exclusion of income under section 115 of the U.S. Internal Revenue Code of 1986, as amended. No member of BAM is liable for the obligations of BAM. The address of the principal executive offices of BAM is: 200 Liberty Street, 27th Floor, New York, New York 10281, its telephone number is: 212-235-2500, and its website is located at: www.buildamerica.com. BAM is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York and in particular Articles 41 and 69 of the New York Insurance Law. BAM’s financial strength is rated “AA/Stable” by Standard and Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”). An explanation of the significance of the rating and current reports may be obtained from S&P at www.standardandpoors.com. The rating of BAM should be evaluated independently. The rating reflects the S&P’s current assessment of the creditworthiness of BAM and its ability to pay claims on its policies of insurance. The above rating is not a recommendation to buy, sell or hold the Certificates, and such rating is subject to revision or withdrawal at any time by S&P, including withdrawal initiated at the request of BAM in its sole discretion. Any downward revision or withdrawal of the above rating may have an adverse effect on the market price of the Certificates. BAM only guarantees scheduled principal and scheduled interest payments payable by the issuer of the Certificates on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the Policy), and BAM does not guarantee the market price or liquidity of the Certificates, nor does it guarantee that the rating on the Certificates will not be revised or withdrawn. Capitalization of BAM BAM’s total admitted assets, total liabilities, and total capital and surplus, as of December 31, 2016 and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $496.7 million, $65.2 million and $431.5 million, respectively. BAM is party to a first loss reinsurance treaty that provides first loss protection up to a maximum of 15% of the par amount outstanding for each policy issued by BAM, subject to certain limitations and restrictions. BAM’s most recent Statutory Annual Statement, which has been filed with the New York State Insurance Department and posted on BAM’s website at www.buildamerica.com, is incorporated herein by reference and may be obtained, without charge, upon request to BAM at its address provided above (Attention: Finance Department). Future financial statements will similarly be made available when published. BAM makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading “BOND INSURANCE”. Additional Information Available from BAM Credit Insights Videos. For certain BAM-insured issues, BAM produces and posts a brief Credit Insights video that provides a discussion of the obligor and some of the key factors BAM’s analysts and credit committee considered when approving the credit for insurance. The Credit Insights videos are easily accessible on BAM's website at buildamerica.com/creditinsights/. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.) Credit Profiles. Prior to the pricing of Certificates that BAM has been selected to insure, BAM may prepare a pre-sale Credit Profile for those Certificates. These pre-sale Credit Profiles provide information about the sector designation (e.g. general obligation, sales tax); a preliminary summary of financial information and key ratios; and demographic and economic data relevant to the obligor, if available. Subsequent to closing, for any offering that includes Certificates insured by BAM, any pre- sale Credit Profile will be updated and superseded by a final Credit Profile to include information about the gross par insured by CUSIP, maturity and coupon. BAM pre-sale and final Credit Profiles are easily accessible on BAM's website at buildamerica.com/obligor/. BAM will produce a Credit Profile for all Certificates insured by BAM, whether or not a pre-sale Credit Profile has been prepared for such Certificates. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.) v Disclaimers. The Credit Profiles and the Credit Insights videos and the information contained therein are not recommendations to purchase, hold or sell securities or to make any investment decisions, credit-related and other analyses and statements in the Credit Profiles and the Credit Insights videos are statements of opinion as of the date expressed, and BAM assumes no responsibility to update the content of such material. The Credit Profiles and Credit Insight videos are prepared by BAM; they have not been reviewed or approved by the issuer of or the underwriter for the Certificates, and the issuer and underwriter assume no responsibility for their content. BAM receives compensation (an insurance premium) for the insurance that it is providing with respect to the Certificates. Neither BAM nor any affiliate of BAM has purchased, or committed to purchase, any of the Certificates, whether at the initial offering or otherwise. (Remainder of Page Intentionally Left Blank) vi SUMMARY STATEMENT This Summary Statement is subject in all respects to the more complete information contained in this Official Statement. The offering of the Certificates to potential investors is made only by means of this entire Official Statement, including the schedules and appendices hereto. No person is authorized to detach this Summary Statement from this Official Statement or to otherwise use it without this entire Official Statement including the Appendices hereto. The Issuer The City of Sanger, Texas (the “City”), is located in Denton County, Texas. For information regarding the City, see Appendices A and B. The Certificates $9,320,000 Combination Tax and Revenue Certificates of Obligation, Series 2017, dated May 1, 2017 maturing on the dates and in the amounts set forth on the inside front cover of this Official Statement. Interest on the Certificates will accrue from their date of delivery and will be paid semiannually on May 15 and November 15, commencing May 15, 2018, until maturity or prior redemption. Purpose of Certificates Proceeds from the sale of the Certificates will be used to pay contractual obligations to be incurred for (1) the restoration, replacement, rehabilitation and expansion of the wastewater and water systems, including the treatment plant; (2) street and drainage and improvements; and (3) professional services related thereto. See “THE CERTIFICATES – Sources and Uses of Funds” herein. Authorization and Security The Certificates are direct obligations of the City, issued pursuant to Chapter 271, Subchapter C, Texas Local Government Code, Chapter 1502, Texas Government Code, and an ordinance to be enacted by the City Council of the City (the “City Council”) on May 1, 2017. The Certificates are payable from ad valorem taxes to be levied, within the limits prescribed by law, on all taxable property within the City and a limited subordinate pledge of surplus net revenues derived from the City’s water and sewer system, not to exceed $10,000, as provided in the ordinance authorizing the Certificates. Optional Redemption The Certificates maturing on and after May 15, 20__, are subject to optional redemption in whole or in part on May 15, 20__, or on any date thereafter at a price of par plus accrued interest as more fully described herein. See “THE CERTIFICATES – Optional Redemption” herein. Tax Exemption In the opinion of Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Certificates is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986. In the further opinion of Bond Counsel, interest on the Certificates is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Certificates. See “TAX MATTERS. See “TAX MATTERS” for a discussion of the opinion of Bond Counsel, including a description of alternative minimum tax consequences for corporations. The City has designated the Certificates as “Qualified Tax-exempt Obligations.” Ratings The City has made application to S&P Global Ratings, a division of S&P Global, Inc. (“S&P”) based upon the Municipal Bond Insurance Policy to be issued by Build America Mutual Assurance Company. The Certificates have also been assigned an underlying rating of “A1” by Moody’s Investor’s Service, Inc. (“Moody’s”). An explanation of the significance of such ratings may be obtained from S&P and Moody’s. See “RATINGS” herein. Book-Entry-Only System The Certificates are initially issuable only to Cede & Co., the nominee of The Depository Trust Company, New York, New York, pursuant to the book-entry only system described herein. Beneficial ownership of the Certificates may be acquired in principal denominations of $5,000 or integral multiples thereof. No physical delivery of the Certificates will be made to the purchasers thereof. Principal of, premium if any, and interest on the Certificates will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the DTC Participants (as defined herein) for subsequent remittance to the owners of the beneficial interests in the Certificates. See “BOOK-ENTRY-ONLY SYSTEM” herein. Payment Record The City has never defaulted on the payment of its bonded indebtedness.  Preliminary, subject to change. vii SELECTED FINANCIAL INFORMATION (Unaudited) 2016 Certified Taxable Assessed Valuation………………………………………………... $525,943,493 (a) (100% of Market Value as of January 1, 2016) City Debt: Outstanding Tax Supported Debt (as of September 30, 2016)………………….……. $17,130,000 (b) Plus: The Certificates……………………………………………………………... 9,320,000 * Total Tax Supported Debt…………………………………………………………. $26,450,000 * Estimated Overlapping Debt………………………………………………………………... $14,884,769 Direct and Estimated Overlapping Debt……………………………………………………. $41,334,769 * Debt Service Fund Balance (as of Sept. 30, 2016)………………………………………….. $404,096 % of 2016 Assessed Valuation 2016 Per Capita (7,747) Debt Ratios: Direct Tax Supported Debt……………. 5.03% $3,414 Direct Tax Supported and Estimated Overlapping Debt………….. 7.86% $5,336 2016 Tax Rate (per $100 of Assessed Valuation) Maintenance and Operation $0.513353 Debt Service ……………………………………………………………………… 0.166147 Total ……………………………………………………………………………… $0.679500 Estimated Annual Debt Service Requirements…………………………………………….. Average…………………………………………………………………………… $1,806,682 * Maximum (2020)…………………………………………………………………. $2,338,685 * Tax Collections Current Year………………………………………………………………………. 99.22% Total Collections………………………………………………………………….. 96.88% _______________________ * Preliminary, subject to change. (a) Provided by the Denton Central Appraisal District (the “Appraisal District”) and net of exemptions. Such value is further subject to changes as additions, corrections and deletions are made to the tax roll. (b) Includes self-supporting debt. 1 PRELIMINARY OFFICIAL STATEMENT RELATING TO $9,320,000* CITY OF SANGER, TEXAS (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2017 INTRODUCTORY STATEMENT This Official Statement, which includes the cover page, the schedules and the appendices hereto, provides certain information regarding the issuance by the City of Sanger, Texas (the “City”) of $9,320,000* Combination Tax and Revenue Certificates of Obligation, Series 2017 (the “Certificates”). The Certificates will be authorized to be issued, sold and delivered by an ordinance enacted by the City’s governing body (the “City Council”), and such ordinance is referred to herein as the “Ordinance.” Capitalized terms used in this Official Statem ent have the same meaning assigned to such terms in the Ordinance, except as otherwise indicated herein. The City is a political subdivision of the State of Texas (the “State”) and a municipal corporation organized and existing un der the laws of the State and the City’s home rule charter (the “City Charter”), which was initially approved by the electorate of the City on November 2, 1999. For information regarding the City, see Appendices A and B of this Official Statement. All financial and other information presented in this Official Statement has been provided by the City, except for information expressly attributed to other sources. The presentation of information, including tables of receipts from taxes and other sources, is intended to show recent historic information, and is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as is shown by that financial and other information, will necessarily continue to be repeated in the future. THE CERTIFICATES Purpose Proceeds from the sale of the Certificates will be used to pay contractual obligations to be incurred for (1) the restoration, replacement, rehabilitation and expansion of the wastewater and water systems, including the treatment plant; (2) street and drainage and improvements; and (3) professional services related thereto. See “THE CERTIFICATES – Sources and Uses of Funds” herein. Authorization The Certificates are direct obligations of the City, issued pursuant to Chapter 271, Subchapter C, Texas Local Government Code, as amended, Chapter 1502, Texas Government Code, as amended, and the Ordinance, as authorized by the City Charter. Security for the Certificates The Certificates are payable from ad valorem taxes to be levied and collected, within the limits prescribed by law, on all taxable property within the City, and by a limited subordinate pledge of surplus net revenues derived from the City’s water and sewer system (the “System”), not to exceed $10,000, as provided in the Ordinance. Optional Redemption The City reserves the right, at its option, to redeem the Certificates having stated maturities on and after May 15, 20__, in whole or in part, in integral multiples of $5,000, on May 15, 20__ or any date thereafter, such redemption date or dates to be fixed by the City, at a redemption price equal to the principal amount thereof plus accrued interest to the date fixed for redemption. If less than all of the Certificates are to be redeemed, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar (as defined herein) to select by lot the Certificates, or portions thereof, within each maturity to be redeemed. * Preliminary, subject to change. 2 Notice of Redemption Not less than 30 days prior to a redemption date for the Certificates, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to each registered owner of a Certificate to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. If notice is so given and sufficient funds are provided for the payment of the redemption price of the Certificates, interest shall cease to accrue after the date fixed for redemption whether or not the Certificates have been submitted for payment. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, AND THE FUNDS NECESSARY TO REDEEM SUCH CERTIFICATES HAVING BEEN PROVIDED, THE CERTIFICATES CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY CERTIFICATE OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH CERTIFICATE OR PORTION THEREOF SHALL CEASE TO ACCRUE. Sources and Uses of Funds The proceeds from the sale of the Certificates will be applied approximately as follows: Sources Principal Amount of Certificates $ Net Original Issue Discount/Premium Total Sources of Funds $ Uses Deposit to Construction Fund $ Costs of Issuance Underwriters’ Discount Total Uses of Funds $ GENERAL INFORMATION REGARDING THE CERTIFICATES General Description The Certificates will be dated May 1, 2017 (the “Dated Date”), and will be issued in fully registered form in denominations of $5,000 or any integral multiple thereof. The Certificates will bear interest from the date of delivery to the underwriters listed on the cover page hereof (the “Underwriters”), and interest will be paid semiannually on each May 15 and November 15, commencing May 15, 2018. Interest will accrue on the Certificates on the basis of a 360-day year consisting of twelve 30-day months. The Certificates will be issued as book-entry only securities pursuant to arrangements made with The Depository Trust Company, New York, New York. See “BOOK-ENTRY-ONLY SYSTEM.” Principal of the Certificates will be payable to the registered owners (the “Owners”) at maturity or prior redemption upon presentation and surrender of such Certificates at the principal corporate office of the paying agent/registrar (the “Paying Agent/Registrar”), initially BOKF, NA, Austin, Texas. Interest on the Certificates will be payable by check dated as of the interest payment date and mailed by the Paying Agent/Registrar to Owners as shown on the records of the Paying Agent/Registrar on the Record Date (see “REGISTRATION, TRANSFER AND EXCHANGE – Record Date for Interest Payment” herein), or by such other customary banking arrangement, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the Owner. If the date for the payment of the principal of or interest on a Certificate shall be a Saturday, Sunday, legal holiday, or a day on which banking institutions in the city where 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 a 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. The Certificates will mature on the dates, in the amounts and bear interest at the rates as set forth on inside cover page of this Official Statement. 3 Legality The Certificates are offered when, as and if issued, subject to the approvals of legality by the Attorney General of the State of Texas and Orrick, Herrington & Sutcliffe LLP, Houston, Texas, Bond Counsel. (See “LEGAL MATTERS” and Appendix C – “Form of Opinion of Bond Counsel”). Defeasance The Ordinance provides that the City may defease the Certificates and discharge its obligation to the holders of any or all of the Certificates to pay the principal of and interest thereon in any manner now or hereafter permitted by law, including by depositing with the Registrar or with the Comptroller of the State of Texas either: (a) cash in an amount equal to the principal amount of and interest thereon to the date of maturity or redemption; or (b) pursuant to an escrow or trust agreement, cash and/or (i) direct noncallable obligations of 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, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the Board approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than “AAA” or its equivalent; or (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 Board approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than “AAA” or its equivalent, which, in the case of (i), (ii), or (iii), may be in book entry form, and the principal of and inter est on which will, when due or redeemable at the option of the holder, without further investment or reinvestment of either the principal amount thereof or the interest earnings thereon, provide money in an amount which, together with other moneys, if any, held in such escrow at the same time and available for such purpose, shall be sufficient to provide for the timely payment of the principal of and interest thereon to the date of maturity or earlier redemption; provided, however, that if any of the Certificates are to be redeemed prior to their respective dates of maturity, provision shall be made for the giving of notice of redemption as provided in the Ordinance. Any surplus amount not required to accomplish such defeasance shall be returned to the City. Upon such deposit as described above, such Certificates shall no longer be regarded to be outstanding or unpaid. After firm banking and financial arrangements for the discharge and final payment or redemption of the Certificates have been made as described above, all rights of the City to initiate proceedings to call the Certificates for redemption or take any other action amending the terms of the Certificates are extinguished; provided, however, that the right to call the Certificates for redemption is not extinguished if the City: (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call the Certificates for redemption; (ii) gives notice of the reservation of that right to the owners of the Certificates immediately following the making of the firm banking and financial arrangements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorize. Amendments to the Ordinance In the Ordinance, the City has reserved the right to amend such Ordinance without the consent of any holder of the Certificates in any manner not detrimental to the interests of the holders of the Certificates, including the curing of any ambiguity, defect or omission therein. The Ordinance further provides that the holders of the Certificates aggregating in principal amount 51% of the outstanding Certificates shall have the right from time to time to approve any amendment not described above to the Ordinance; provided, however, that without the consent of 100% of the holders in original principal amount of the then outstanding Certificates no amendment may be made for the purpose of: (i) making any change in the maturity of any of the outstanding Certificates; (ii) reducing the rate of interest borne by any of the outstanding Certificates; (iii) reducing the amount of the principal of, or redemption premium, if any, payable on any outstanding Certificates; (iv) modifying the terms of payment of principal or of interest or redemption premium on outstanding Certificates; or (v) changing the minimum percentage of the principal amount of the Certificates necessary for consent to such amendment. Reference is made to the Ordinance for further provisions relating to the amendment thereof. OWNERSHIP The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Certificate is registered as the absolute owner of such Certificate for the purpose of making and receiving payment of principal and interest, and for all other purposes, whether or not such Certificate is overdue, and neither the City nor the Paying Agent/Registrar will be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the owner of any Certificate in accordance with the Ordinance will be valid and effectual and will discharge the liability of the City and the Paying Agent/Registrar upon such Certificate to the extent of the sums paid. 4 OWNER’S REMEDIES The Ordinance does not provide for the appointment of a trustee to represent the interests of the Certificateholders upon any failure of the City to perform in accordance with the terms of the Ordinance or upon any other condition and, in the event of any such failure to perform, the registered owners would be responsible for the initiation and cost of any legal action to enforce performance of the Ordinance. Furthermore, the Ordinance does not establish specific events of default with respect to the Certificates and, under State law, there is no right to the acceleration of maturity of the Certificates upon the failure of the City to observe any covenant under the Ordinance. A registered owner of Certificates could seek a judgment against the City if a default occurred in the payment of principal of or interest on any such Certificates; however, such judgment could not be satisfied by execution against any property of the City and a suit for monetary damages could be vulnerable to the defense of sovereign immunity. A registered owner’s only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the City to levy, assess, and collect an annual ad valorem tax sufficient to pay principal of and interest on the Certificates as it becomes due or perform other material terms and covenants contained in the Ordinance. However, the enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The City is also eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code (“Chapter 9”). Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of 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 Certificateholders 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 opinions of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Certificates are qualified with respect to the customary rights of debtors relative to their creditors, including rights afforded to creditors under the Bankruptcy Code. BOOK-ENTRY-ONLY SYSTEM This section describes how ownership of the Certificates is to be transferred and how the principal of, premium, if any, and interest on the Certificates are to be paid to and credited by The Depository Trust Company (“DTC”), New York, New York, while the Certificates 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 Financia l Advisor, and the Underwriters believe the source of such information to be reliable, but take no responsibility for the accuracy or completeness thereof. The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Certificates, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Certificates), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. Th e current rules applicable to DTC are on file with the United States Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Certificates. The Certificates will be issued as fully registered Certificates 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 security certificate will be issued for the Certificates, in the aggregate principal amount of such issue, 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, 5 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+”. 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. Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC’s records. The ownership interest of each actual purchaser of each Certificate (“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 Certificates 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 Certificates, except in the event that use of the book-entry system for the Certificates is discontinued. To facilitate subsequent transfers, all Certificates 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 Certificates 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 Certificates; DTC’s records reflect onl y the identity of the Direct Participants to whose accounts such Certificates 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 thei r customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subjec t to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates, such as redemptions, tenders, defaults, and proposed amendments to the Certificate documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates 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 shall be sent to DTC. If less than all of the Certificates 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 Certificates unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City 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 Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, interest, and redemption payments on the Certificates 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 recei pt of funds and corresponding detail information from the City or the Paying Agent/Registrar, on the 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, the Paying Agent/Registrar, o r the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, interest, and redemption payments 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 Certificates at any time by giving reasonable notice to the City or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Certificates 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, physical certificates will be printed and delivered. 6 Use of Certain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the Certificates are in the Book-Entry Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Certificates, but (i) all rights of ownership must be exercised through DTC and the Book- Entry Only System and (ii) except as described above, notices that are to be given to registered owners under the Ordinance will be given only to DTC. The information in this section concerning DTC and DTC’s book-entry-only system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. REGISTRATION, TRANSFER AND EXCHANGE Paying Agent/Registrar BOKF, NA, Austin, Texas has been named to serve as initial Paying Agent/Registrar for the Certificates. In the Ordinance, the City retains the right to replace the Paying Agent/Registrar. If the City replaces the Paying Agent/Registrar, such Paying Agent/Registrar shall, promptly upon the appointment of a successor, deliver the Paying Agent/Registrar’s records to the successor Paying Agent/Registrar, and the successor Paying Agent/Registrar shall act in the same capacity as the previous Paying Agent/Registrar. Any successor Paying Agent/Registrar selected by the City shall be a commercial bank; a trust company organized under applicable law; or other entity duly qualified and legally authorized to serve and perform the duties of the Paying Agent/Registrar for the Certificates. Upon any change in the Paying Agent/Registrar for the Certificates, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Certificates by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. In the event the Book-Entry Only System should be discontinued, interest on the Certificates will 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 will 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 and redemption payments of the Certificates 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 or interest on the Certificates is 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 will be the next succeeding day which is not such a day, and payment on such date will have the same force and effect as if made on the date payment was due. So long as Cede & Co. is the registered owner of the Certificates, principal, interest, and redemption payments on the Certificates will be made as described in “BOOK-ENTRY ONLY SYSTEM” above. Future Registration In the event the book-entry only system should be discontinued, printed Certificates will be delivered to the Owners and thereafter the Certificates may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender to the Paying Agent/Registrar, and such registration and transfer shall be without expense or service charge to the Owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. Certificates may be assigned by the execution of an assignment form on the Certificates or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. A new Certificate will be delivered by the Paying Agent/Registrar in lieu of the Certificate being transferred or exchanged at the designated office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered Owner at the Owner’s request, risk and expense. New Certificates issued in an exchange or transfer of Certificates will be delivered to the registered Owner or assignee of the Owner after the receipt of the Certificates to be canceled in the exchange or transfer and the written instrument of transfer or request for exchange duly executed by the Owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Certificates registered and delivered in an exchange or transfer shall be of like kind and in authorized denominations and for a like aggregate principal amount as the Certificate or Certificates surrendered for exchange or transfer. See “BOOK-ENTRY-ONLY SYSTEM” for a description of the system to be utilized initially in the settlement and transfer of the Certificates. Record Date for Interest Payment The record date (“Record Date”) for the interest payable on any interest payment date is the last business day of the month next preceding such interest payment date, as specified in the Ordinance. In the event of a nonpayment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (the “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. 7 Notice of the Special Record Date and of the scheduled payment date of the past due interest (the “Special Payment Date” which shall be 15 days after the Special Record Date) shall be sent at least 5 days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of each Owner of a Certificate appearing on the books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. Limitation on Transfer of Certificates Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Certificate (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 or (ii) with respect to any Certificate, or any portion thereof, called for redemption prior to maturity within 45 days prior to its redemption date, provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Certificate. Replacement of Certificates If any Certificate is mutilated, destroyed, stolen or lost, a new Certificate in the same principal amount as the Certificate so mutilated, destroyed, stolen or lost will be issued. In the case of a mutilated Certificate, such new Certificate will be delivered only upon surrender and cancellation of such mutilated Certificate. In the case of any Certificate issued in lieu of and in substitution for a Certificate which has been destroyed, stolen or lost, such new Certificate will be delivered only (a) upon filing with the City and the Paying Agent/Registrar evidence satisfactory to them that such Certificate has been destroyed, stolen or lost and proof of the ownership thereof and (b) upon furnishing the City and the Paying Agent/Registrar with indemnity satisfactory to them. The person requesting the authentication and delivery of a new Certificate must pay such expenses as the Paying Agent/Registrar may incur in connection therewith. TAX INFORMATION Ad Valorem Tax Law The appraisal of property within the City is the responsibility of the Denton 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 Property 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. In determining market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (1) the market value of the property, or (2) the sum of (a) 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, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to Title I of the Texas Tax Code (the “Property 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 taxes. Article VIII of the State Constitution (“Article VIII”) and State law provide 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 Section 1-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant an exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision. Additionally, the governing body of a political subdivision may grant an exemption of up to 20% of the market value of all residence homesteads, with a minimum exemption of $5,000. Pursuant to a constitutional amendment approved by the voters on November 3, 2015 and Senate Bill 1 passed by the 84th Legislature, cities may not reduce the amount of or repeal an optional homestead exemption granted for the 2014 tax year (fiscal year 2015) for a period running through December 31, 2019. The surviving spouse of an individual who qualifies for the foregoing exemption for the residence homestead of a person 65 or older (but not the disabled) is entitled to an exemption for the same property in an amount equal to that of the exemption for which the deceased spouse qualified if (i) the deceased spouse died in a year in which the deceased spouse qualified for the 8 exemption, (ii) the surviving spouse was at least 55 years of age at the time of the death of the individual’s spouse and (iii) the property was the residence homestead of the surviving spouse when the deceased spouse died and remains the residence homestead of the surviving spouse. In the case of residence homestead exemptions granted under Section 1-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt i f cessation of the levy would impair the obligation of the contract by which the debt was created. State law and Section 2, Article VIII, mandate 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. A disabled veteran (and their surviving spouse) who receives from the United States Department of Veterans Affairs or its successor a rating of 100% disabled is entitled to an exemption from taxation of the total appraised value of the resident’s homestead. The surv iving spouse of a 100% disabled veteran who died prior to the effective date of the homestead exemption is entitled to exemption, but only if the surviving spouse has not remarried since the death of the disabled veteran. A partially disabled veteran or the surviving spouses of a partially disabled veteran is entitled to an exemption from taxation of a percentage of the appraised value of their residence homestead in an amount equal to the partially disabled veteran’s disability rating if the residence homest ead was donated by a charitable organization. Also, the surviving spouse of a member of the armed forces who was killed in action is, subject to certain conditions, entitled to an exemption of the total appraised value of the surviving spouse’s residence home stead, and subject to certain conditions, an exemption up to the same amount may be transferred to a subsequent residence homestead of the surviving spouse. 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 personal property, 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. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. 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 beginning 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 City may create tax increment financing zones, under which the tax values on property in the zone are “frozen” at the val ue of the property at the time of creation of the zone. Tax revenues collected on values above the “frozen” value must be deposited in a tax increment fund for 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 exempts from taxation 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 10 years. Cities are also authorized, pursuant to Chapter 380, Texas Local Government Code (“Chapter 380”) to establish programs to promote state or local economic development and to stimulate business and commercial activity in the City. In accordance with a program established pursuant to Chapter 380, the City may make loans or grant of public funds for economic development purposes; however, no obligations secured by ad valorem taxes may be issued for such purposes unless approved by voters of the City. Under Article VIII and State law, the governing body of a county, municipality or junior college district, may freeze the total amount of ad valorem taxes levied on the residence homestead of a disabled person or persons 65 years of age or older to the amount of taxes imposed in the year such residence qualified for such exemption. Also, upon receipt of a petition signed by five percent of the registered voters of the county, municipality or junior college district, an election must be held to determine by majority vote whether to establish such a limitation on taxes paid on residence homesteads of persons 65 years of age or who are disabled. Upon providing for such exemption, such freeze on ad valorem taxes is transferable to a different residence homestead. Also, a surviving spouse of a taxpayer who qualifies for the freeze on ad valorem taxes is entitled to the same exemption so long as the property was the residence homestead of the surviving spouse when the deceased spouse died and remains the residence homestead of the surviving spouse and the spouse was at least 55 years of age at the time of the death of the individual’s sp ouse. 9 If improvements (other than repairs or improvements required to comply with governmental requirements) are made to the property, the value of the improvements is taxed at the then current tax rate, and the total amount of taxes imposed is increased to reflect the new improvements with the new amount of taxes then serving as the ceiling on taxes for the following years. Once established, the tax rate limitation may not be repealed or rescinded. The City can make no representations or predictions concerning the impact such tax limitation would have on the City’s tax rate, financial condition or ability to ma ke debt service payments. Effective Tax Rate And Rollback Tax Rate By each September 1 or as soon thereafter as practicable, the City Council adopts a tax rate per $100 taxable value for the current year. The City Council will be required to adopt the annual tax rate for the City before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the City. If the City Council does not adopt a tax rate by such require d date the tax rate for that tax year is the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the City 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. Under the Property Tax Code, the City must annually calculate and publicize its “effective tax rate” and “rollback tax rate.” Effective 2005, a tax rate cannot be adopted by the City Council that exceeds the lower of the rollback tax rate or the effec tive tax rate until two public hearings have been held on the proposed tax rate following notice of such public hearings (including th e requirement that notice be posted on the City’s website if the City owns, operates or controls an internet website and pub lic notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. 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. “Effective tax rate” means the rate that will produce last 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 last year’s taxes and new values are not incl uded in this year’s taxable values. “Rollback tax rate” means the rate that will produce last year’s maintenance and operation tax levy (adjusted) from this year’s values (adjusted) multiplied by 1.08 plus a rate that will produce this year’s debt service from this year’s values (unadjust ed) divided by the anticipated tax collection 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 generally 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 February 1 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 Cumulative Penalty Cumulative 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 10 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, a 15% attorney’s collection fee is added to the total tax penalty and interest charge. Under certain circumstances, ta xes 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 parce ls, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. City Application of Property Tax Code The City grants an exemption of $30,000 of the market value of the residence homestead for persons 65 years of age or older and an exemption of $20,000 of the market value of the residence homestead for persons that are disabled. See Appendix A – Table 1 for a listing of the total amount of these exemptions. The City does not grant an additional exemption for residence homesteads. The City taxes only business personal property. The County Tax Collector collects property taxes for the City. The County does not permit split payments and does not allow discounts. The City grants the Article VIII, Section 1-j (“freeport property”) exemption but at this time has no Article VIII, Section 1-j property. Municipal Sales Tax The City has adopted the provisions of V.A.T.C.S. Tax Code § 321.001 et seq., which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City. The proceeds of such tax are credited to the General Fund and are not pledged to payment of the Certificates. Collections and enforcements are effected through the offices of the State Comptroller of Public Accounts, who monthly remits the proceeds of the tax, after deduction of a 2% service fee, to the City. The Tax Code provides certain cities and counties the option of assessing a maximum one-half percent (1/2%) sales tax on retail sales of taxable items for the purpose of reducing its ad valorem taxes, if approved by a majority of the voters in a local option election. If the additional tax is approved and levied, the ad valorem property tax levy must be reduced by the estimated amount of the sales tax revenues to be generated in the current year. Subject to the approval of a majority of the voters in a local option election, state law also provides certain cities the option of assessing a sales and use tax for a variety of other purposes, including economic and industrial development, municipal street maintenance and repair, and sports and community venues. State law limits the maximum aggregate sales and use tax rate in any area to 8¼%. Accordingly, the collection of local sales and use taxes in the area of the City (including sales and use taxes levied by the City) is limited to no more than 2% (when combined with the State sales and use tax rate of 6¼%). In addition to the one percent (1%) local sales and use tax referred to above, at an election held on May 2, 1998 voters of the City approved the imposition of an additional one-half percent (1/2%) sales and use tax for economic development purposes in accordance with Section 4A, Article 5190.6 of Vernon’s Annotated Texas Civil Statutes. Levy of the additional sales and use tax began in December, 1998. At an election held on May 2, 1998 voters of the City approved the imposition of an additional one- half percent (1/2%) sales and use tax for economic development purposes in accordance with Section 4B, Article 5190.6 of Vernon’s Annotated Texas Civil Statutes. Levy of the additional sales and use tax began in December, 1998. The City has not held an election regarding an additional sales tax for the purpose of reducing its ad valorem taxes. TAX RATE LIMITATIONS Article XI, Section 5, of the State Constitution is applicable to the City and imposes a limitation on ad valorem taxes which can be imposed by the City of $2.50 per $100 taxable assessed valuation. The Attorney General of Texas follows a policy, with respect to Home Rule Cities which have such a $2.50 limitation, of approving ad valorem tax bonds only to the extent that all of such city's ad valorem tax debt can be serviced by a debt service tax rate of $1.50 at 90% collection. 11 RETIREMENT PLAN The City participates in the Texas Municipal Retirement System which is a joint contributory retirement plan covering all full- time employees. There are no benefits guaranteed other than to the extent provided by employee and employer contributions, plus earnings, accumulated in the individual accounts of employees. The contribution rate for employees is 6% of their annua l covered salary. The City is required to contribute at an actuarially determined 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 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 actuarial liability over the remainder of the plan’s 25-year amortization period. Contributions by the City for the year ended September 30, 2016 totaled $247,432. For additional information regarding the City’s Pension Plans, see Appendix D - “Audited Financial Statements for the Fiscal Year Ended September 30, 2016, Note V – Other Information – Pension Plans”. INVESTMENT POLICIES Accounting Principles Generally Accepted in the United States The City policy is to adhere to accounting principles generally accepted in the United States (see Appendix D “Audited Financial Statements for the Fiscal Year Ended September 30, 2016”). Legal Investments Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is unconditionally guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States; (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit and share certificates meeting the requirements of the Texas Public Funds Investment Act (Chapter 2256, Texas Government Code) (i) that are issued by or through an institution that has its main office or a branch in the State, 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; (iii) 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; (iv) 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 (v) the City appoints the depository institution selected under (ii) above, an entity 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 issued for the account of the City; (8) fully collateralized repurchase agreements that have a defined termination date, are secured by a combination of cash and obligations described in clause (1) require the securities being purchased by the City or cash held by the City to be 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) 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; (10) 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; (11) 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 (12) 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 the this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than “AAA” or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations, including letters of credit, of the United States or its agencies an d 12 instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described below. A political subdivision such as the City may enter into 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 (10) through (12) above, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the City, held in the City's name and deposited at the time the investment is made with the City or a third party designated by the City; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less. 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. Investment Policies Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety o f 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, 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 mus t 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 o f 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 shall submit an investment report detailing: (1) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, and any additions and changes to market valu e and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund o r 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 strategy statements and (b) State law. No person may invest City funds without express written authority from the City Council. Additional Provisions Under State law, the City is additionally required to: (1) annually review its adopted policies and strategies; (2) adopt a written instrument by rule, order, ordinance or resolution stating that it has reviewed its investment policy and investment strategies and recording any changes made to either its investment policy or investment strategy; (3) require any investment officers with personal business relationships or relatives with firms seeking to sell securities to the City to disclose the relationship and file a statement with the Texas Ethics Commission and 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 th at 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 authorizati on 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 13 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 repurchase 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. Current Investments As of September 30, 2016, the City’s investment portfolio was invested in the following categories. As of such date, the market value of such investments was approximately 100% of their book value. Type of Investment Amount Certificates of Deposit $1,615,948 Total $1,615,948 RATINGS The City has made application to S&P Global Ratings, a division of S&P Global, Inc. (“S&P”) based upon the Municipal Bond Insurance Policy to be issued by Build America Mutual Assurance Company. The Certificates have also been assigned an underlying rating of “A1” by Moody’s Investor’s Service, Inc. (“Moody’s”). The ratings reflect only the view of such organizations at the time such ratings were given and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by S&P or Moody’s, if in the judgment of S&P or Moody’s, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates. PENDING LITIGATION There is no material litigation currently pending against the City. LEGAL MATTERS The City will furnish a complete transcript of proceedings incident to the authorization and issuance of the Certificates, including the approving legal opinions of the Attorney General of the State of Texas to the effect that the Certificates are valid and binding obligations of the City, and based upon examination of such transcripts of proceedings, the approving legal opinions of Bond Counsel to the effect that (i) the Certificates issued in compliance with the provisions of the Ordinance are valid and legally binding obligations of the City and (ii) the interest on the Certificates is exempt from federal income taxation under existing statutes, published rulings, regulations, and court decisions (see “TAX MATTERS”). Bond Counsel has not been engaged to investigate the financial resources of the City or its ability to provide for payment of the Certificates, and the opinion of Bond Counsel will make no statement as to such matters, or any other information that may have been relied on by anyone in making the decision to purchase the Certificates. The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Certificates are contingent on the sale and delivery of the Certificates. The applicable legal opinion will be printed on or attached to the definitive Certificates. Bond Counsel has reviewed the statements and information appearing in the Official Statement under the captions “THE CERTIFICATES” (except the subcaption “Sources and Uses of Funds”), “GENERAL INFORMATION REGARDING THE CERTIFICATES,” “REGISTRATION, TRANSFER AND EXCHANGE,” “TAX RATE LIMITATIONS,” “LEGAL MATTERS,” “TAX MATTERS,” “QUALIFIED TAX EXEMPT OBLIGATIONS,” “LEGAL INVESTMENTS IN TEXAS,” “REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE” and “CONTINUING DISCLOSURE OF INFORMATION” (except the subcaption “Compliance With Prior Undertakings”) fairly summarizes the procedures and documents referred to therein and is correct as to matters of law. Bond Counsel has not independently verified any of the factual information contained in this Official Statement nor have they conducted an investigation of the affairs of the City for the purpose of passing upon the accuracy, completeness or fairness 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, completeness or fairness of any of the information contained herein. 14 TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP (“Bond Counsel”), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Certificates is excluded from gross income for federal income tax purposes under Section 1 03 of the Internal Revenue Code of 1986 (the “Code”). Bond Counsel is of the further opinion that interest on the Certificates is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix C hereto. To the extent the issue price of any maturity of the Certificates is less than the amount to be paid at maturity of such Certificates (excluding amounts stated to be interest and payable at least annually over the term of such Certificates), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Certificates which is excluded from gross income for federal income tax purposes. For this purpose, the issue price of a particular maturity of the Certificates is the first price at which a substantial amount of such maturity of the Certificates is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Certificates accrues daily over the term to maturity of such Certificates on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Certificates to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Certificates. Beneficial Owners of the Certificates should consult their own tax advisors with respect to the tax consequences of ownership of Certificates with original issue discount, including the treatment of Beneficial Owners who do not purchase such Certificates in the original offering to the public at the first price at which a substantial amount of such Certificates is sold to the public. Certificates purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Certificates”) will be treated as having amortizable certificate premium. No deduction is allowable for the amortizable certificate premium in the case of Certificates, like the Premium Certificates, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax- exempt interest received, and a Beneficial Owner’s basis in a Premium Certificate, will be reduced by the amount of amortizab le bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Certificates should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Certificates. The Issuer has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Certificates will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Certificates being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Certificates. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the Certificates may adversely affect the value of, or the tax status of interest on, the Certificates. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matter s. Although Bond Counsel is of the opinion that interest on the Certificates is excluded from gross income for federal income tax purposes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Certificates may otherwise affect a Beneficial Owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Certificates to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. For example, the Obama Administration’s budget proposals in recent years have proposed legislation that would limit the exclusion from gross income of interest on the Certificates to some extent for high-income individuals. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Certificates. Prospective purchasers of the Certificates should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Certificates for federal income tax purposes. It is not binding on the Internal Revenue Service (“IRS”) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the Issuer, or about the effect of future changes in the Code, 15 the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The Issuer has covenanted, however, to comply with the requirements of the Code. Bond Counsel’s engagement with respect to the Certificates ends with the issuance of the Certificates, and, unless separately engaged, Bond Counsel is not obligated to defend the Issuer or the Beneficial Owners regarding the tax-exempt status of the Certificates in the event of an audit examination by the IRS. Under current procedures, parties other than the Issuer and their appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt Certificates is difficult, obtaining an independent review of IRS positions with which the Issuer legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Certificates for audit, or the course or result of such audit, or an audit of Certificates presenting similar tax issues may affect the market price for, or the marketability of, the Certificates, and may cause the Issuer or the Beneficial Owners to incur significant expense. LEGAL INVESTMENTS IN TEXAS Under the Texas Public Security Procedures Act (Texas Government Code, Chapter 1201), the Certificates (1) are negotiable instruments, (2) are investment securities to which Chapter 8 of the Texas Uniform Commercial Code applies, and (3) are legal and authorized investments for (A) an insurance company, (B) a fiduciary or trustee, or (C) a sinking fund of a municipality or other political subdivision or public agency of the State of Texas. The Certificates are eligible to secure deposits of any public funds of the State, its agencies, and political subdivisions, and are legal security for those deposits to the extent of their market value. For political subdivisions in Texas which have adopted investment policies and guidelines in accordance with the Public Funds Investment Act (Texas Government Code, Chapter 2256), the Certificates may have to be assigned a rating of “A” or its equivalent as to investment quality by a national rating agency before such Certificates are eligible investments for sinking funds and other public funds. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investo r standard, the Certificates are legal investments for state banks, savings banks, trust companies with at least $1 million of capital and savings and loan associations. 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 Certificates for any of the foregoing purposes or limit the authority of such institutions or entities to purchase or invest in the Certificates for such purposes. The City has made no review of laws in other states to determine whether the Certificates are legal investments for various institutions in those states. REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE No registration statement relating to the Certificates has been filed with the United States Securities and Exchange Commission under the federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Certificates have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Certificates been registered or qualified under the securities acts of any other jurisdiction. The City assumes no responsibility for registration or qualification of the Certificates under the securities laws of any other jurisdiction in which the Certificates may be offered, sold, or otherwise transferred. This disclaimer of responsibility for registration and qualification for sale or other disposition of the Certificates shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions in such other jurisdictions. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Certificates. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Certificates. 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 free of charge from the MSRB via Electronic Municipal Market Access (“EMMA”) system at www.emma.msrb.org. Annual Reports The City will provide certain updated financial information and operating data to the MSRB annually in an electronic format as prescribed by the MSRB. The information to be updated includes all quantitative financial information and operating data wit h respect to the City of the general type included this Official Statement in Appendix A - Financial Information Regarding the City of Sanger. Texas (Tables 1-10) and in Appendix D. The City will update and provide this information within six months after the end of each fiscal year. 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 “Rule”). The updated information will include audited financial statements, 16 if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide unaudited financial statements by the required time and audited financial statements when and if such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in APPENDIX B 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 last day of March in each year following the end of its fiscal year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify the MSRB of the change. Material Event Notices The City will also provide timely notices of certain events to the MSRB (not in excess of ten (10) days after the occurrence of the event). The City will provide notice of any of the following events with respect to the Certificates: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, 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 status of the Certificates, or other material events affecting the tax status of the Certificates; (7 ) modifications to rights of holders of the Certificates, if material; (8) Certificate calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Certificates, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the City; (13) the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, 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, if material; and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material. (Neither the Certificates nor the Ordinance make any provision for debt service reserves, liquidity enhancement, or credit enhancement). In addition, the City will provide timely notice of any failure by the City t o provide information, data, or financial statements in accordance with it s agreement described above under “Annual Reports”. All documents provided to the MSRB shall be accompanied by identifying information, as prescribed by the MSRB. 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 the Certificates 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 and beneficial owners of the Certificates may seek a writ of mandamus to compel the City to comply with its agreement. This continuing disclosure agreement may be amended by the City from time to time to adapt to changed circumstances that aris e 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, as so amended, would have permitted an underwriter to purchase or sell Certificates in the primary offering of the Certificates 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 registered owners of a majority in aggregate principal of the outstanding Certificates consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interest of the registered owners and beneficial owners of the Certificates. 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 Certificates in the primary offering of the Certificates. If the City amends its agreement, it must include with the next financial information and opening 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 type of information and data provided. 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 enter s 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 Certificates in the primary offering of the Certificates. Compliance with Prior Undertakings During the last five years, the City has not failed to comply in any material respect with any continuing disclosure agreement made by it in accordance with the Rule. 17 OTHER INFORMATION Financial Advisor In its role as Financial Advisor, Government Capital Securities Corporation has relied on the City for certain information concerning the City and the Certificates. The fee of the Financial Advisor for services with respect to the Certificates is contingent upon the issuance and sale of the Certificates. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of th e information in this Official Statement. The Financial Advisor has provided the following sentence for inclusion in this Official Statement. The Financial Advisor has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to the City and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. Audited Financial Statements BrooksCardiel, PLLC, the City’s independent auditor, has not reviewed, commented on, or approved, and is not associated with, this Official Statement. The report of BrooksCardiel, PLLC, relating to City’s financial statements for the fiscal year ended September 30, 2016, is included in this Official Statement in APPENDIX D; however, BrooksCardiel, PLLC has not performed any procedures on such financial statements since the date of such report, and has not performed any procedures on any other financial information of the City, including without limitation any of the information contained in this Official Statement. Underwriting Oppenheimer & Co. Inc. and William Blair & Company, the Underwriters, have agreed to purchase the Certificates from the City for $_________ (being the principal amount of the Certificates, plus/minus a net premium/discount of $________, less an Underwriters’ discount of $________). The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information set forth in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. Forward-Looking Statements 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 n o obligations to update any such forward-looking statements. It is important to note that the City’s actual results could differ materially from those 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 a nd 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. Concluding statement The information set forth herein has been obtained from the City’s records, audited financial statements and other sources wh ich are considered to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will ever be realized. All of the summaries of the statutes, documents and the Ordinance contained in this Official Statement are made subject to all of the provisions of such statutes, documents, and the Ordinance. These summaries do not purport to be complete 18 statements of such provisions and reference is made to such summarized documents for further information. Reference is made to official documents in all respects. The City has reviewed and approved the Official Statement and said instrument has been authorized for use and distribution by the Underwriters for the purpose of offering the Certificates. __________________________________________________ Mayor, City of Sanger, Texas ATTEST: ____________________________________ Secretary, City of Sanger, Texas APPENDIX A FINANCIAL INFORMATION REGARDING THE CITY OF SANGER, TEXAS A-1 FINANCIAL INFORMATION FOR THE CITY ASSESSED VALUATION TABLE 1 2016 Total Value of Taxable Property $601,163,729 Less Exemptions: Local, Optional Over-65 and/or Disabled Homestead Exemptions $ 11,421,053 Disabled and Deceased Veterans’ Exemptions 2,099,400 Productivity Value Loss 31,307,498 Homestead 10% Cap Adjustment 6,071,303 Abatement 0 Freeport 12,690,882 Other 11,639,100 75,220,236 2016 Net Taxable Assessed Valuation (100% of Actual)(a) $525,943,493 ________________ (a)See “TAX INFORMATION - City Application of the Property Tax Code” in the Official Statement for a description of the City’s taxation procedures. Source: Denton County Appraisal District PRINCIPAL TAXPAYERS TABLE 2 Name Type of Business 2016 Net Taxable Assessed Valuation % of Total 2016 Assessed Valuation* Wal-Mart Stores East Distribution $113,142,214 21.51% DCM Sanger Property Real Estate 12,000,000 2.28% Altec Capital Service Financial Services 9,765,915 1.86% Sam’s East, Inc Distribution 8,776,472 1.67% Willbros T & D Service Engineering 3,683,760 0.70% Springer Family Rentals Real Estate 3,240,786 0.62% Maccamp Ltd RV Sales & Service 3,164,739 0.60% Stonewood Resorts LLC Real Estate 2,677,315 0.51% Springer John D Real Estate 2,556,775 0.49% Latham Zane Warehouse 2,192.464 0.42% Total $161,200,440 30.66% * Based on 2016 Net Taxable Assessed Valuation of $525,943,493. ________________ Source: Texas Comptroller of Public Accounts and Denton Central Appraisal District A-2 PROPERTY TAX RATES AND COLLECTIONS(a) TABLE 3 Fiscal Tax Net Taxable Tax Collection % Year Year Assessed Valuation Rate Current Total(b) Ended 2002 $226,882,983 0.565470 97.03% 99.39% 9-30-03 2003 289,937,097 0.565470 97.38% 99.71% 9-30-04 2004 312,537,172 0.570830 97.40% 99.70% 9-30-05 2005 338,298,363 0.590460 98.16% 99.70% 9-30-06 2006 353,244,529 0.599600 97.36% 99.74% 9-30-07 2007 372,374,916 0.620000 98.13% 99.68% 9-30-08 2008 383,511,572 0.620000 97.72% 99.43% 9-30-09 2009 363,053,298 0.620000 97.78% 98.99% 9-30-10 2010 365,706,678 0.633049 97.70% 97.70% 9-30-11 2011 358,015,773 0.633049 98.69% 98.71% 9-30-12 2012 389,390,028 0.633049 99.20% 101.00% 9-30-13 2013 415,503,377 0.665000 99.80% 101.92% 9-30-14 2014 435,573,587 0.679500 99.27% 99.27% 9-30-15 2015 465,804,829 0.679500 99.21% 99.21% 9-30-16 2016 525,943,493 0.679500 In progress 9-30-17 ________________ (a)See “TAX INFORMATION - The City Application of the Property Tax Code” in the Official Statement for a description of the City’s taxation procedures. (b)Excludes interest and penalties. Source: Texas Municipal Report published by the Municipal Advisory Council of Texas, the Denton County Appraisal District, and the City’s 2016 Annual Financial Statements. Note: Assessed Valuations may change during the year due to various supplements and protests, and valuations on a later date or in other tables of this Official Statement may not match those shown on this table. TAX RATE DISTRIBUTION TABLE 4 2016-17 2015-16 2014-15 2013-14 2012-13 Maintenance & Operations $0.513353 $0.433353 $0.418751 $0.409405 $0.446044 Dedicated for Street Maintenance 0 0.080000 0.080000 0.080000 I & S Fund 0.166147 0.166147 0.180749 0.175595 0.187005 TOTAL $0.679500 $0.679500 $0.679500 $0.665000 $0.633049 ________________ Source: City A-3 WATER RATES TABLE 5 Existing Rates Residential (Effective April 1, 2017) Minimum per unit served for 0 - 1,000 gallons $21.74 Next 4,000 gallons 3.86 per thousand gallons Next 10,000 gallons 4.25 per thousand gallons Next 15,000 gallons 5.30 per thousand gallons Over 30,000 7.68 per thousand gallons Commercial (Effective April 1, 2017) Minimum per unit served for 0 - 1,000 gallons $28.32 Next 4,000 gallons 4.49 per thousand gallons Next 10,000 gallons 4.86 per thousand gallons Next 15,000 gallons 5.50 per thousand gallons Over 30,000 6.79 per thousand gallons PRINCIPAL WATER CUSTOMERS 2015-16 TABLE 6 (For the twelve months ending September 30, 2016) Name of Customer Average Monthly Consumption in Gallons Average Monthly Bill Stonewood Resorts 604,250 $3,824 Walmart Dist Center 362,150 2,093 SISD Sanger High School 321,750 1,468 SISD Butterfied Elementary 317,092 1,874 Chisum Trail 136,733 1,153 SISD Berry Middle School 109,175 559 Karl Klements Properties 75,308 670 Khosrow Sadeghian 74,258 542 Babe’s Chicken 69,942 412 Miguelito’s Restaurant 65,350 378 Total 2,136,008 $12,973 A-4 SEWER RATES TABLE 7 Existing Rates Residential (Effective April 18, 2016) Minimum (first 1,000 gallons) $27.50 Per 1,000 gallons over first 1,000 gallons 3.90 Per 1,000 gallons in excess of 10,000 gallons 4.34 Maximum per month 65.00 Commercial (Effective April 18, 2016) ¾ inch meter $ 40.48 1 inch meter 44.30 1½ inch meter 50.40 2 inch meter 61.30 3 inch meter 75.60 4 inch meter 140.32 6 inch meter 186.50 8 inch meter 246.14 Per 1,000 gallons over first 1,000 gallons 3.90 Per 1,000 gallons in excess of 10,000 gallons 4.34 Multi-Family Dwellings The amount due for multi-family dwellings shall be the residential rate multiplied by the number of occupied dwelling units. PRINCIPAL SEWER CUSTOMERS TABLE 8 (For the twelve months ending September 30, 2016) Name of Customer Average Monthly Bill Stonewood Resorts LLC $4,143 SISD Sanger High School 953 Walmart Distribution Center 1,417 SISD Butterfield Elementary 1,203 Chisum Trail 1,304 SISD Berry Middle School 397 Babe’s Chicken 314 Karl Klement Properties 757 Sanger Inn 272 The Sportsman 265 Total $11,025 A-5 ELECTRIC RATESTABLE 9 Existing Rates (Effective April 18, 2107) Residential Commercial Large Industrial Facility Charge (minimum per month) $ 10.00 $ 16.00 $35.00 Energy Charge (per KWH) $ 0.1175 $ 0.12 $0.105 ERCOT Pass-through per month $ 4.00 $ 4.00 $ 4.00 PRINCIPAL ELECTRIC CUSTOMERS 2015-2016TABLE 10 (For the twelve months ending September 30, 2016) Name of Customer Average Monthly Consumption in Kilowatt Hours Average Monthly Bill Walmart Distribution Center 1,255,000 $109,848 Maccamp LTD 117.400 11.888 Super Save 103.847 10,575 Wagon Master RV Park 92,700 9,290 Sam’s – Walmart Stores East LP 57,633 5,816 McDonalds 52,480 5,356 Latham Stairs Millwork Inc. 37,807 3,842 SISD Chisholm Trail Elementary 34,327 3,258 North Texas Plastics 32,353 3,334 The Sportsman 32,140 3,252 Total 1,815,687 $166,459  None of the City’s revenues from its electric system is pledged to the payment of the Certificates. A-6 PRO FORMA GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS TABLE 11 Fiscal Year 30-Sept Existing Debt Service Principal* Interest* Total Debt Service* 2017 $ 1,990,725.00 $ - $ - $ 1,990,725.00 2018 1,989,435.00 - 343,662.08 2,333,097.08 2019 1,991,970.00 - 346,550.00 2,338,520.00 2020 1,992,135.00 - 346,550.00 2,338,685.00 2021 1,989,780.00 - 346,550.00 2,336,330.00 2022 1,198,061.25 455,000.00 346,550.00 1,999,611.25 2023 1,184,635.00 480,000.00 332,900.00 1,997,535.00 2024 1,175,045.00 505,000.00 318,500.00 1,998,545.00 2025 1,173,605.00 525,000.00 300,825.00 1,999,430.00 2026 1,178,307.50 535,000.00 282,450.00 1,995,757.50 2027 910,945.00 825,000.00 263,725.00 1,999,670.00 2028 773,325.00 990,000.00 234,850.00 1,998,175.00 2029 775,200.00 1,020,000.00 200,200.00 1,995,400.00 2030 774,843.75 1,065,000.00 159,400.00 1,999,243.75 2031 778,000.00 1,105,000.00 116,800.00 1,999,800.00 2032 774,937.50 1,150,000.00 72,600.00 1,997,537.50 2033 770,656.25 665,000.00 26,600.00 1,462,256.25 2034 450,312.50 - - 450,312.50 2035 449,656.25 - - 449,656.25 2036 453,343.75 - - 453,343.75 TOTAL $22,774,918.75 $9,320,000.00 $ 4,038,712.08 $ 36,133,630.83 ______________ * Preliminary, subject to change. Interest estimated at market rates for purposes of illustration. APPENDIX B GENERAL INFORMATION REGARDING THE CITY OF SANGER, TEXAS B-1 General The City of Sanger is a residential community located on Interstate Highway 35 northeast of the Dallas-Fort Worth industrial area. The City’s close proximity to both Dallas and Fort Worth has been a significant factor in the City’s growth. According to the 2010 U.S. Census, the City’s 2010 population was 6,916. U.S. Census estimates indicate an estimated population of 7,747 as of September 30, 2016. The area continues to see a large influx of new residents each year and this trend is expected to continue for the foreseeable future. In addition to the City’s close proximity to Interstate Highway 35, the City also provides ready access to both rail transportation and developable industrial land. The City of Sanger offers access to several financial institutes, churches of various denominations and a wide variety of retail outlets. The public school system offers a low student to teacher ratio and the City currently has three daycare centers. The City is also located within minutes of Lake Ray Roberts, which provides a variety of sporting and outdoor activities. The local economy is gaining strength and the City has recently seen increases in both construction and sales tax. Education The City is served by the Sanger Independent School District. The District covers approximately 42 square miles in Denton County and serves the City and its surrounding rural areas. The District is comprised of one early childhood center for grades pre-kindergarten through kindergarten, one elementary school for grades first through third, one intermediate school for grades fourth through sixth, one junior high school for grades seventh through eighth, and one high school for grades ninth through twelfth. All campuses offer enriched curricula with special programs for gifted/talented students as well as students achieving below grade level and are equipped with computers and cafeteria service. Denton County Denton County is located in north central Texas, encompassing 911 square miles, and was created in 1846 from Fannin County. The County is the third largest county of the nine counties comprising the Dallas-Fort Worth Consolidated Metropolitan Statistical Area. The County is traversed by Interstate Highway 35, US Highways 77, 377 and 380 and State Highways 114 and 121. The economy is diversified by manufacturing, state supported institutions and agriculture. According to the 2010 U.S. Census, the County’s 2010 population was 662,614. APPENDIX C FORM OF OPINION OF BOND COUNSEL ______________, 2017 City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017 (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel to the City of Sanger, Texas (the “City”) in connection with the issuance of $________________ aggregate principal amount of Obligations designated as “City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017” (the “Obligations”). The Obligations are authorized by an ordinance adopted by the City Council of the City (the “City Council”) on May 1, 2017 (the “Ordinance”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Ordinance. In such connection, we have reviewed the Ordinance, the tax certificate of the City dated the date hereof (the “Tax Certificate”), certificates of the City, and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Obligations has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the City. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Ordinance and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Obligations to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Obligations, the Ordinance and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against issuers in the State of Texas. We express no opinion with respect to any indemnification, contribution, liquidated _____________, 2017 Page 2 damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents. Our services did not include financial or other non- legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Obligations and express no opinion with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The Obligations constitute the valid and binding obligations of the City. 2. The City Council has power and is obligated to levy an annual ad valorem tax, within the limits prescribed by law, upon taxable property located within the City, which taxes have been pledged irrevocably to pay the principal of and interest on the Obligations. 3. The Obligations are also secured by a pledge of subordinate revenues of the water and sewer system of the City not to exceed $10,000. 4. Interest on the Obligations is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986. Interest on the Obligations is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted current earnings when calculating corporate alternative minimum taxable income. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Obligations. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP APPENDIX D AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2016 ANNUAL FINANCIAL REPORT of the City of Sanger, Texas For the Year Ended September 30, 2016 (This page intentionally left blank.) City of Sanger, Texas TABLE OF CONTENTS September 30, 2016 FINANCIAL SECTION Independent Auditor’s Report 1 Management’s Discussion and Analysis 7 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 16 Statement of Activities 18 Fund Financial Statements Governmental Funds: Balance Sheet 20 Reconciliation of the Balance Sheet to the Statement of Net Position- Governmental Funds 23 Statement of Revenues, Expenditures, and Changes in Fund Balance- Governmental Funds 24 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 27 Proprietary Funds: Statement of Net Position 28 Statement of Revenues, Expenses, and Changes in Fund Net Position 29 Statement of Cash Flows 30 Notes to Financial Statements 33 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures, and Changes in Fund Balances- Budget and Actual -General Fund 70 Schedule of Changes in Net Pension Liability and Related Ratios 73 Schedule of Employer Contributions to Plan 75 COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS Combining Schedule of Revenues, Expenses, and Changes in Fund Net Position -Proprietary Funds –by Department 78 (This page intentionally left blank.) 1 Bro oksCardiel,PLLC Certified Public Accountants 1095 Evergreen Circle | Suite 200 | The Woodlands, TX 77380 |Tel: 281.907.8788 | Fax: 888.875.0587 | www.BrooksCardiel.com ` INDEPENDENT AUDITOR’S REPORT To the Honorable Mayor and Members of the City Council City of Sanger, Texas: Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Sanger, Texas (the “City”) as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements The City’s management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes 2 evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of September 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, schedule of changes in net pension liability and related ratios, schedule of employee contributions to pension plan, and budgetary comparison information be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise City of Sanger, Texas’s basic financial statements. The combining schedule by department for the proprietary fund are presented for purposes of additional analysis and are not a required part of the basic financial statements. 3 The combining schedule by department for the proprietary fund is the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the ba sic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements the mselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. BrooksCardiel, PLLC Certified Public Accountants The Woodlands, Texas January 27, 2017 (This page intentionally left blank.) 4 MANAGEMENT'S DISCUSSION AND ANALYSIS 5 (This page intentionally left blank.) 6 City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) September 30, 2016 7 As management of the City of Sanger, Texas (the “City”), we offer readers of the City’s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, 2016. Financial Highlights The City's total combined net position is $31,097,598 at September 30,2016.Of this, $10,903,640 (unrestricted net position) may be used to meet the City’s ongoing obligations to its citizens and creditors. At the close of the current fiscal year, the City’s governmental funds reported combined fund balances of $6,609,647, an increase of $1,036,833. As of the end of the year, the unassigned fund balance of the general fund was $2,397,437 or 47%of total general fund expenditures. The City had an overall increase in net position of $2,149,474, which is primarily due to strong general and utility revenues. Overview of the Financial Statements The discussion and analysis provided here are intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements consist of three components: 1)government- wide financial statements, 2) fund financial statements, and 3) the notes to financial statements. This report also includes supplementary information intended to furnish additional detail to support the basic financial statements themselves. Government-Wide Statements The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private-sector business. The statement of net position presents information on all of the City’s assets, liabilities, and deferred inflows/outflows with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. Other non-financial factors, such as the City’s property tax base and the condition of the City’s infrastructure, need to be considered in order to assess the overall health of the City. The statement of activities presents information showing how the City’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS, Continued September 30, 2016 8 are reported for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business- type activities). The governmental activities of the City include general government, public safety, public works, and culture and recreation. The business-type activities of the City include water, sewer and electric operations. The government-wide financial statements include not only the City itself (known as the primary government), but also the legally separate Sanger Industrial De velopment Corporation (“4A fund”) and the Sanger Te xas De velopment Corporation (“4B fund”), for which the City is financially accountable. Both corporations, although legally separate, function for all practical purposes as a department of the City and therefore have been included as an integral part of the primary government. FUND FINANCIAL STATEMENTS Funds may be considered as operating companies of the parent corporation,which is the City of Sanger. They are usually segregated for specific activities or objectives. The City of Sanger uses fund accounting to ensure and demonstrate compliance with finance-related legal reporting requirements. The two categories of City funds are governmental and proprietary. Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources,as well as on balances of spendable resources available at the end of the year. Such information may be useful in evaluating the City’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Sanger maintains five individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS, Continued September 30, 2016 9 expenditures, and changes in fund balances for the general,debt service, 4A, 4B, and capital projects funds which are considered to be major funds. The City of Sanger adopts an annual appropriated budget for all funds. A budgetary comparison schedule has been provided to demonstrate compliance with the general fund budget. Proprietary Funds The City maintains two different types of proprietary funds. Proprietary funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses a proprietary fund to account for its public utilities. All activities associated with providing such services are accounted for in these funds, including administration, operation, maintenance, debt service, capital improvements, meter maintenance, billing and collection. The City's intent is that costs of providing the services to the general public on a continuing basis is financed through user charges in a manner similar to a private enterprise. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City’s various functions. The City uses internal service funds to account for the maintenance and purchase of equipment. Notes to Financial Statements The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes are the last section of the basic financial statements. Other Information In addition to the basic financial statements, MD&A, and accompanying notes, this report also presents certain Required Supplementary Information (RSI). The RSI that GASB Statement No. 34 requires is a budgetary comparison schedule for the general fund and schedules for the City’s Defined Pension Plan. RSI can be found after the basic financial statements. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted previously, net position may serve over time as a useful indicator of the City’s financial position. For the City of Sanger, assets exceeded liabilities by $31,097,598 as of September 30, 2016,in the primary government. The largest portion of the City’s net position, $16,012,082,reflects its investments in capital assets (e.g., land, city hall, police station, streets, and drainage systems, as well as the public works facilities),less any de bt used to acquire those assets that are still outstanding. The City uses these capital assets to provide services to citizens; consequently,these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS, Continued September 30, 2016 10 resources needed to repay this debt must be provided from other sources, since the assets themselves cannot be used to liquidate these liabilities. An additional portion of the City’s net position, $4,181,876, represents resources that are subject to external restrictions on how they may be used. The remaining balance of $10,903,640 is unrestricted and may be used to meet the government’s ongoing obligations to its citizens and creditors. Current and other assets of business-type activities as of September 30, 2016 and September 30, 2015 were $16,009,888 and $12,028,084, respectively. The increase of $3,981,804 was primarily attributable to unspent bond proceeds from a new bond issuance during the year. Long term liabilities of business-type activities as of September 30, 2016 and September 30, 2015 were $12,579,894 and $7,892,587, respectively. The increase of $4,687,307 was due to the aforementioned bond issuance during the year. Statement of Net Position: The following table reflects the condensed Statement of Net Position: Current and other assets $7,117,640 $16,009,888 $23,127,528 $6,134,675 $12,028,084 $18,162,759 Capital assets, net 14,773,440 15,045,344 29,818,784 15,107,078 12,923,737 28,030,815 Total Assets 21,891,080 31,055,232 52,946,312 21,241,753 24,951,821 46,193,574 of Resources 489,156 196,393 685,549 228,086 111,646 339,732 Other liabilities 1,295,696 2,364,581 3,660,277 490,649 1,483,627 1,974,276 Long-term liabilities 6,294,092 12,579,894 18,873,986 7,718,319 7,892,587 15,610,906 Total Liabilities 7,589,788 14,944,475 22,534,263 8,208,968 9,376,214 17,585,182 Net Position: Net investment net of related debtin capital assets 8,615,983 7,396,099 16,012,082 8,122,596 7,831,965 15,954,561 Restricted 4,181,876 - 4,181,876 3,713,890 - 3,713,890 Unrestricted 1,992,589 8,911,051 10,903,640 1,424,385 7,855,288 9,279,673 Total Net Position $14,790,448 $16,307,150 $31,097,598 $13,260,871 $15,687,253 $28,948,124 2016 2015 Governmental Business-Type Activities Activities Governmental Business-Type ActivitiesActivities Total Deferred Outflows Total City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS, Continued September 30, 2016 11 Statement of Activities: The following table provides a summary of the City’s changes in net position: Revenues Program revenues: Charges for services $1,663,963 $11,236,562 $12,900,525 $1,570,157 $11,569,275 $13,139,432 Grants and contributions 185,385 - 185,385 271,386 - 271,386 General revenues: Property taxes 3,329,733 - 3,329,733 2,981,429 - 2,981,429 Sales taxes 1,605,187 - 1,605,187 1,600,961 - 1,600,961 Franchise and local taxes 240,206 - 240,206 231,380 - 231,380 Investment income 9,206 21,429 30,635 4,429 15,128 19,557 Other revenues 212,026 - 212,026 250,444 39,738 290,182 Total Revenues 7,245,706 11,257,991 18,503,697 6,910,186 11,624,141 18,534,327 Expenses General government 2,753,293 - 2,753,293 2,632,058 - 2,632,058 Public safety 2,506,460 - 2,506,460 2,187,268 - 2,187,268 Public works 998,940 - 998,940 1,073,312 - 1,073,312 Culture and recreation 751,747 - 751,747 712,298 - 712,298 Interest and fiscal charges 277,536 395,154 672,690 272,652 289,691 562,343 Water, sewer, & electric - 8,541,016 8,541,016 - 8,251,045 8,251,045 Total Expenses 7,287,976 8,936,170 16,224,146 6,877,588 8,540,736 15,418,324 Change in Net Position Before Transfers (42,270)2,321,821 2,279,551 32,598 3,083,405 3,116,003 Transfers 1,701,924 (1,701,924) - 1,720,428 (1,720,428)- Total 1,701,924 (1,701,924) - 1,720,428 (1,720,428)- Change in Net Position 1,659,654 619,897 2,279,551 1,753,026 1,362,977 3,116,003 Beginning Net Position 13,260,871 15,687,253 28,948,124 11,507,845 14,324,276 25,832,121 Ending Net Position $14,920,525 $16,307,150 $31,227,675 $13,260,871 $15,687,253 $28,948,124 Primary Total Primary Governmental ActivitiesGovernment For the Year Ended September 30, 2016 Business-Type Government For the Year Ended September 30, 2015 Total Activities Business-TypeGovernmental Activities Activities City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS, Continued September 30, 2016 12 Graphic presentations of selected data from the summary tables are displayed below to assist in the analysis of the City’s activities. For the year ended September 30, 2016, revenues from governmental activities totaled $7,245,706. Property tax, sales tax and charges for services are the City’s largest revenue sources. Property tax increased by $348,304 or 12%due to higher property values and new growth.Charges for services increased $93,806 or 6%primarily due to increases in EMS service collections and sanitation fees. Grants and contributions decreased by $86,001 due to a land donation in prior year that was a one time donation.All other revenues remained relatively stable when compared to the previous year. This graph shows the governmental function expenses of the City: For the year ended September 30, 2016, expenses for governmental activities totaled $7,287,976. This represents an increase of $410,388 or 8% from the prior year. The City’s largest functional expense is general government of $2,753,293 which primarily includes contractual costs for garbage removal, salaries for finance and city administration,plus depreciation of related capital assets.General government expenditures increased by $121,235 or 15%primarily due to increases in salaries and legal City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS, Continued September 30, 2016 13 fees. Public safety expenditures increased by $319,192 or 5%primarily due to increases in depreciation on capital asset equipment purchased and increases in salaries expense for EMS and fire for additional personnel. All other expenditures remained relatively consistent with the previous year. Business-type activities are shown comparing operating costs to revenues generated by related services. For the year ended September 30, 2016, charges for services by business-type activities totaled $11,236,562. This is a decrease of $332,713, or 3%, from the previous year.The decrease was due to a decrease in consumption compared to prior year. Total expenses increased $395,434 primarily due to increases in bond issuance and interest fees, and increases in repairs and maintenance expense. FINANCIAL ANALYSIS OF THE CITY’S FUNDS As noted earlier, fund accounting is used to demonstrate and ensure compliance with finance-related legal requirements. Governmental Funds -The focus of the City’s governmental funds is to provide information of near- term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unreserved fund balance may serve as a useful measure of the City’s net resources available for spending at the end of the year. As of the end of the year the general fund reflected a total fund balance of $2,548,000. Of this, $7,971 is restricted for municipal court, $9,480 is restricted for tourism, $79,393 is restricted for library improvements, and $23,385 for public safety. Unassigned fund balance totaled $2,397,437 as of year end. City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS, Continued September 30, 2016 14 There was an increase in governmental fund balance of $1,036,833 over the prior year. The increase was primarily due to revenues exceeding budgeted expectations. Proprietary Funds -The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. GENERAL FUND BUDGETARY HIGHLIGHTS There was a total positive budget variance of $562,082 in the general fund. This is a combination of a positive revenue variance of $443,056, a positive expenditure variance of $209,627,and a negative variance of $90,601 in other financing sources and uses. The most significant variances were for property taxes, sales taxes, charges for services, and the police department, which all had positive variances for the City. CAPITAL ASSETS As of the end of the year, the City’s governmental activities funds had invested $14,773,440 in a variety of capital assets and infrastructure, net of accumulated depreciation. Depreciation is included with the governmental capital assets as required by GASB Statement No. 34. The City’s business-type activities funds had invested $15,045,344 in a variety of capital assets and infrastructure, net of accumulated depreciation. Major capital asset events during the current year include the following: Renovation work on a church building for $416,681 McReynolds road construction in the amount of $69,900 Purchase of police department vehicles and radio system totaling $193,057 Street improvements to Smith, Sims, Kirkland, Jones & Lois for $75,126 New water well for $1,604,235 Sewer plant expansion for $224,687 Water and sewer line relocations, expansions, and a new lift station totaling $590,021 Acquisition of land for water department for $173,693 Purchase of vehicles for water department for $122,709 More detailed information about the City’s capital assets is presented in note IV. C to the financial statements. City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS, Continued September 30, 2016 15 LONG-TERM DEBT At the end of the current year, the City had total bonds outstanding of $17,230,000, notes payable of $396,451 and capital leases of $777,536. During the year, the City had principal payments on bonds, notes payable and capital leases of $1,665,229. During the year, the City refunded a bond with a principal balance outstanding of $2,615,000 for a refunding bond with a principal balance of $2,535,000. During the year, the City had a $5,870,000 bond issuance for the water, sewer, and electric fund. More detailed information about the City’s long-term liabilities is presented in note IV. D to the financial statements. ECONOMIC FACTORS AND NEXT YEAR’S BUDGET The Mayor and City Council are committed to maintaining and improving the overall wellbeing of the City of Sanger and improving services provided to their public citizens. The City is budgeting for growth in the upcoming year. CONTACTING THE CITY’S FINANCIAL MANAGEMENT This financial report is de signed to provide a general overview of the City of Sanger’s finances for all those with an interest in the City’s finances. Questions concerning this report or requests for additional financial information should be directed to the City Manager at the City of Sanger City Hall at 502 Elm Street, Sanger, Texas 76266. Current assets: Cash and cash equivalents $5,528,666 $7,430,681 $12,959,347 Investments 900,618 415,330 1,315,948 Receivables, net 688,356 1,716,811 2,405,167 Inventory - 494,626 494,626 7,117,640 10,057,448 17,175,088 Restricted cash - 5,652,440 5,652,440 Restricted investments - 300,000 300,000 Capital assets: Non-depreciable 2,017,458 3,946,813 5,964,271 Net depreciable capital assets 12,755,982 11,098,531 23,854,513 14,773,440 20,997,784 35,771,224 21,891,080 31,055,232 52,946,312 Deferred Outflows of Resources Deferred charge on refunding 33,787 59,153 92,940 Pension contributions 139,479 42,036 181,515 Pension investment earnings 299,661 90,312 389,973 Pension (gains) losses 16,229 4,892 21,121 Total Deferred Outflows of Resources 489,156 196,393 685,549 See Notes to Financial Statements. Primary Government City of Sanger, Texas STATEMENT OF NET POSITION (Page 1 of 2) September 30, 2016 Activities Activities Assets Governmental Business-Type Total Assets Total Current Assets Total 16 Liabilities Current liabilities: Accounts payable and accrued liabilities $300,948 $975,928 $1,276,876 Accrued interest payable 43,267 117,591 160,858 Customer deposits - 397,567 397,567 Long term debt due within one year 951,481 873,495 1,824,976 1,295,696 2,364,581 3,660,277 Noncurrent liabilities: Debt due in more than one year 5,404,265 12,311,717 17,715,982 Net pension liability 889,827 268,177 1,158,004 6,294,092 12,579,894 18,873,986 7,589,788 14,944,475 22,534,263 Net investment in capital assets 8,615,983 7,396,099 16,012,082 Restricted for: Debt service 404,096 - 404,096 Capital projects 1,030,871 - 1,030,871 Economic development 2,626,680 - 2,626,680 Other purposes 120,229 - 120,229 Unrestricted 1,992,589 8,911,051 10,903,640 $14,790,448 $16,307,150 $31,097,598 See Notes to Financial Statements. Total Current Liabilities Net Position Total Net Position Total Liabilities September 30, 2016 Activities Total Business-Type STATEMENT OF NET POSITION (Page 2 of 2) Governmental Activities Primary Government City of Sanger, Texas 17 Capital Grants and Contributions Primary Government Governmental Activities General government $2,753,293 $940,697 $107,541 $- Economic development 130,077 - - - Public safety 2,506,460 723,266 77,844 - Public works 998,940 - - - Culture and recreation 751,747 - - - Interest and fiscal charges 277,536 - - - 7,418,053 1,663,963 185,385 - Business-Type Activities Water 1,101,705 1,641,413 - - Sewer 684,295 1,642,998 - - Electric 6,527,241 7,893,277 - - Fleet services 1,562 - - - Utility administration 621,367 58,874 - - Total Business-Type Activities 8,936,170 11,236,562 - - Total Primary Government $16,354,223 $12,900,525 $185,385 - General Revenues: Taxes Property taxes Sales taxes Franchise and local taxes Investment income Other revenues Gain on sale of assets Insurance recoveries Transfers Change in Net Position Beginning Net Position Ending Net Position See Notes to Financial Statements. Expenses Contributions Total Governmental Activities Functions/Programs Services Total General Revenues and Transfers City of Sanger, Texas STATEMENT OF ACTIVITIES Operating For the Year Ended September 30, 2016 Program Revenues Charges for Grants and 18 $(1,705,055) $- $(1,705,055) (130,077) - (130,077) (1,705,350) - (1,705,350) (998,940) - (998,940) (751,747) - (751,747) (277,536) - (277,536) (5,568,705) - (5,568,705) - 539,708 539,708 - 958,703 958,703 - 1,366,036 1,366,036 - (1,562) (1,562) - (562,493) (562,493) - 2,300,392 2,300,392 (5,568,705) 2,300,392 (3,268,313) 3,329,733 - 3,329,733 1,605,187 - 1,605,187 240,206 - 240,206 9,206 21,429 30,635 179,476 - 179,476 30,618 - 30,618 1,932 - 1,932 1,701,924 (1,701,924) - 7,098,282 (1,680,495)5,417,787 1,529,577 619,897 2,149,474 13,260,871 15,687,253 28,948,124 $14,790,448 $16,307,150 $31,097,598 Activities Net (Expense) Revenue and Changes in Net Position Primary Government Governmental Total Business-Type Activities 19 Cash and cash equivalents $1,937,682 $403,823 $1,579,165 Investments 529,524 - 94,266 Receivables, net 517,072 20,202 88,652 $2,984,278 $424,025 $1,762,083 Liabilities Accounts payable and accrued liabilities $212,561 $- $5,864 212,561 - 5,864 Deferred Inflows of Resources Unavailable revenue Property taxes 43,237 19,929 - EMS revenue 180,480 - - Total Deferred Inflows of Resources 223,717 19,929 - Restricted for: Municipal court 7,971 - - Tourism 9,480 - - Library 79,393 - - Public safety 23,385 - - Debt service - 404,096 - Capital projects - - - Economic development - - 1,756,219 Committed for: Employee benefits 30,334 - - Unassigned reported in: General fund 2,397,437 - - 2,548,000 404,096 1,756,219 $2,984,278 $424,025 $1,762,083 See Notes to Financial Statements. City of Sanger, Texas BALANCE SHEET GOVERNMENTAL FUNDS September 30, 2016 4A FundGeneral Total Liabilities Debt Service Total Liabilities and Fund Balances Total Fund Balances Total Assets Fund Balances Assets 20 $531,203 $1,076,793 $5,528,666 276,828 - 900,618 62,430 - 688,356 $870,461 $1,076,793 $7,117,640 $- $45,922 $264,347 - 45,922 264,347 - - 63,166 - - 180,480 - - 243,646 - - 7,971 - - 9,480 - - 79,393 - - 23,385 - - 404,096 - 1,030,871 1,030,871 870,461 - 2,626,680 - - 30,334 - - 2,397,437 870,461 1,030,871 6,609,647 $870,461 $1,076,793 $7,117,640 Funds Total GovernmentalCapital Projects Fund4B Fund 21 (Page intentionally left blank.) 22 Fund Balances - Total Governmental Funds $6,609,647 Adjustments for the Statement of Net Position: Capital assets used in governmental activities are not current financial resources and, therefore, not reported in the governmental funds. Capital assets - non-depreciable 2,017,458 Capital assets - net depreciable 12,722,179 Other long-term assets are not available to pay for current-period expenditures and, therefore, are deferred in the governmental funds. Property tax receivable 63,166 EMS receivable 180,480 Deferred outflows of resources, represent a consumption of net position that applies to a future period(s) and is not recognized as an outflow of resources (expense/ expenditure) until then. Deferred charge on refunding 33,787 Pension contributions 104,035 Pension investment earnings 223,512 Pension gains (losses)12,105 Internal service funds are used by management to charge the cost of internal services to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net position. Capital assets 33,803 Deferred outflows - pension contributions 35,444 Deferred outflows - investment earnings 76,149 Deferred outflows - pension gains (losses)4,124 Accounts payable and accrued liabilities (36,601) Non-current liabilities due in one year (24,243) Non-current liabilities due in more than one year (2,694) Net pension liability (226,120) Net position - governmental activities (140,138) Some liabilities, including bonds payable and deferred charges, are not reported as liabilities in the governmental funds. Accrued interest (43,267) Compensated absences (137,565) Bond premium (147,108) Net pension liability (663,707) Non-current liabilities due in one year (803,429) Non-current liabilities due in more than one year (5,240,707) $14,790,448 See Notes to Financial Statements. Net Position of Governmental Activities RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION City of Sanger, Texas September 30, 2016 GOVERNMENTAL FUNDS 23 Revenues Property tax $2,447,998 $793,038 $- Sales tax 815,547 - 394,820 Franchise and local taxes 240,206 - - License and permits 111,189 - - Charges for services 829,508 - - Fire and rescue 586,833 - - Contributions and donations 325 - - Intergovernmental 77,844 - Fines and forfeitures 136,433 - - Investment income 6,296 114 1,457 Other revenue 96,817 3,992 78,667 5,348,996 797,144 474,944 Expenditures Current: General government 951,828 1,110 - Economic development - - 130,077 Police department 1,262,092 - - Municipal court 195,182 - - Fire and EMS 940,549 - - Parks and recreation 463,483 - - Public works 616,616 - - Debt service: Principal 194,056 620,300 42,997 Interest 28,835 207,646 18,270 Bond issuance costs 37,964 - - Capital outlay 365,269 - - 5,055,874 829,056 191,344 Excess of Revenues Over (Under) Expenditures 293,122 (31,912) 283,600 Other Financing Sources (Uses) Transfers in 1,152,539 217,358 50,000 Transfers (out)(942,492) (166,536) (175,000) Bond issuance 1,166,100 - - Premium 98,406 - - Payment to refunding bond escrow agent (1,226,542) - - Proceeds from sale of capital assets 30,618 - - Insurance recoveries 1,932 - - 280,561 50,822 (125,000) 573,683 18,910 158,600 Beginning fund balances 1,974,317 385,186 1,597,619 $2,548,000 $404,096 $1,756,219 See Notes to Financial Statements. City of Sanger, Texas STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS For the Year Ended September 30, 2016 4A FundService Ending Fund Balances Total Other Financing Sources (Uses) Total Expenditures Net Change in Fund Balances General Total Revenues Debt 24 $- $- $3,241,036 394,820 1,605,187 - - 240,206 - - 111,189 - - 829,508 - - 586,833 - 107,216 107,541 - 77,844 - - 136,433 1,339 - 9,206 - - 179,476 396,159 107,216 7,124,459 - - 952,938 - - 130,077 - - 1,262,092 - - 195,182 - - 940,549 20,185 - 483,668 - - 616,616 - - 857,353 - - 254,751 - - 37,964 - 525,050 890,319 20,185 525,050 6,621,509 375,974 (417,834) 502,950 - 675,000 2,094,897 (347,500) - (1,631,528) - - 1,166,100 - - 98,406 - - (1,226,542) - - 30,618 - - 1,932 (347,500)675,000 533,883 28,474 257,166 1,036,833 841,987 773,705 5,572,814 $870,461 $1,030,871 $6,609,647 Projects Fund4B Fund Funds GovernmentalCapital Total 25 (This page intentionally left blank.) 26 Amounts reported for governmental activities in the statement of activities are different because: Net changes in fund balances - total governmental funds $1,036,833 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. Capital outlay 886,579 Capital assets transferred to business-type activies (210,245) Depreciation expense (1,043,775) Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. EMS receivable 88,697 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. Compensated absences (19,325) Accrued interest 7,543 Pension expense (54,570) The issuance of long-term debt (e.g., bonds, leases, certificates of obligation) 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 position. Also, governmental funds report the effect of premiums, discounts, and similar items when they are 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. Deferred charges on refunding 11,781 Premium on debt (78,909) Debt issued 43,752 Principal payments 850,401 Internal service funds are used by management to charge the cost of internal services to individual funds. The City reports the net gain (loss) of internal service funds within governmental activities.10,815 $1,529,577 See Notes to Financial Statements. Change in Net Position of Governmental Activities For the Year Ended September 30, 2016 City of Sanger, Texas RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES 27 Current Assets Cash and cash equivalents $7,430,681 $ Investments 415,330 - Receivables, net 1,716,811 - Inventory 494,626 - 10,057,448 - Noncurrent Assets Restricted cash 5,652,440 - Restricted investments 300,000 - Capital assets: Non-depreciable 3,946,813 - Net depreciable capital assets 11,098,531 33,803 20,997,784 33,803 31,055,232 33,803 Pension contributions 42,036 35,444 Pension investment earnings 90,312 76,149 Pension gains (losses)4,892 4,124 Deferred charge on refunding 59,153 - Total Deferred Outflows of Resources 196,393 115,717 Current Liabilities Accounts payable and accrued liabilities 975,928 36,601 Accrued interest 117,591 - Customer deposits 397,567 - Compensated absences-current 74,043 24,243 Bonds and capital leases payable-current 799,452 - 2,364,581 60,844 Noncurrent Liabilities Compensated absences 8,226 2,694 Net pension liability 268,177 226,120 Bonds and capital leases payable 12,303,491 - 14,944,475 289,658 Net investment in capital assets 7,396,099 - Unrestricted 8,911,051 (140,138) $16,307,150 $(140,138) See Notes to Financial Statements. & Electric Total Current Assets City of Sanger, Texas STATEMENT OF NET POSITION PROPRIETARY FUND September 30, 2016 Activities Assets Water, Sewer Service Internal Governmental Total Net Position Net Position Total Noncurrent Assets Total Assets Liabilities Total Liabilities Total Current Liabilities Deferred Outflows of Resources 28 Operating Revenues Charges for services $10,829,058 $- Connection fees 61,130 - Tap fees 287,500 - Other revenue 58,874 - 11,236,562 - Operating Expenses Salaries and wages 1,069,751 1,032,753 Contracted services 49,896 254,902 Utilities 308,370 32,822 Materials and supplies 81,437 73,809 Water and electric purchases 5,504,359 - Repairs and maintenance 507,210 42,200 Depreciation 811,063 1,499 8,332,086 1,437,985 2,904,476 (1,437,985) Nonoperating Revenues (Expenses) Investment income 21,429 - Bond issuance costs (208,930) Interest expense (395,154) - (582,655)- 2,321,821 (1,437,985) Transfers in 230,937 1,448,800 Transfers (out)(1,932,861)- 619,897 10,815 15,687,253 (150,953) $16,307,150 $(140,138) See Notes to Financial Statements. Ending Net Position Total Operating Revenues Total Operating Expenses Change in Net Position Operating Income (Loss) Total Nonoperating Revenues (Expenses) Income (Loss) Before Transfers Beginning net position Internal Service Governmental Activities City of Sanger, Texas STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION PROPRIETARY FUND For the Year Ended September 30, 2016 Water, Sewer & Electric 29 Cash Flows from Operating Activities Receipts from customers $11,120,907 $- Payments to suppliers (6,532,993) (430,832) Payments to employees (1,044,926) (1,013,439) 3,542,988 (1,444,271) Cash Flows from Noncapital Financing Activities Operating transfers in 20,692 1,448,800 Operating transfers out (1,932,861) - (1,912,169) 1,448,800 Cash Flows from Capital and Related Financing Activities Capital asset purchases (2,722,425) (35,302) Proceeds from bond issuance 6,084,857 - Principal paid on debt (807,874) - Interest paid on debt (366,280) - 2,188,278 (35,302) Cash Flows from Investing Activities Purchases of investments, net (2,974) - Interest on investments 21,429 - 18,455 - 3,837,552 (30,773) 9,245,569 30,773 $13,083,121 $- See Notes to Financial Statements. Net Increase (Decrease) in Cash and Cash Equivalents Net Cash Provided by Operating Activities & Electric Water, Sewer Net Cash Provided by Noncapital Financing Activities Net Cash (Used) by Capital and Related Financing Activities Ending Cash and Cash Equivalents Net Cash Provided by Investing Activities Beginning cash and cash equivalents City of Sanger, Texas STATEMENT OF CASH FLOWS PROPRIETARY FUND (Page 1 of 2) For the Year Ended September 30, 2016 Internal Service Governmental Activities 30 Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating Income $2,904,476 $(1,437,985) Adjustments to reconcile operating income to net cash provided: Depreciation 811,063 1,499 Changes in Operating Assets and Liabilities: (Increase) Decrease in: Accounts receivable (120,986) - Inventory (20,292) - Deferred outflows of resources - pension contributions (3,783) (3,190) Deferred outflows of resources - pension investment earnings (80,952) (68,257) Deferred outflows of resources - pension (gains) losses 9,604 8,098 Increase (Decrease) in: Accounts payable and accrued liabilities (61,429) (27,099) Compensated absences 2,776 723 Customer deposits 5,331 - Net pension liability 97,180 81,940 $3,542,988 $(1,444,271) Capital assets transferred from governmental activities $210,245 $- Debt refunding $1,484,420 $- See Notes to Financial Statements. Schedule of Non-Cash Capital and Related Financing Activities & Electric Water, Sewer Net Cash Provided by Operating Activities Internal Service Governmental Activities PROPRIETARY FUND (Page 2 of 2) For the Year Ended September 30, 2016 City of Sanger, Texas STATEMENT OF CASH FLOWS 31 (This page intentionally left blank.) 32 City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS  September 30, 2016    33  I.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES    A. Description of Government‐Wide Financial Statements    The government‐wide financial statements (i.e., the statement of net position and  the statement of activities) report information on all of the nonfiduciary activities of  the primary government and its component units. Governmental activities, which  normally are supported by taxes, intergovernmental revenues, and other  nonexchange transactions, are reported separately from business‐type activities,  which rely to a significant extent on fees and charges to external customers for  support. Likewise, the primary government is reported separately from certain legally  separate component units for which the primary government is financially  accountable.    B. Reporting Entity    The City of Sanger, Texas (the “City”) was incorporated in 1886 and operates under  a Council‐Manager form of government. The City provides: general government,  public safety, public works, culture and recreation, water, sewer, and electricity  operations.     The City is an independent political subdivision of the State of Texas governed by  an elected council and a mayor and is considered a primary government.  As  required by generally accepted accounting principles, these basic financial  statements have been prepared based on considerations regarding the potential for  inclusion of other entities, organizations, or functions as part of the Cityʹs financial  reporting entity.  The Sanger Industrial Development Corporation (“4A fund”) and  the Sanger Texas Development Corporation (“4B fund”), although legally separate,  are considered part of the reporting entity.  No other entities have been included in  the Cityʹs reporting entity. Additionally, as the City is considered a primary  government for financial reporting purposes, its activities are not considered a part  of any other governmental or other type of reporting entity.    Considerations regarding the potential for inclusion of other entities, organizations  or functions in the Cityʹs financial reporting entity are based on criteria prescribed  by generally accepted accounting principles.  These same criteria are evaluated in  considering whether the City is a part of any other governmental or other type of  reporting entity.  The overriding elements associated with prescribed criteria  considered in determining that the Cityʹs financial reporting entity status is that of a  primary government are that it has a separately elected governing body; it is legally  separate; and is fiscally independent of other state and local governments.   City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  34  Additionally prescribed criteria under generally accepted accounting principles  include considerations pertaining to organizations for which the primary  government is financially accountable, and considerations pertaining to  organizations for which the nature and significance of their relationship with the  primary government are such that exclusion would cause the reporting entityʹs  financial statements to be misleading or incomplete.    Blended Component Units    Sanger Industrial Development Corporation (4A)     The Sanger Texas Industrial Development Corporation (“4A fund”) is governed by  a board of five directors, all of whom are appointed by the City Council of the City  of Sanger and any of whom can be removed from office by the City Council at its  will. The 4A fund was incorporated in the state of Texas as a non‐profit industrial  development corporation under Section 4A of the Development Corporation Act of  1979. The purpose of the 4A fund is to promote economic development within the  City of Sanger.    Sanger Texas Development Corporation (4B)    The Sanger Texas Development Corporation (“4B fund”) is governed by a board of  seven directors, all of whom are appointed by the City Council at its will. The 4B  fund was incorporated in the state of Texas as a nonprofit industrial development  corporation under Section 4B of the Development Corporation Act of 1979. The  purpose of the 4B fund is to promote economic and community development  within the City of Sanger.    C. Basis of Presentation Government‐Wide and Fund Financial Statements    While separate government‐wide and fund financial statements are presented, they  are interrelated. The governmental activities column incorporates data from  governmental funds while business‐type activities incorporate data from the  government’s enterprise funds. Separate financial statements are provided for  governmental funds and the proprietary funds.    As a general rule, the effect of interfund activity has been eliminated from the  government‐wide financial statements. Exceptions to this general rule are payments  in lieu of taxes where the amounts are reasonably equivalent in value to the  interfund services provided and other charges between the government’s water and  transit functions and various other functions of the government. Elimination of  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  35  these charges would distort the direct costs and program revenues reported for the  various functions concerned.    The fund financial statements provide information about the government’s funds,  including its blended component units. Separate statements for each fund  category—governmental and proprietary are presented. The emphasis of fund  financial statements is on major governmental and enterprise funds, each displayed  in a separate column. All remaining governmental and enterprise funds are  aggregated and reported as nonmajor funds. Major individual governmental and  enterprise funds are reported as separate columns in the fund financial statements.     The government reports the following major governmental funds:    Governmental Funds     Governmental funds are those funds through which most governmental functions  are typically financed.    General Fund     The general fund is used to account for all financial transactions not properly  includable in other funds.  The principal sources of revenues include local  property taxes, sales and franchise taxes, licenses and permits, fines and  forfeitures, and charges for services.  Expenditures include general government,  public safety, parks and recreation and public works.     Debt Service Fund     The debt service fund is used to account for debt service activities for  governmental fund types.    4A Fund     The purpose of the 4A fund is to promote economic development within the  City of Sanger.    4B Fund     The purpose of the 4B fund is to promote economic and community  development within the City of Sanger.    City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  36  Capital Projects Fund     The capital projects fund is used to account for capital asset activities for  governmental fund types.    Proprietary Fund Types     Proprietary funds are used to account for activities that are similar to those often  found in the private sector.  All assets, liabilities, equities, revenues, expenses, and  transfers relating to the government’s business activities are accounted for through  proprietary funds.  The measurement focus is on determination of net income,  financial position, and cash flows.  Proprietary funds distinguish operating  revenues and expenses from non‐operating items.  Operating revenues include  charges for services.  Operating expenses include costs of materials, contracts,  personnel, and depreciation.  All revenues and expenses not meeting this definition  are reported as non‐operating revenues and expenses.  Proprietary fund types  follow GAAP prescribed by the Governmental Accounting Standards Board (GASB)  and all financial Accounting Standards Board’s standards issued prior to November  30, 1989.  Subsequent to this date, the City accounts for its enterprise funds as  presented by GASB. The proprietary fund types used by the City include enterprise  funds.    The government reports the following major enterprise fund:    Water, Sewer, & Electric Fund     This fund is used to account for the provision of water, sewer and electric  services to the residents of the City. Activities of the fund include administration,  operations and maintenance of the water production and distribution system,  water collection and treatment systems, and electric services. The fund also  accounts for the accumulation of resources for and the payment of long‐term  debt. All costs are financed through charges to utility customers.    Additionally, the government reports the following fund type:    Internal Service Fund    Revenues and expenses related to services provided to organizations inside the  City on a cost reimbursement basis are accounted for in an internal service fund.  The Cityʹs internal service fund was set up to provide administrative support  services to other funds of the City.  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  37  During the course of operations the government has activity between funds for  various purposes. Any residual balances outstanding at year end are reported as  due from/to other funds and advances to/from other funds. While these balances  are reported in fund financial statements, certain eliminations are made in the  preparation of the government‐wide financial statements. Balances between the  funds included in governmental activities (i.e., the governmental and internal  service funds) are eliminated so that only the net amount is included as internal  balances in the governmental activities column. Similarly, balances between the  funds included in business‐type activities (i.e., the enterprise funds) are eliminated  so that only the net amount is included as internal balances in the business‐type  activities column.    Further, certain activity occurs during the year involving transfers of resources  between funds. In fund financial statements these amounts are reported at gross  amounts as transfers in/out. While reported in fund financial statements, certain  eliminations are made in the preparation of the government‐wide financial  statements. Transfers between the funds included in governmental activities are  eliminated so that only the net amount is included as transfers in the governmental  activities column. Similarly, balances between the funds included in business‐type  activities are eliminated so that only the net amount is included as transfers in the  business‐type activities column.    D. Measurement Focus and Basis of Accounting     The accounting and financial reporting treatment is determined by the applicable  measurement focus and basis of accounting. Measurement focus indicates the type  of resources being measured such as current financial resources or economic resources.  The basis of accounting indicates the timing of transactions or events for recognition  in the financial statements.    The government‐wide financial statements are reported using the economic resources  measurement focus and the accrual basis of accounting. Revenues are recorded when  earned and expenses are recorded when a liability is incurred, regardless of the  timing of related cash flows. Property taxes are recognized as revenues in the year  for which they are levied. Grants and similar items are recognized as revenue as  soon as all eligibility requirements imposed by the provider have been met.    The governmental fund financial statements are reported using the current financial  resources measurement focus and the modified accrual basis of accounting. Revenues are  recognized as soon as they are both measurable and available. Revenues are  considered to be available when they are collectible within the current period or  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  38  soon enough thereafter to pay liabilities of the current period. For this purpose, the  government considers revenues to be available if they are collected within 60 days  of the end of the current fiscal period. Expenditures generally are recorded when a  liability is incurred, as under accrual accounting. However, debt service  expenditures, as well as expenditures related to compensated absences, and claims  and judgments, are recorded only when payment is due. General capital asset  acquisitions are reported as expenditures in governmental funds. Issuance of long‐ term debt and acquisitions under capital leases are reported as other financing  sources.    Property taxes, sales taxes, franchise taxes, licenses, and interest associated with the  current fiscal period are all considered to be susceptible to accrual and so have been  recognized as revenues of the current fiscal period. Entitlements are recorded as  revenues when all eligibility requirements are met, including any time  requirements, and the amount is received during the period or within the  availability period for this revenue source (within 60 days of year end).  Expenditure‐driven grants are recognized as revenue when the qualifying  expenditures have been incurred and all other eligibility requirements have been  met, and the amount is received during the period or within the availability period  for this revenue source (within 60 days of year end). All other revenue items are  considered to be measurable and available only when cash is received by the  government.    E. Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net  Position/Fund Balance    1. Deposits and Investments    The City’s cash and cash equivalents are considered to be cash on hand, demand  deposits and short term investments with original maturities of three months or less  from the date of acquisition.  For the purpose of the statement of cash flows, the  proprietary fund types consider temporary investments with maturity of three  months or less when purchased to be cash equivalents.    In accordance with GASB Statement No. 31, Accounting and Reporting for Certain  Investments and External Investment Pools, the City reports all investments at fair  value, except for “money market investments” and “2a7‐like pools.”  Money market  investments, which are short‐term highly liquid debt instruments that may include  U.S. Treasury and agency obligations, are reported at amortized costs.  Investment  positions in external investment pools that are operated in a manner consistent with  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  39  the SEC’s Rule 2a7 of the Investment Company Act of 1940, such as TexPool, are  reported using the pools’ share price.    The City has adopted a written investment policy regarding the investment of its  funds as defined in the Public Funds Investment Act, Chapter 2256, of the Texas  Governmental Code.  In summary, the City is authorized to invest in the following:    Direct obligations of the U.S. Government  Fully collateralized certificates of deposit and money market accounts  Statewide investment pools    2. Fair Value    As of September 30, 2016, the City has applied Governmental Accounting  Standards Board (“GASB”) Statement No. 72, Fair Value Measurement and  Application. GASB Statement No. 72 provides guidance for determining a fair value  measurement for reporting purposes and applying fair value to certain investments  and disclosures related to all fair value measurements.    3. Receivables and Interfund Transactions    Transactions between funds that are representative of lending/borrowing  arrangements outstanding at the end of the year are referred to as either “interfund  receivables/payables” (i.e., the current portion of interfund loans) or “advances  to/from other funds” (i.e., the non‐current portion of interfund loans).  All other  outstanding balances between funds are reported as “due to/from other funds” in  the fund financial statements.  If the transactions are between the primary  government and its component unit, these receivables and payables are classified as  “due to/from component unit/primary government.”  Any residual balances  outstanding between the governmental activities and business‐type activities are  reported in the government‐wide financial statements as “internal balances.”    Advances between funds are offset by a fund balance reserve account in the  applicable governmental fund to indicate they are not available for appropriation  and are not expendable available financial resources.    All trade receivables are shown net of any allowance for uncollectible amounts.          City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  40  4. Property Taxes    Property taxes are levied by October 1 on the assessed value listed as of the prior  January 1 for all real and business personal property in conformity with Subtitle E,  Texas Property Tax Code. Taxes are due on receipt of the tax bill and are delinquent  if not paid before February 1 of the year following the year in which imposed.  Penalties are calculated after February 1 up to the date collected by the government  at the rate of 6% for the first month and increased 1% per month up to a total of  12%. Interest is calculated after February 1 at the rate of 1% per month up to the  date collected by the government. Under state law, property taxes levied on real  property constitute a lien on the real property which cannot be forgiven without  specific approval of the State Legislature. The lien expires at the end of twenty  years. Taxes levied on personal property can be deemed uncollectible by the City.    5. Inventories and Prepaid Items    The costs of governmental fund type inventories are recorded as expenditures when  the related liability is incurred, (i.e., the purchase method).  The inventories are  valued at the lower of cost or market using the first‐in/first‐out method. Certain  payments to vendors reflect costs applicable to future accounting periods (prepaid  expenditures) are recognized as expenditures when utilized.     6. Capital Assets    Capital assets, which include property, plant, equipment, and infrastructure assets  (e.g., roads, bridges, sidewalks, and similar items) are reported in the applicable  governmental or business‐type activities columns in the government‐wide financial  statements.  Capital assets are defined by the government, as assets with an initial  individual cost of more than $5,000 and an estimated useful life in excess of one  year.  Such assets are recorded at historical cost or estimated historical cost if  purchased or constructed.  Donated capital assets are recorded at estimated fair  market value at the date of donation.  Major outlays for capital assets and  improvements are capitalized as projects are constructed.    Interest costs incurred in connection with construction of enterprise fund capital  assets are capitalized when the effects of capitalization materially impact the  financial statements.    The costs of normal maintenance and repairs that do not add to the value of the  asset or materially extend assets’ lives are not capitalized.    City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  41  Property, plant, and equipment of the primary government, as well as the  component units, are depreciated using the straight‐line method over the following  estimated useful years.        Asset Description   Estimated   Useful Life  Vehicles  5‐10 years  Furniture and equipment  5 to 10 years  Infrastructure  10‐30 years  Water and sewer system  10‐30 years  Buildings and improvements  5‐40 years      7. Deferred Outflows/Inflows of Resources    In addition to assets, the statement of financial position will sometimes report a  separate section for deferred outflows of resources. This separate financial  statement element, deferred outflows of resources, represents a consumption of net  position that applies to a future period(s) and so will not be recognized as an  outflow of resources (expense/ expenditure) until then. An example is a deferred  charge on refunding reported in the government‐wide statement of net position. A  deferred charge on refunding results from the difference in the carrying value of  refunded debt and its reacquisition price. This amount is deferred and amortized  over the shorter of the life of the refunded or refunding debt.    In addition to liabilities, the statement of financial position will sometimes report a  separate section for deferred inflows of resources. This separate financial statement  element, deferred inflows of resources, represents an acquisition of net position that  applies to a future period(s) and so will not be recognized as an inflow of resources  (revenue) until that time. The government has only one type of item, which arises  only under a modified accrual basis of accounting, which qualifies for reporting in  this category. Accordingly, the item, unavailable revenue, is reported only in the  governmental funds balance sheet. The governmental funds report unavailable  revenues from two sources: property taxes and EMS revenues. These amounts are  deferred and recognized as an inflow of resources in the period that the amounts  become available.    8. Net Position Flow Assumption    Sometimes the government will fund outlays for a particular purpose from both  restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In  order to calculate the amounts to report as restricted – net position and unrestricted  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  42  – net position in the government‐wide and proprietary fund financial statements, a  flow assumption must be made about the order in which the resources are  considered to be applied.    9. Fund Balance Flow Assumptions    Sometimes the government will fund outlays for a particular purpose from both  restricted and unrestricted resources (the total of committed, assigned, and  unassigned fund balance). In order to calculate the amounts to report as restricted,  committed, assigned, and unassigned fund balance in the governmental fund  financial statements a flow assumption must be made about the order in which the  resources are considered to be applied. It is the government’s policy to consider  restricted fund balance to have been depleted before using any of the components  of unrestricted fund balance. Further, when the components of unrestricted fund  balance can be used for the same purpose, committed fund balance is depleted first,  followed by assigned fund balance. Unassigned fund balance is applied last.    10. Fund Balance Policies    Fund balance of governmental funds is reported in various categories based on the  nature of any limitations requiring the use of resources for specific purposes. The  government itself can establish limitations on the use of resources through either a  commitment (committed fund balance) or an assignment (assigned fund balance).    The committed fund balance classification includes amounts that can be used only  for the specific purposes determined by a formal action of the government’s highest  level of decision‐making authority. The governing council is the highest level of  decision‐making authority for the government that can, by adoption of an  ordinance prior to the end of the fiscal year, commit fund balance. Once adopted,  the limitation imposed by the ordinance remains in place until a similar action is  taken (the adoption of another ordinance) to remove or revise the limitation.    Amounts in the assigned fund balance classification are intended to be used by the  government for specific purposes but do not meet the criteria to be classified as  committed. The governing body (council) has by resolution authorized the City  Manager to assign fund balance. The Council may also assign fund balance as it  does when appropriating fund balance to cover a gap between estimated revenue  and appropriations in the subseq uent year’s appropriated budget. Unlike  commitments, assignments generally only exist temporarily. In other words, an  additional action does not normally have to be taken for the removal of an  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  43  assignment. Conversely, as discussed above, an additional action is essential to  either remove or revise a commitment.    11. Compensated Absences    The liability for compensated absences reported in the government‐wide and  proprietary fund statements consist of unpaid, accumulated vacation balances. The  liability has been calculated using the vesting method, in which leave amounts for  both employees who currently are eligible to receive termination payments and  other employees who are expected to become eligible in the future to receive such  payments upon termination are included. Vested or accumulated vacation leave  and compensated leave of government‐wide and proprietary funds are recognized  as an expense and liability of those funds as the benefits accrue to employees.    It is the Cityʹs policy to liquidate compensated absences with future revenues rather  than with currently available expendable resources. Accordingly, the Cityʹs  governmental funds recognize accrued compensated absences when it is paid.    12. Long‐Term Obligations    In the government‐wide financial statements, long‐term debt and other long‐term  obligations are reported as liabilities in the applicable governmental activities  statement of net position. The long‐term debt consists primarily of bonds payable  and accrued compensated absences.    Long‐term debt for governmental funds is not reported as liabilities in the fund  financial statements until due. The debt proceeds are reported as other financing  sources, net of the applicable premium or discount and payments of principal and  interest reported as expenditures.  In the governmental fund types, issuance costs,  even if withheld from the actual net proceeds received, are reported as debt service  expenditures.  However, claims and judgments paid from governmental funds are  reported as a liability in the fund financial statements only for the portion expected  to be financed from expendable available financial resources.    Long‐term debt and other obligations, financed by proprietary funds, are reported  as liabilities in the appropriate funds.  For proprietary fund types, bond premiums,  and discounts are deferred and amortized over the life of the bonds using the  effective interest method, if material.  Bonds payable are reported net of the  applicable bond premium or discount.  Issuance costs are expensed as incurred in  accordance with GASB statement no. 65.    City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  44  Assets acquired under the terms of capital leases are recorded as liabilities and  capitalized in the government‐wide financial statements at the present value of net  minimum lease payments at inception of the lease.  In the year of acquisition, capital  lease transactions are recorded as other financing sources and as capital outlay  expenditures in the general fund.  Lease payments representing both principal and  interest are recorded as expenditures in the general fund upon payment with an  appropriate reduction of principal recorded in the government‐wide financial  statements.    13. Estimates    The preparation of financial statements, in conformity with generally accepted  accounting principles, requires management to make estimates and assumptions  that affect the reported amounts of assets and liabilities and disclosure of contingent  assets and liabilities at the date of the financial statements and the reported  amounts of revenues and expenditures/expenses during the reporting period.   Actual results could differ from those estimates.    14. Pensions    For purposes of measuring the net pension liability, deferred outflows of resources  and deferred inflows of resources related to pensions, and pension expense,  information about the Fiduciary Net Position of the Texas Municipal Retirement  System (TMRS) and additions to/deductions from TMRS’s Fiduciary Net Position  have been determined on the same basis as they are reported by TMRS. For this  purpose, plan contributions are recognized in the period that compensation is  reported for the employee, which is when contributions are legally due. Benefit  payments and refunds are recognized when due and payable in accordance with  the benefit terms. Investments are reported at fair value.    II. 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 position.    The governmental fund balance sheet includes reconciliation between fund balance‐ total governmental funds and net position‐governmental activities as reported in the  government‐wide statement of net position.  One element of that reconciliation  explains that long‐term liabilities, including bonds, are not due and payable in the  current period and, therefore, are not reported in the funds.  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  45  B. Explanation of certain differences between the governmental fund statement of  revenues, expenditures, and changes in fund balances and the government‐wide  statement of activities.    The governmental fund statement of revenues, expenditures, and changes in fund  balances includes a reconciliation between net changes in fund balances – total  governmental funds and changes in net position of governmental states that, “the  issuance of long‐term debt (e.g., bonds) 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.  Also,  governmental funds report the effect of premiums, discounts, and similar items  when debt is first issued, whereas these amounts are deferred and amortized in the  statement of activities.”      III.  STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY    Annual budgets are adopted on a basis consistent with generally accepted  accounting principles for all governmental and enterprise funds.     The appropriated budget is prepared by fund, function, and department. The legal  level of control is the fund level. No funds can be transferred or added to a  budgeted item without Council approval.  Appropriations lapse at the end of the  year. Budget amendments were only re‐classes at the function level and below and  there was no increase in budgeted revenues or expenses by function from  amendments.     A.  Deficit Fund Equity    The internal service fund had a deficit balance of $140,138 as of September 30, 2016  due to the net pension liability balance exceeding total assets.  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  46  IV.  DETAILED NOTES ON ALL FUNDS     A.  Deposits and Investments    As of September 30, 2016, the primary government had the following investments:    Investment Type Certificates of deposit $ 1,615,948 0.48 Total fair value $ 1,615,948 Portfolio weighted average maturity 0.48 Average Maturity Fair Value  (Years)     Interest rate risk – In accordance with its investment policy, the City manages its  exposure to declines in fair values by limiting the weighted average of maturity not  to exceed five years; structuring the investment portfolio so that securities mature to  meet cash requirements for ongoing operations; monitoring credit ratings of  portfolio position to assure compliance with rating requirements imposed by the  Public Funds Investment Act;  and invest operating funds primarily in short‐term  securities or similar government investment pools.    Credit risk – The City’s investment policy limits investments to obligations of the  United States, State of Texas, or their agencies and instrumentalities with an  investment quality rating of not less than “A” or its equivalent, by a nationally  recognized investment rating firm. Other obligations must be unconditionally  guaranteed (either express or implied) by the full faith and credit of the United  States Government or the issuing U.S. agency and investment pools with an  investment quality not less than AAA or AAA‐m, or equivalent, by at least one  nationally recognized rating service.     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.  State statutes require  that all deposits in financial institutions be insured or fully collateralized by U.S.  government obligations or its agencies and instrumentalities or direct obligations of  Texas or its agencies and instrumentalities that have a market value of not less than  the principal amount of the deposits. As of September 30, 2016, the market values of  pledged securities and FDIC exceeded bank balances.     Custodial credit risk – investments  For an investment, this is the risk that, in the event  of the 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.   The City’s investment policy requires that it will seek to safekeeping securities at  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  47  financial institutions, avoiding physical possession.  Further, all trades, where  applicable, are executed by delivery versus payment to ensure that securities are  deposited in the City’s safekeeping account prior to the release of funds.      B.  Receivables     The following comprise receivable balances of the primary government at year end:    Property taxes $ 75,799 $ 31,347 $‐                  $‐                      $‐                    $ 107,146          Sales tax 145,729 ‐                  62,430        62,430             ‐                    270,589          Franchise & local taxes 33,799 ‐                  ‐                  ‐                      ‐                    33,799            EMS 449,032 ‐                  ‐                  ‐                      ‐                    449,032          Accounts 123,705 ‐                  26,222        ‐                      1,906,200 2,056,127       Other 62 ‐                  ‐                  ‐                      ‐                    62                   Allowance (311,054)     (11,145)       ‐                  ‐                      (189,389)       (511,588)        $ 517,072      $ 20,202        $ 88,652        $ 62,430            $ 1,716,811      $ 2,405,167       4A Fund 4B Fund Total Water, Sewer & ElectricService Debt General                                               City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  48  C.  Capital Assets    A summary of changes in governmental activities capital assets for the year end  was as follows:    Capital assets, not being depreciated: Land $ 1,044,933            $‐                        $‐                         $ 1,044,933        Construction in progress 567,694               486,581             (81,750)               972,525           1,612,627 486,581 (81,750) 2,017,458 Capital assets, being depreciated: Infrastructure 11,853,211          103,314             1,863                  11,958,388      Buildings and improvements 7,086,986            30,837                ‐                         7,117,823        Machinery and equipment 3,486,768            301,149             (130,358)             3,657,559        22,426,965 435,300 (128,495) 22,733,770 Less accumulated depreciation Infrastructure 5,485,959            330,942             ‐                         5,816,901        Buildings and improvements 1,617,823            318,109             ‐                         1,935,932        Machinery and equipment 1,828,732            396,223             ‐                         2,224,955        Total accumulated depreciation 8,932,514 1,045,274 ‐                         9,977,788 Net capital assets being depreciated 13,494,451          (609,974)           (128,495)             12,755,982      $ 15,107,078          $ (123,393)           $ (210,245)             $ 14,773,440      Beginning Ending Balances Increases Total Capital Assets Total capital assets not being depreciated Total capital assets being depreciated BalancesReclassifications   Depreciation was charged to governmental functions as follows:    General government $ 91,479                  Public safety 301,930                Public works 370,115                Culture and recreation 280,251                Internal service fund 1,499                    $ 1,045,274            Total Governmental Activities Depreciation Expense                 City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  49  A summary of changes in business‐type activities capital assets for the year end  was as follows:    Capital assets, not being depreciated: Land $ 323,164            $ 173,693            $‐                         $ 496,857             Construction in progress 1,980,103         2,418,943         (949,090)             3,449,956          Total capital assets not being depreciated 2,303,267         2,592,636         (949,090)             3,946,813          Capital assets, being depreciated: Infrastructure 22,617,455       ‐                        949,090              23,566,545        Buildings and improvements 865,245            ‐                        ‐                         865,245             Machinery and equipment 1,742,577         129,789            210,245              2,082,611          Total capital assets being depreciated 25,225,277       129,789            1,159,335           26,514,401        Less accumulated depreciation Infrastructure 12,965,356       651,802            ‐                         13,617,158        Buildings and improvements 367,713            51,855              ‐                         419,568             Machinery and equipment 1,271,738         107,406            ‐                         1,379,144          Total accumulated depreciation 14,604,807       811,063            ‐                         15,415,870        Net capital assets being depreciated 10,620,470       (681,274)           1,159,335           11,098,531        $ 12,923,737       $ 1,911,362         $ 210,245              $ 15,045,344       Total Capital Assets Beginning Ending Balances Increases Reclassifications Balances   Depreciation was charged to business‐type activities as follows:    Water $ 282,736 Sewer 232,995 Electric 276,487 Other 18,845 $ 811,063              Total Business‐type Activities Depreciation Expense                     City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  50  D.   Long‐term Debt    The following is a summary of changes in the City’s total governmental long‐term  liabilities for the year ended. The City uses the debt service fund to liquidate  governmental activities debts.  Governmental Activities: Bonds, notes and other payables: General Obligation Bonds $ 972,400     $ 1,166,100 $ (191,700)    $‐                  $ 1,946,800      $ 372,500    Certificates of Obligation 4,596,100   ‐               (428,600)    (1,202,900) 2,964,600      224,300    Less deferred amounts: For issuance premiums 68,199       98,406     (12,545)      (6,952)        147,108         ‐                5,636,699  1,264,506 (632,845)    (1,209,852) 5,058,508      596,800    Other liabilities: Notes payable 439,448      ‐                 (42,997)        ‐                   396,451         43,949        Capital leases payable 930,341     ‐               (194,056)    ‐                  736,285        162,680    Compensated absences 144,454     135,950   (115,902)    ‐                  164,502        148,052    $ 7,150,942   $ 1,400,456  $ (985,800)      $ (1,209,852)   $ 6,355,746      $ 951,481      Long‐term liabilities due in more than one year $ 5,404,265       Business‐Type Activities: General Obligation Bonds $ 1,237,600  $ 1,368,900 $ (243,300)    $‐                  $ 2,363,200      $ 452,500    Certificates of Obligation 5,943,900  5,870,000 (446,400)    (1,412,100) 9,955,400      305,700    Less deferred amounts: For issuance premiums 301,170     494,741   (44,659)      (8,161)        743,091        ‐                7,482,670  7,733,641 (734,359)    (1,420,261) 13,061,691    758,200    Other liabilities: Capital leases payable 159,427     ‐               (118,176)    ‐                  41,251          41,251      Compensated absences 79,493       67,990     (65,213)      82,270          74,044      $ 7,721,590   $ 7,801,631  $ (917,748)      $$ 13,185,212    $ 873,495      Long‐term liabilities due in more than one year $ 12,311,717     Amounts Beginning Amortization/Ending Due within Balance Additions Payments Balance Total Business‐Type  Activities One Year Total Governmental  Activities Refunded   City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  51  Long‐term liabilities applicable to the City’s governmental activities are not due  and payable in the current period and accordingly, are not reported as fund  liabilities in the governmental funds.  Interest on long‐term debt is not accrued in  governmental funds, but rather is recognized as an expenditure when due.  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  52  Long‐term debt at year end was comprised of the following debt issues:  General Obligation Bonds: $3,495,000 General Obligation Refunding Bond, Series 2012, due in   installments through 2021, interest at 2% to 3% $ 787,600      $ 1,002,400      $1,790,000     $2,535,000 General Obligation Refunding Bond, Series 2016, due in   installments through 2021, interest at 2% to 4% 1,159,200   1,360,800      2,520,000     $ 1,946,800   $ 2,363,200      $4,310,000     Certificates of Obligation: $1,750,000 Certificates of Obligation, Series 2007,  due in annual installments through 2027, interest at 4.4%$ 391,000      $759,000         $1,150,000     $3,200,000 Certificates of Obligation, Series 2009,  due in annual installments through 2026, interest at 3% to 4.75%2,120,000   ‐                     2,120,000     $4,260,000 Certificates of Obligation, Series 2013,  due in annual installments through 2033, interest at 2% to 3.7%453,600      3,326,400      3,780,000     $5,870,000 Certificates of Obligation, Series 2015,  due in annual installments through 2035, interest at 3.4% to 5.5%‐                 5,870,000      5,870,000     $ 2,964,600   $ 9,955,400      $ 12,920,000   Less deferred amounts: Issuance premium $ 147,108      $743,091         $890,199        $ 147,108      $743,091         $890,199        Notes Payable: $660,000 Notes payable to a financial institution, due in monthly installments of $5,106 through June 2024, including interest at 4.6% $ 396,451      $‐                     $396,451        $ 396,451      $‐                     $396,451        Capital Leases Payable: $190,309 Capital lease payable to financial institution, due in annual installments of $50,235 through 2017, interest at 2.89%$‐                 $41,251           $41,251          $435,000 Capital lease payable to financial institution, due in annual installments of $51,535 through 2024, interest at 3.346%356,075      ‐                     356,075        $500,000 Capital lease payable to financial institution, due in annual installments of $134,279 through 2019, interest at 2.947%380,210      ‐                     380,210        $ 736,285      $41,251           $777,536        Compensated Absences 164,502      82,270           246,772        $ 6,355,746   $ 13,185,212    $ 19,540,958  Total Long‐term Liabilities Total Business ‐ Total General Obligation Bonds Total Certificates of Obligation Governmental Type Activities Activities Total Deferred Amounts Total Notes Payable  Total Capital Leases Payable    City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  53  The annual requirements to amortize governmental and business‐type activities  debt issues outstanding at year ending were as follows:    General Obligation Bonds    Year ending September 30, 2017 $ 372,500            $ 64,416            $ 452,500          $ 77,834              2018 377,000            55,426            458,000          66,824              2019 392,800            41,908            477,200          50,492              2020 410,900            27,824            499,100          33,476              2021 393,600            13,929            476,400          16,746              $ 1,946,800         $ 203,503          $ 2,363,200       $ 245,372            Principal Interest Principal Interest Governmental Activities Business‐Type Activities                                                     City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  54  Combination Tax and Revenue Certificates of Obligations    Year ending September 30, 2017 $ 224,300            $ 128,067            $ 305,700            $ 365,408             2018 229,900            119,387          325,100          357,798            2019 241,600            110,391          328,400          349,179            2020 248,900            100,919          331,100          339,916            2021 261,200            91,050            408,800          328,055            2022 273,500            79,919            531,500          313,142            2023 286,400            68,258            533,600          296,377            2024 297,000            55,768            543,000          279,277            2025 309,300            42,686            560,700          260,919            2026 323,900            28,194            586,100          240,113            2027 71,800              13,024              608,200            217,921             2028 28,800              9,768              541,200          193,557            2029 30,600              8,400                564,400            171,800             2030 31,800              6,870              588,200          147,974            2031 33,600              5,280              616,400          122,720            2032 35,400              3,600              639,600          96,338              2033 36,600              1,830              663,400          68,826              2034 ‐                       ‐                      410,000          40,313              2035 ‐                       ‐                      425,000          24,656              2036 ‐                       ‐                      445,000          8,344                $ 2,964,600         $ 873,412          $ 9,955,400       $ 4,222,631         Governmental Activities Business‐Type Activities Principal Interest Principal Interest   General obligation bonds are direct obligations of the City for which its full faith  and credit are pledged. Repayment of general obligation bonds are from taxes  levied on all taxable property located within the City. The City is not obligated in  any manner for special assessment debt.                      City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  55  Capital Leases    Year ending September 30, 2017 $ 162,680            $ 23,135            $ 41,251            $ 1,411                2018 167,632            18,182             ‐                        ‐                        2019 172,736            13,079             ‐                        ‐                        2020 43,716              7,819               ‐                        ‐                        2021 45,179              6,357               ‐                        ‐                        2022 46,690              4,845               ‐                        ‐                        2023 48,252              3,283               ‐                        ‐                        2024 49,400              1,668               ‐                        ‐                        $ 736,285            $ 78,368            $ 41,251            $ 1,411                Business‐Type Activities Principal Interest Governmental Activities Principal Interest     The City has entered into capital lease agreements. The leased property under  capital leases is classified as machinery and equipment with a total carrying value  net of depreciation of approximately $956,406 as of year end.    Note Payable    Year ending September 30, 2017 $ 43,949            $ 17,318              2018 46,014            15,253              2019 48,176            13,091              2020 50,439            10,828              2021 52,809            8,458                2022 55,290            5,977                2023 57,887            3,380                2024 41,887            4,063                $ 396,451          $ 78,368              Governmental Activities Principal Interest     E. Conduit Debt    From time to time, the City has issued notes payable for the purpose of assisting  with financing needed by not‐for‐profit organizations to promote their cause. The  notes are secured by the property financed and are payable solely from payments  received on the underlying loans. Upon repayment of the notes, ownership of the  acquired facilities transfers to the not‐for‐profit entity served by the note issuance.   City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  56    The City has no liability for the notes payable in the event of default by the  borrowers. Accordingly, the bonds are not reported as liabilities in the City’s  financial statements.    F. Deferred Charge on Refunding    Deferred charges resulting from the issuance of the 2012 and 2016 general  obligation refunding bonds have been recorded as a deferred outflow of resources  and are being amortized to interest expense over the terms of the respective  refunded debts. Current year balances for governmental and business‐type  activities totaled $33,787 and $59,153, respectively. Current year amortization  expense for governmental and business‐type activities totaled $4,909 and $9,977,  respectively.    G. Advance Refunding    On June 13, 2016, the City issued $2,535,000 in general obligation refunding bonds  with an interest rate of 2 ‐ 4%. The proceeds were used to advance refund $2,615,000  of outstanding 2006 combination tax and revenue certificates of obligation which  had an interest rate ranging from 4% to 5%. The net proceeds of $2,666,396 (after  payment of $82,530 in underwriting fees and other issuance costs) were deposited  in an irrevocable trust with an escrow agent to provide funds for the future debt  service payment on the refunded bonds. As a result, the obligations are considered  defeased and the liability for those bonds has been removed from the statement of  net position.    The reacquisition price exceeded the net carrying amount of the old debt by $36,283.  This amount is being amortized over the remaining life of the refunding debt. This  advance refunding reduced its total debt service payments by $140,422 and resulted  in an economic gain (difference between the present values of the debt service  payments on the old and new debt) of $135,810.                    City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  57  H. Interfund Transactions     Amounts transferred between funds relate to amounts collected, various capital  expenditures, annual funding, and debt payments.    Transfer out: General $‐                  $‐                  $‐                    $390,000         $ 230,937        1 $ 531,800      $ 1,152,737    4A ‐                   ‐                  ‐                    175,000         ‐                    ‐                  175,000       4B ‐                  212,500      25,000          110,000         ‐                    ‐                  347,500       Debt Service 166,536      ‐                  ‐                    ‐                    ‐                    ‐                  166,536       Enterprise 986,003      4,858          25,000          ‐                    ‐                    917,000      1,932,861    $ 1,152,539   $ 217,358      $ 50,000          $675,000         $ 230,937        $ 1,448,800   $ 3,774,634    1 ‐ This value is after full conversion to the accrual method. For the general fund, this balance is greater than the amount reported within the  governmental funds statement of revenues, expenditures, and changes in fund balance by $210,245. This amount is only recognized at the  government wide level for the general fund, and is due to the amount of capital assets transferred from the general fund to the water, sewer, and  electric fund.  General Debt Service  4A Total Transfer In  Internal  Service   Enterprise   Capital  Projects    I.  Fund Equity     The City records fund balance restrictions on the fund level to indicate that a  portion of the fund balance is legally restricted for a specific future use or to  indicate that a portion of the fund balance is not available for expenditures.     The following is a list of fund balances restricted/committed by the City:    Municipal court $ 7,971              $‐                        Tourism 9,480              ‐                        Library 79,393            ‐                        Public safety 23,385            ‐                        Debt service 404,096          ‐                        Capital projects 1,030,871       ‐                        Economic development 2,626,680       ‐                        Employee benefits ‐                      30,334             $ 4,181,876       $ 30,334             Restricted Committed         City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  58  V.  OTHER INFORMATION    A. Risk Management    The City is exposed to various risks of loss related to torts; theft of, damage to and  destruction of assets, errors and omissions; and natural disasters for which the City  participates along with 2,800 other entities in the Texas Municipal League’s  Intergovernmental Risk Pools.  The Pool purchases commercial insurance at group  rates for participants in the Pool.  The City has no additional risk or responsibility to  the Pool outside of the payment of insurance premiums.  The City has not  significantly reduced insurance coverage or had settlements which exceeded  coverage amounts for the past three years.    B. Contingent Liabilities    Amounts received or receivable from granting agencies are subject to audit and  adjustment by grantor agencies, principally the federal government.  Any  disallowed claims, including amounts already collected, may constitute a liability of  the applicable funds.  The amounts of expenditures which may be disallowed by the  grantor cannot be determined at this time although the City expects such amounts,  if any, to be immaterial.    Liabilities are reported when it is probable that a loss has occurred and the amount  of the loss can be reasonably estimated.  Liabilities include an amount for claims  that have been incurred but not reported.  Claim liabilities are calculated  considering the effects of inflation, recent claim settlement trends, including  frequency and amount of payouts, and other economic and social factors.                              City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  59  C. Construction commitments    The government has active construction projects as of September 30, 2016. The  projects include street construction and improvements, sewer plant and the  construction of additional water lines and repairs. At year end the government’s  commitments with contractors are as follows:    Project McReynolds Road Reconstruction Pacheco Koch, LLC $ 17,473           McReynolds Road Reconstruction HRM Land Acquisition 397                17,870           Server Consolidation Austin Lane Technology 20,166           20,166 Church building restoration Eikon Consultant 10,159 Cima 7,996 Mabak Directional 10,000 28,155 Capital improvement plan Perkins Engineering 30,633 12ʺ Water Line Chapman to Belz Pacheco Koch, LLC 3,092 12ʺ Water Line Chapman to Belz Card Services 255 Water Line Lois to View Pacheco Koch, LLC 7,390 Water Well and Ground Storage Cory Miller Drilling 39,729 Water Well and Ground Storage Perkins Engineering 64,830 Water Well and Ground Storage Vessels Construction 622,714 15ʺ Line Chapman to Belz Pacheco Koch, LLC 3,715 15ʺ Line Chapman to Belz Card Services 255 WWL FM455 to Lois Pacheco Koch LLC 91,097 WWL FM455 to Lois HRM Land Acquisition 14,858 12ʺ Line Lois to View Pacheco Koch LLC 25,709 New Sewer Plant Alan Plummer Associates 8,067 912,344 $ 978,535 Remaining  CommitmentVendor Total Project Total Project Total Project Total Project Total     City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  60  D. Related Party Activity    On March 1, 2012, the City entered into a non‐cancelable lease agreement with a  corporation of which a former city council member is a principal member of  management. The leased property is owned by the 4A Fund and has a cost  $1,083,797 with accumulated depreciation of $253,145 as of September 30, 2016. The  lease provides for a base rent and an adjustment each year related to excess  operating expenses (if any) incurred annually. The lease was continued on a month  to month basis beginning in July 2015. On January 6, 2017, the City terminated the  lease agreement.    During the year ended September 30, 2016, the City recognized $78,667 in rental  revenue from this lease. As of September 30, 2016 the City had a receivable from  this company for $26,222.     E. Arbitrage     The Tax Reform Act of 1986 instituted certain arbitrage consisting of complex  regulations with respect to issuance of tax‐exempt bonds after August 31, 1986.   Arbitrage regulations deal with the investment of tax‐exempt bond proceeds at an  interest yield greater than the interest yield paid to bondholders.  Generally, all  interest paid to bondholders can be retroactively rendered taxable if applicable  rebates are not reported and paid to the Internal Revenue Service at least every five  years for applicable bond issues.  Accordingly, there is the risk that if such  calculations are not performed correctly, a substantial liability to the City could  result.  The City does anticipate that it will have an arbitrage liability and performs  annual calculations to estimate this potential liability.   The City will also engage an  arbitrage consultant to perform the calculations in accordance with Internal  Revenue Service’s rules and regulations if indicated.    F. Defined Benefit Pension Plans    1.   Plan Description    The City of Sanger, Texas participates as one of 866 plans in the nontraditional, joint  contributory, hybrid defined benefit pension plan administered by the Texas  Municipal Retirement System (TMRS). TMRS is an agency created by the State of  Texas and administered in accordance with the TMRS Act, Subtitle G, Title 8, Texas  Government Code (the TMRS Act) as an agent multiple‐employer retirement  system for municipal employees in the State of Texas. The TMRS Act places the  general administration and management of the System with a six‐member Board of  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  61  Trustees. Although the Governor, with the advice and consent of the Senate,  appoints the Board, TMRS is not fiscally dependent on the State of Texas. TMRS’s  defined benefit pension plan is a tax‐qualified plan under Section 401 (a) of the  Internal Revenue Code. TMRS issues a publicly available comprehensive annual  financial report (CAFR) that can be obtained at www.tmrs.com.    All eligible employees of the city are required to participate in TMRS.    2.  Benefits Provided    TMRS provides retirement, disability, and death benefits. Benefit provisions are  adopted by the governing body of the city, within the options available in the state  statutes governing TMRS.    At retirement, the benefit is calculated as if the sum of the employee’s contributions,  with interest, and the city‐financed monetary credits with interest were used to  purchase an annuity. Members may choose to receive their retirement benefit in one  of seven payments options. Members may also choose to receive a portion of their  benefit as a Partial Lump Sum Distribution in an amount equal to 12, 24, or 36  monthly payments, which cannot exceed 75% of the member’s deposits and  interest.    The plan provisions are adopted by the governing body of the City, within the  options available in the state statutes governing TMRS. Plan provisions for the City  were as follows:     Plan Year 2015 Plan Year 2016  Employee deposit rate 6.0% 6.0%  Matching ratio (city to  employee)  2 to 1 2 to 1  Years required for vesting 5 5  Service retirement eligibility  (expressed as age / years of  service)  60/5, 0/25 60/5, 0/25  Updated service credit 100% Repeating Transfers 100% Repeating Transfers  Annuity increase (to retirees) 0% of CPI  0% of CPI             City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  62  Employees covered by benefit terms    At the December 31, 2015 valuation and measurement date, the following  employees were covered by the benefit terms:    Inactive employees or beneficiaries currently receiving benefits 12  Inactive employees entitled to but not yet receiving benefits 22  Active employees 65  Total 99     3.  Contributions    The contribution rates for employees in TMRS are either 5%, 6%, or 7% of employee  gross earnings, and the city matching percentages are either 100%, 150%, or 200%,  both as adopted by the governing body of the City. Under the state law governing  TMRS, the contribution rate for each city is determined annually by the actuary,  using the Entry Age Normal (EAN) actuarial cost method. The actuarially  determined rate is the estimated amount necessary to finance the cost of benefits  earned by employees during the year, with an additional amount to finance any  unfunded accrued liability.    Employees for the City of Sanger were required to contribute 6% of their annual  gross earnings during the fiscal year. The contribution rates for the City of Sanger  were 7.09% and 7.13% in calendar years 2015 and 2016, respectively. The City’s  contributions to TMRS for the year ended September 30, 2016, were $247,432, and  were equal to the required contributions.    4.  Net Pension Liability    The City’s Net Pension Liability (NPL) was measured as of December 31, 2015, and  the Total Pension Liability (TPL) used to calculate the Net Pension Liability was  determined by an actuarial valuation as of that date.                    City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  63  Actuarial assumptions:    The Total Pension Liability in the December 31, 2015 actuarial valuation was  determined using the following actuarial assumptions:    Inflation         2.5% per year  Overall payroll growth      3.0% per year  Investment Rate of Return    6.75%, net of pension plan investment expense,    including inflation        Salary increases were based on a service‐related table. Mortality rates for active  members, retirees, and beneficiaries were based on the gender‐distinct RP2000  Combined Healthy Mortality Table, with male rates multiplied by 109% and female  rates multiplied by 103%. The actuarial assumptions were developed primarily  from the actuarial investigation of the experience of TMRS over the four year period  from December 31, 2010 to December 31, 2014. They were adopted in 2015 and first  used in the December 31, 2015 actuarial valuation. The post‐retirement mortality  assumption for healthy annuitants and Annuity Purchase Rate (APRs) are based on  the Mortality Experience Investigation Study covering 2009 through 2011 and dated  December 31, 2013. In conjunction with these changes first used in the December 31,  2013 valuation, the System adopted the Entry Age Normal actuarial cost method  and a one‐time change to the amortization policy. The rates are projected on a fully  generational basis by scale BB to account for future mortality improvements. For  disabled annuitants, the gender‐distinct RP2000 Disabled Retiree Mortality Table  with Blue Collar Adjustment are used with males rates multiplied by 109% and  female rates multiplied by 103% with a 3‐year set‐forward for both males and  females. In addition, a 3% minimum mortality 16 rate is applied to reflect the  impairment for younger members who become disabled. The rates are projected on  a fully generational basis by scale BB to account for future mortality improvements  subject to the 3% floor.    Actuarial assumptions used in the December 31, 2015, valuation were based on the  results of actuarial experience studies. The experience study in TMRS was for the  period December 31, 2010 through December 31, 2014. Healthy post‐retirement  mortality rates and annuity purchase rates were updated based on a Mortality  Experience Investigation Study covering 2009 through 2011, and dated December  31, 2013. These assumptions were first used in the December 31, 2013 valuation,  along with a change to the Entry Age Normal (EAN) actuarial cost method.  Assumptions are reviewed annually. No additional changes were made for the 2014  valuation. After the Asset Allocation Study analysis and experience investigation  study, the Board amended the long‐term expected rate of return on pension plan  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  64  investments from 7% to 6.75%. Plan assets are managed on a total return basis with  an emphasis on both capital appreciation as well as the production of income, in  order to satisfy the short‐term and long‐term funding needs of TMRS.    The long‐term expected rate of return on pension plan investments was determined  using a building‐block method in which best estimate ranges of expected future real  rates of return (expected returns, net of pension plan investment expense and  inflation) are developed for each major asset class. These ranges are combined to  produce the long‐term expected rate of return by weighting the expected future real  rates of return by the target asset allocation percentage and by adding expected  inflation. In determining their best estimate of a recommended investment return  assumption under the various alternative asset allocation portfolios, GRS focused  on the area between (1) arithmetic mean (aggressive) without an adjustment for  time (conservative) and (2) the geometric mean (conservative) with an adjustment  for time (aggressive). At its meeting on July 30, 2015, the TMRS Board approved a  new portfolio target allocation. The target allocation and best estimates of real rates  of return for each major asset class are summarized in the following table:    Asset Class Target Allocation Long‐Term Expected Real  Rate of Return  (Arithmetic)  Domestic Equity 17.5% 4.55%  International Equity 17.5% 6.10%  Core Fixed Income 10.0% 1.00%  Non‐Core Fixed Income 20.0% 3.65%  Real Return 10.0% 4.03%  Real Estate 10.0% 5.00%  Absolute Return 10.0% 4.00%  Private Equity 5.0% 8.00%     Total 100.0%     Discount Rate:    The discount rate used to measure the Total Pension Liability was 6.75%. The  projection of cash flows used to determine the discount rate assumed that employee  and employer contributions will be made at the rates specified in statute. Based on  that assumption, the pension plan’s Fiduciary Net Position was projected to be  available to make all projected future benefit payments of current active and  inactive employees. Therefore, the long‐term expected rate of return on pension  plan investments was applied to all periods of projected benefit payments to  determine the Total Pension Liability.  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  65  Changes in the Net Pension Liability:    Total Pension  Liability (a) Plan Fiduciary  Net Position (b) Net Pension  Liability (a) – (b) Balance at 12/31/14 $           7,400,331 $              6,661,957 $                    738,374  Changes for the year:    Service Cost              369,950                            ‐                        369,950     Interest (on the Total Pension Liab.)             521,853                            ‐                        521,853     Difference between expected and         actual experience              (89,808)                          ‐                        (89,808)    Contributions – employer                        ‐                    231,097                    (231,097)    Contributions – employee                        ‐                    195,568                    (195,568)    Net investment income                        ‐                        9,831                        (9,831)    Benefit payments, including     refunds of emp. contributions            (260,514)               (260,514)                             ‐       Administrative expense                        ‐                       (5,988)                        5,988     Other changes                47,847                        (296)                      48,143       Net changes              589,328                  169,698                      419,630  Balance at 12/31/15 $           7,989,659 $              6,831,655 $                 1,158,004    Sensitivity of the net pension liability to changes in the discount rate    The following presents the net pension liability of the City, calculated using the  discount rate of 6.75%, as well as what the City’s net pension liability would be if it  were calculated using a discount rate that is 1‐percentage‐point lower (5.75%) or 1‐ percentage‐point higher (7.75%) than the current rate:    1% Decrease Current Single Rate 1% Increase 5.75% Assumption 6.75% 7.75%  $2,491,376                       $1,158,004                     $73,544                              Pension Plan Fiduciary Net Position:    Detailed information about the pension plan’s Fiduciary Net Position is available in  a separately‐issued TMRS financial report. That report may be obtained on the  internet at www.tmrs.com.    City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  66  5.  Pension Expense and Deferred Outflows of Resources Related to Pensions    At September 30, 2016, the City reported deferred outflows of resources related to  pensions from the following sources:    Difference between projected and  investment earnings $389,973                               Differences between expected and  actual economic experience 21,121                                 Contributions subsequent to the  measurement date 181,515                                  Total $592,609                              Deferred  Outflows of Resources   The City reported $181,515 as deferred outflows of resources related to pensions  resulting from contributions subsequent to the measurement date that will be  recognized as a reduction of the net pension liability for the year ending September  30, 2016. Other amounts reported as deferred outflows of resources related to  pensions will be recognized in pension expense as follows:    Year ended December 31: 2016 $ 107,439         2017 107,439         2018 103,937         2019 92,279           2020 ‐                      Thereafter ‐                      $ 411,094             Supplemental Death Benefits Plan    The City also participates in the cost sharing multiple‐employer defined benefit  group‐term life insurance plan operated by the Texas Municipal Retirement System  (TMRS) known as the Supplemental Death Benefits Fund (SDBF). The City elected,  by ordinance, to provide group‐term life insurance coverage to both current and  retired employees. The City may terminate coverage under and discontinue  participation in the SDBF by adopting an ordinance before November 1 of any year  to be effective the following January 1.   City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  67  The death benefit for active employees provides a lump‐sum payment  approximately equal to the employee’s annual salary (calculated based on the  employee’s actual earnings, for the 12‐month period preceding the month of death);  retired employees are insured for $7,500; this coverage is an “other  postemployment benefit,” or OPEB.    The City contributes to the SDBF at a contractually required rate as determined by  an annual actuarial valuation. The rate is equal to the cost of providing one‐year  term life insurance. The funding policy for the SDBF program is to assure that  adequate resources are available to meet all death benefit payments for the  upcoming year; the intent is not to pre‐fund retiree term life insurance during  employees’ entire careers.     The City’s retiree contribution rates to the TMRS SDBF for the years ended 2016,  2015 and 2014 are as follows:    Plan/  Calendar Year  Annual  Required  Contribution  (Rate)  Actual  Contribution  Made  (Rate)  Percentage of  ARC  Contributed  2014 0.01% 0.01% 100.0%  2015 0.01% 0.01% 100.0%  2016 0.01% 0.01% 100.0%    The City’s contributions to the TMRS SDBF for the years ended 2016, 2015, and 2014  were $348, $322, and $306, respectively, which equaled the required contributions  each year.    G. Subsequent Events    In November of 2016, the City was awarded a purchase contract on land to be  acquired for expansion of the City’s wastewater treatment plant. The $273,000  contract was the result of an eminent domain claim made by the City to purchase  the land.      On January 6, 2017, the City terminated their lease agreement for a building owned  by the 4A fund. The lease generated $78,667 in rental income on an annual basis.  The City plans to sell the related building, which had a carrying value of $830,652 as  of September 30, 2016.    City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  68  Subsequent events were evaluated through January 27, 2017, the date the financial  statements were available to be issued.     H. New Accounting Pronouncements    The GASB issued Statement No. 72, entitled Fair Value Measurement and Application;  The provisions of GASB Statement No. 72 are effective for reporting periods  beginning after June 15, 2015. GASB Statement No. 72 provides guidance for  applying fair value to certain investments and disclosures related to all fair value  measurements. The statement generally requires state and local governments to  measure investments at fair value. The statement defines an investment as a security  or other asset that (a) a government holds primarily for the purpose of income or  profit and (b) has a present service capacity based solely on its ability to generate  cash or to be sold to generate cash. Fair value is defined as the price that would be  received to sell an asset or paid to transfer a liability in an orderly transaction  between participants at the measurement date. The City has adopted this statement  during the current fiscal year, but it had no material effect on these accompanying  financial statements.     The GASB issued Statement No. 74 titled, Financial Reporting for Postemployment  Benefit Plans Other Than Pension Plans; GASB Statement No. 75, titled, Accounting and  Financial Reporting for Postemployment Benefits Other Than Pensions; GASB Statement  No. 77; titled, Tax Abatement Disclosures; GASB Statement No. 78, titled, Pensions  Provided through Certain Multiple‐Employer Defined Benefit Pension Plans, which will  require adoption in the future, if applicable. These statements may or will have a  material effect on the City’s financial statements once implemented. The City will  be analyzing the effects of these pronouncements and plans to adopt them as  applicable by their effective date.    REQUIRED SUPPLEMENTARY INFORMATION 69 Revenues Property tax $2,340,000 $2,447,998 $107,998 Sales tax 730,000 815,547 85,547 Franchise and local taxes 212,700 240,206 27,506 License and permits 125,750 111,189 (14,561) Charges for services 735,000 829,508 94,508 Fire and rescue 495,000 586,833 91,833 Contributions and donations - 325 325 Intergovernmental - 77,844 77,844 Fines and forfeitures 140,000 136,433 (3,567) Investment income 2,500 6,296 3,796 Other revenue 124,990 96,817 (28,173) 4,905,940 5,348,996 443,056 Expenditures Current: General government 972,240 951,828 20,412 Police department 1,445,739 1,262,092 183,647 Municipal court 240,718 195,182 45,536 Fire and EMS 928,550 940,549 (11,999) Parks and recreation 513,090 463,483 49,607 Public works 657,928 616,616 41,312 Debt service: Principal 153,324 194,056 (40,732) Interest 13,212 28,835 (15,623) Bond issuance costs - 37,964 (37,964) Capital outlay 340,700 365,269 (24,569) 5,265,501 5,055,874 209,627 Revenues Over (Under) Expenditures $(359,561) $293,122 $652,683 Total Revenues Variance with City of Sanger, Texas SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL- GENERAL FUND (Page 1 of 2) For the Year Ended September 30, 2016 Original & Final Budget Total Expenditures Actual Final Budget 70 Transfers in $1,140,031 $1,152,539 $12,508 Transfers (out)(806,869) (942,492) (135,623) Bond issuance - 1,166,100 1,166,100 Premium - 98,406 98,406 Payment to refunding bond escrow agent - (1,226,542) (1,226,542) Sale of capital assets 25,000 30,618 5,618 Insurance recoveries 13,000 1,932 (11,068) 371,162 280,561 (90,601) Net Change in Fund Balance $11,601 573,683 $562,082 Beginning fund balance 1,974,317 $2,548,000 Notes to Required Supplementary Information 1. Annual budgets are adopted on a basis consistent with generally accepted accounting principles (GAAP). Variance with Actual Final Budget IN FUND BALANCE - BUDGET AND ACTUAL- GENERAL FUND (Page 2 of 2) For the Year Ended September 30, 2016 Original & Final Budget Ending Fund Balance Total Other Financing Sources Other Financing Sources (Uses) City of Sanger, Texas SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES 71 (This page intentionally left blank.) 72 SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS 1 Total pension liability Service cost $369,950 $340,004 Interest (on the Total Pension Liability)521,853 476,571 Changes in benefit terms - - Differences between expected and actual experience (89,808) 47,610 Changes of assumptions 47,847 - Benefit payments, including refunds of participant contributions (260,514) (204,026) Net change in total pension liability 589,328 660,159 Total pension liability - beginning 7,400,331 6,740,172 Total pension liability - ending (a)$7,989,659 $7,400,331 Plan fiduciary net position Contributions - employer $231,097 $211,283 Contributions - members 195,568 187,821 Net investment income 9,831 350,203 Benefit payments, including refunds of participant contributions (260,514) (204,026) Administrative expenses (5,988) (3,656) Other (296) (301) Net change in plan fiduciary net position 169,698 541,324 Plan fiduciary net position - beginning 6,661,957 6,120,633 Plan fiduciary net position - ending (b)$6,831,655 $6,661,957 Fund's net pension liability - ending (a) - (b)$1,158,004 $738,374 85.51%90.02% Covered employee payroll $3,259,471 $3,130,346 35.53% 23.59% Notes to schedule: 1) This schedule is presented to illustrate the requirement to show information for ten years. However, until a full ten-year trend is compiled, only available information is shown. 2015 Plan fiduciary net position as a percentage of the total pension City of Sanger, Texas For The Years Ended December 31, 2015 and 2014 Fund's net position as a percentage of covered employee payroll 2014 73 (This page intentionally left blank.) 74 2016 2015 1 Actuarially determined employer contributions $247,432 $225,111 $ 247,432 $ 225,111 Contribution deficiency (excess)$- $- Annual covered employee payroll $3,475,512 $3,130,346 7.12%7.19% Valuation Date: Notes Actuarially determined contribution rates are calculated as of December 31 and become effective in January 13 months later. Methods and Assumptions Used to Determine Contribution Rates: Actuarial Cost Method Entry Age Normal Amortization Method Level Percentage of Payroll, Closed Remaining Amortization Period 25 years Asset Valuation Method 10 Year smoothed market; 15% soft corridor Inflation 2.5% Salary Increases 3.0% to 10.5% including inflation Investment Rate of Return 6.75% Retirement Age Experience-based table of rates that are specific to the City's plan of benefits. Last updated for the 2015 valuation pursuant to an experience study of the period 2010 - 2014 Mortality RP2000 Combined Mortality Table with Blue Collar Adjustment with male rates multiplied by 109% and female rates multiplied by 103% and projected on a fully generational basis with scale BB Other Information: Notes There were no benefit changes during the year. NOTES TO SCHEDULE OF EMPLOYER CONTRIBUTIONS TO PENSION PLAN City of Sanger, Texas SCHEDULE OF EMPLOYER CONTRIBUTIONS TO PENSION PLAN For The Years Ended September 30, 2016 and 2015 1) This schedule is presented to illustrate the requirement to show information for ten years. However, until a full ten-year trend is compiled, only available information is shown. Contributions in relation to the actuarially determined contribution Employer contributions as a percentage of covered employee payroll 75 (This page intentionally left blank.) 76 OTHER SUPPLEMENTARY INFORMATION 77 Operating Revenues Charges for services $1,519,913 $1,476,998 $7,832,147 $- Connection fees - - 61,130 - Tap fees 121,500 166,000 - - Other revenue - - - - 1,641,413 1,642,998 7,893,277 - Operating Expenses Salaries and wages 334,757 160,690 574,304 - Contracted services 5,306 147 44,443 - Utilities 150,319 149,671 8,380 - Materials and supplies 37,923 7,307 36,207 - Water and electric purchases 64,044 - 5,440,315 - Repairs and maintenance 226,620 133,485 147,105 - Depreciation 282,736 232,995 276,487 1,562 1,101,705 684,295 6,527,241 1,562 539,708 958,703 1,366,036 (1,562) Nonoperating Revenues (Expenses) Investment income - - - - Bond issuance costs - - - - Interest expense - - - - - - - - Income Before Transfers 539,708 958,703 1,366,036 (1,562) Transfers in - 230,937 - - Transfers (out)- - (678,495) - $539,708 $1,189,640 $687,541 $(1,562) Sewer Electric Fleet Services City of Sanger, Texas COMBINING SCHEDULE OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS - BY DEPARTMENT For the Year Ended September 30, 2016 Water Total Operating Revenues Total Operating Expenses Operating Income (loss) Total Nonoperating Revenues (Expenses) Change in Net Position 78 $- $10,829,058 - 61,130 - 287,500 58,874 58,874 58,874 11,236,562 - 1,069,751 - 49,896 - 308,370 - 81,437 - 5,504,359 - 507,210 17,283 811,063 17,283 8,332,086 41,591 2,904,476 21,429 21,429 (208,930) (208,930) (395,154) (395,154) (582,655) (582,655) (541,064) 2,321,821 - 230,937 (1,254,366) (1,932,861) $(1,795,430) $619,897 Administration Total 79 APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY MUNICIPAL BOND INSURANCE POLICY ISSUER: [NAME OF ISSUER] MEMBER: [NAME OF MEMBER] Policy No: _____ BONDS: $__________ in aggregate principal amount of [NAME OF TRANSACTION] [and maturing on] Effective Date: _________ Risk Premium: $__________ Member Surplus Contribution: $ _________ Total Insurance Payment: $_________ BUILD AMERICA MUTUAL ASSURANCE COMPANY (“BAM”), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the “Trustee”) or paying agent (the “Paying Agent”) for the Bonds named above (as set forth in the documentation providing for the issuance and securing of the Bonds), for the benefit of the Owners or, at the election of BAM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the first Business Day following the Business Day on which BAM shall have received Notice of Nonpayment, BAM will disburse (but without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of the Bonds, the face amount of principal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner’s right to receive payment of such principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner’s rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any of whom may submit an amended Notice of Nonpayment. Upon disbursement under this Policy in respect of a Bond and to the extent of such payment, BAM shall become the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or interest on such Bond and shall be fully subrogated to the rights of the Owner, including the Owner’s right to receive payments under such Bond. Payment by BAM either to the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpayment shall discharge the obligation of BAM under this Policy with respect to said Nonpayment. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. “Business Day” means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer’s Fiscal Agent (as defined herein) are authorized or required by law or executive order to remain closed. “Due for Payment” means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. “Nonpayment” means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. “Nonpayment” shall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction. “Notice” means delivery to BAM of a notice of claim and certificate, by certified mail, email or telecopy as set forth on the attached Schedule or other acceptable electronic delivery, in a form satisfactory to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, (d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. “Owner” means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that “Owner” shall not include the Issuer, the Member or any other person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds. 2 BAM may appoint a fiscal agent (the “Insurer’s Fiscal Agent”) for purposes of this Policy by giving written notice to the Trustee, the Paying Agent, the Member and the Issuer specifying the name and notice address of the Insurer’s Fiscal Agent. From and after the date of receipt of such notice by the Trustee, the Paying Agent, the Member or the Issuer (a) copies of all notices required to be delivered to BAM pursuant to this Policy shall be simultaneously delivered to the Insurer’s Fiscal Agent and to BAM and shall not be deemed received until received by both and (b) all payments required to be made by BAM under this Policy may be made directly by BAM or by the Insurer’s Fiscal Agent on behalf of BAM. The Insurer’s Fiscal Agent is the agent of BAM only, and the Insurer’s Fiscal Agent shall in no event be liable to the Trustee, Paying Agent or any Owner for any act of the Insurer’s Fiscal Agent or any failure of BAM to deposit or cause to be deposited sufficient funds to make payments due under this Policy. To the fullest extent permitted by applicable law, BAM agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignment or otherwise, to the extent that such rights and defenses may be available to BAM to avoid payment of its obligations under this Policy in accordance with the express provisions of this Policy. This Policy may not be canceled or revoked. This Policy sets forth in full the undertaking of BAM and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto, any premium paid in respect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds prior to maturity. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. THIS POLICY IS ISSUED WITHOUT CONTINGENT MUTUAL LIABILITY FOR ASSESSMENT. In witness whereof, BUILD AMERICA MUTUAL ASSURANCE COMPANY has caused this Policy to be executed on its behalf by its Authorized Officer. BUILD AMERICA MUTUAL ASSURANCE COMPANY By: _______________________________________ Authorized Officer 3 Notices (Unless Otherwise Specified by BAM) Email: claims@buildamerica.com Address: 1 World Financial Center, 27th floor 200 Liberty Street New York, New York 10281 Telecopy: 212-962-1524 (attention: Claims) OFFICIAL STATEMENT Dated: May 1, 2017 NEW ISSUE: Book-Entry-Only Rating: S&P Insured “AA” Moody’s Underlying “A1” (See “RATINGS” herein) In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Certificates is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986. In the further opinion of Bond Counsel, interest on the Certificates is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counse l expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Certificates. See “TAX MATTERS. THE CERTIFICATES HAVE BEEN DESIGNATED AS “QUALIFIED TAX-EXEMPT OBLIGATIONS” FOR FINANCIAL INSTITUTIONS. $9,240,000 CITY OF SANGER, TEXAS (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2017 Interest to accrue from date of delivery Due: May 15, as shown on inside cover Interest on the $9,240,000 City of Sanger, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2017 (the “Certificates”), will accrue from their delivery date to the underwriters listed below (the “Underwriters”) and will be payable on May 15 and November 15 of each year, commencing on May 15, 2018. The Certificates will be issued only in fully registered form in principal denominations of $5,000 or any integral multiple thereof. Principal of the Certificates will be payable to the registered owner (the “Owner”) at maturity or prior redemption upon presentation at the principal corporate office of the paying agent/registrar (the “Paying Agent/Registrar”), initially BOKF, NA, Austin, Texas. The Certificates will be initially registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York (“DTC”). DTC will be responsible for distributin g the principal and interest payments to the participating members of DTC and the participating members will be responsible for distributing the payment to the owners of beneficial interests in the Certificates. See “BOOK-ENTRY-ONLY SYSTEM” herein. The scheduled payment of principal and interest on the Certificates when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Certificates by BUILD AMERICA MUTUAL ASSURANCE COMPANY. Proceeds from the sale of the Certificates will be used to pay contractual obligations to be incurred for (1) the restoration, replacement, rehabilitation and expansion of the wastewater and water systems, including the treatment plant; (2) street and drainage and improvements; and (3) professional services related thereto. See “THE CERTIFICATES – Sources and Uses of Funds” herein. The Certificates maturing on and after May 15, 2027, are subject to optional redemption in whole or in part on May 15, 2026 or on any date thereafter at a redemption price equal to the principal amount thereof plus accrued interest as more fully described herein. See “THE CERTIFICATES – Optional Redemption” herein. The Certificates will constitute direct obligations of the City of Sanger, Texas (the “City”), payable from ad valorem taxes levied against all taxable property within the City within the limits prescribed by law, and from a limited subordinate pledge (not to exceed $10,000) of surplus net revenues of the City’s water and sewer system as provided in the ordinance authorizing the Certificates. See Principal Amounts, Maturities, Interest Rates, and Prices on the Inside Cover Page The Certificates are offered when, as and if issued, subject to the approval of legality by the Attorney General of the State of Texas and Orrick, Herrington & Sutcliffe LLP, Bond Counsel, Houston, Texas. Certain legal matters will be passed upon for the Underwriters by their counsel, Andrews Kurth Kenyon LLP, Houston, Texas. The Certificates are expected to be available for delivery to the Underwriters through DTC on or about May 18, 2017. OPPENHEIMER & CO. WILLIAM BLAIR MATURITY SCHEDULE $9,240,000 Combination Tax and Revenue Certificates of Obligation, Series 2017 Maturity (May 15) Principal Amount Interest Rate Initial Yield/Price(b) CUSIP(c) 2022 $ 85,000 3.000% 1.950% 800876FT6 2023 100,000 3.000 2.050 800876FU3 2024 115,000 3.000 2.200 800876FV1 2025 115,000 4.000 2.350 800876FW9 2026 115,000 4.000 2.450 800876FX7 2027(a) 390,000 4.000 2.460 800876FY5 2028(a) 545,000 4.000 2.500 800876FZ2 2029(a) 560,000 4.000 2.600 800876GA6 2030(a) 585,000 4.000 2.660 800876GB4 2031(a) 605,000 4.000 2.770 800876GC2 2032(a) 630,000 4.000 2.850 800876GD0 2033(a)660,000 4.000 2.920 800876GE8 2034(a) 1,010,000 4.000 3.050 800876GF5 2035(a) 1,050,000 4.000 3.130 800876GG3 2036(a) 1,090,000 4.000 3.180 800876GH1 2037(a) 1,585,000 4.000 3.280 800876GJ7 ____________________________ (a) The Certificates maturing on and after May 15, 2027, are subject to optional redemption, in whole or in part, on May 15, 2026, or any date thereafter, at a price equal to the par value thereof, plus accrued interest from the most recent interest payment date to the date or redemption. (See “THE CERTIFICATES – Optional Redemption”). (b) The initial yields and prices are established by, and are the sole responsibility of the Underwriters and may subsequently be changed. (c) CUSIP numbers have been assigned to this issue by the CUSIP Global Services managed by Standard an d Poor’s Financial Services LLC on behalf of the American Bankers Association and are included solely for the convenience of the purchasers of the Certificates. Neither the City, the Financial Advisor, nor the Underwriters shall be responsible for the selection or correctness of the CUSIP numbers set forth herein. i CITY OF SANGER, TEXAS CITY COUNCIL Thomas Muir Mayor Lee Allison Councilmember, Place 1 Gary Bilyeu Councilmember, Place 2 William Boutwell Councilmember, Place 3 Allen Chick Councilmember, Place 4 David Clark Councilmember, Place 5 ADMINISTRATIVE OFFICERS Mike Brice City Manager Cheryl Price City Secretary Robert L. Dillard III, Esq. Nichols Jackson Dillard Hagar & Smith Dallas, Texas City Attorney CONSULTANTS, ADVISORS AND INDEPENDENT AUDITORS Orrick, Herrington & Sutcliffe LLP, Houston, Texas Bond Counsel BrooksCardiel, PLLC, The Woodlands, Texas Independent Auditor Government Capital Securities Corporation, Southlake, Texas Financial Advisor For additional information regarding the City, please contact: Mike Brice City Manager City of Sanger, Texas P.O. Box 1729 Sanger, Texas 76266 (940) 458-7930 mbrice@sangertexas.org Ted Christensen Government Capital Securities Corporation 559 Silicon Drive, Suite 102 Southlake, TX 76092 (817) 722-0239 tchristensen@govcapsecurities.com ii USE OF INFORMATION IN OFFICIAL STATEMENT This Official Statement is not to be used in connection with an offer to sell or the solicitation of an offer to buy 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. Any information and expressions of opinion herein contained are subject to change without notice, and neither the delivery of the 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 or other matters described herein since the date hereof. See “CONTINUING DISCLOSURE OF INFORMATION” for a description of the City’s undertaking to provide certain information on a continuing basis. THE CERTIFICATES ARE EXEMPTED FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED THEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE CERTIFICATES IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTION IN WHICH THESE SECURITIES HAVE BEEN REGISTERED OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE THE MARKET PRICE OF THE CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The agreements of the City and others related to the Certificates are contained solely in the contracts described herein. Neither this Official Statement nor any other statement made in connection with the offer or sale of the Certificates is to be construed as constituting an agreement with the purchasers of the Certificates. INVESTORS SHOULD READ THE ENTIRE OFFICIAL STATEMENT, INCLUDING ALL SCHEDULES AND APPENDICES ATTACHED HERETO, TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information set forth in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. Neither the City, the Financial Advisor nor the Underwriters make any representation as to the accuracy, completeness or adequacy of the information contained in this Official Statement regarding The Depository Trust Company or its Book-Entry- Only System. Build America Mutual Assurance Company (“BAM”) makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading “Bond Insurance” and “Appendix E - Specimen Municipal Bond Insurance Policy.” iii TABLE OF CONTENTS SUMMARY STATEMENT .............................................. iv Bond INSURANCE ........................................................... iv Bond Insurance Policy .......................................... iv Build America Mutual Assurance Company ........ iv SELECTED FINANCIAL INFORMATION ................... vii INTRODUCTORY STATEMENT .................................... 1 THE CERTIFICATES ........................................................ 1 Purpose .................................................................. 1 Authorization ......................................................... 1 Security for the Certificates ................................... 1 Optional Redemption ............................................. 1 Notice of Redemption ............................................ 2 Sources and Uses of Funds .................................... 2 GENERAL INFORMATION REGARDING THE CERTIFICATES ........................................................... 2 General Description ............................................... 2 Legality .................................................................. 3 Defeasance ............................................................. 3 Amendments to the Ordinance ............................... 3 OWNERSHIP ..................................................................... 3 OWNER’S REMEDIES ..................................................... 4 BOOK-ENTRY-ONLY SYSTEM ..................................... 4 REGISTRATION, TRANSFER AND EXCHANGE ......... 6 Paying Agent/Registrar .......................................... 6 Future Registration ................................................ 6 Record Date for Interest Payment .......................... 6 Limitation on Transfer of Certificates ................... 7 Replacement of Certificates ................................... 7 TAX INFORMATION ....................................................... 7 Effective Tax Rate And Rollback Tax Rate ........... 9 Property Assessment And Tax Payment ................ 9 Penalties And Interest ............................................ 9 City Application of Property Tax Code ............... 10 Municipal Sales Tax ............................................ 10 TAX RATE LIMITATIONS ............................................ 10 RETIREMENT PLAN ..................................................... 11 INVESTMENT POLICIES .............................................. 11 Accounting Principles Generally Accepted in the United States ............................................. 11 Legal Investments ................................................ 11 Investment Policies .............................................. 12 Additional Provisions........................................... 12 Current Investments ............................................. 13 RATINGS ........................................................................ 13 PENDING LITIGATION................................................. 13 LEGAL MATTERS ......................................................... 13 TAX MATTERS .............................................................. 14 LEGAL INVESTMENTS IN TEXAS ............................. 15 REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE ..................................................... 15 CONTINUING DISCLOSURE OF INFORMATION ..... 15 Annual Reports .................................................... 15 Material Event Notices ........................................ 16 Limitations and Amendments .............................. 16 Compliance with Prior Undertakings ................... 16 other information .............................................................. 17 Financial Advisor ................................................. 17 Audited Financial Statements .............................. 17 Underwriting ........................................................ 17 Forward-Looking Statements ............................... 17 Concluding statement........................................... 17 Financial Information Regarding the City of Sanger, Texas Appendix A General Information Regarding the City of Sanger, Texas Appendix B Form of Opinion of Bond Counsel Appendix C Audited Financial Statements for the Fiscal Year Ended September 30, 2016 Appendix D Specimen Municipal Bond Insurance Policy Appendix E iv BOND INSURANCE Bond Insurance Policy Concurrently with the issuance of the Certificates, Build America Mutual Assurance Company (“BAM”) will issue its Municipal Bond Insurance Policy for the Certificates (the “Policy”). The Policy guarantees the scheduled payment of principal of and interest on the Certificates when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Build America Mutual Assurance Company BAM is a New York domiciled mutual insurance corporation. BAM provides credit enhancement products solely to issuers in the U.S. public finance markets. BAM will only insure obligations of states, political subdivisions, integral parts of states or political subdivisions or entities otherwise eligible for the exclusion of income under section 115 of the U.S. Internal Revenue Code of 1986, as amended. No member of BAM is liable for the obligations of BAM. The address of the principal executive offices of BAM is: 200 Liberty Street, 27th Floor, New York, New York 10281, its telephone number is: 212-235-2500, and its website is located at: www.buildamerica.com. BAM is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York and in particular Articles 41 and 69 of the New York Insurance Law. BAM’s financial strength is rated “AA/Stable” by Standard and Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”). An explanation of the significance of the rating and current reports may be obtained from S&P at www.standardandpoors.com. The rating of BAM should be evaluated independently. The rating reflects the S&P’s current assess ment of the creditworthiness of BAM and its ability to pay claims on its policies of insurance. The above rating is not a recommendation to buy, sell or hold the Certificates, and such rating is subject to revision or withdrawal at any time by S&P, including withdrawal initiated at the request of BAM in its sole discretion. Any downward revision or withdrawal of the above rating may have an adverse effect on the market price of the Certificates. BAM only guarantees scheduled principal and scheduled interest payments payable by the issuer of the Certificates on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the Policy), and BAM does not guarantee the market price or liquidity of the Certificates, nor does it guarantee that the rating on the Certificates will not be revised or withdrawn. Capitalization of BAM BAM’s total admitted assets, total liabilities, and total capital and surplus, as of December 31, 2016 and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $496.7 million, $65.2 million and $431.5 million, respectively. BAM is party to a first loss reinsurance treaty that provides first loss protection up to a maximum of 15% of the par amount outstanding for each policy issued by BAM, subject to certain limitations and restrictions. BAM’s most recent Statutory Annual Statement, which has been filed with the New York State Insurance Department and pos ted on BAM’s website at www.buildamerica.com, is incorporated herein by reference and may be obtained, without charge, upon request to BAM at its address provided above (Attention: Finance Department). Future financial statements will similarly be made available when published. BAM makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the headin g “BOND INSURANCE”. Additional Information Available from BAM Credit Insights Videos. For certain BAM-insured issues, BAM produces and posts a brief Credit Insights video that provides a discussion of the obligor and some of the key factors BAM’s analysts and credit committee considered when approving the credit for insurance. The Credit Insights videos are easily accessible on BAM's website at buildamerica.com/creditinsights/. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.) Credit Profiles. Prior to the pricing of Certificates that BAM has been selected to insure, BAM may prepare a pre-sale Credit Profile for those Certificates. These pre-sale Credit Profiles provide information about the sector designation (e.g. general obligation, sales tax); a preliminary summary of financial information and key ratios; and demographic and economic data relevant to the obligor, if available. Subsequent to closing, for any offering that includes Certificates insured by BAM, any pre- sale Credit Profile will be updated and superseded by a final Credit Profile to include information about the gross par insured by CUSIP, maturity and coupon. BAM pre-sale and final Credit Profiles are easily accessible on BAM's website at buildamerica.com/obligor/. BAM will produce a Credit Profile for all Certificates insured by BAM, whether or not a pre-sale Credit Profile has been prepared for such Certificates. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.) v Disclaimers. The Credit Profiles and the Credit Insights videos and the information contained therein are not recommendations to purchase, hold or sell securities or to make any investment decisions, credit-related and other analyses and statements in the Credit Profiles and the Credit Insights videos are statements of opinion as of the date expressed, and BAM assumes no responsibility to update the content of such material. The Credit Profiles and Credit Insight videos are prepared by BAM; they have not been reviewed or approved by the issuer of or the underwriter for the Certificates, and the issuer and underwriter assume no responsibility for their content. BAM receives compensation (an insurance premium) for the insurance that it is providing with respect to the Certificates. Neither BAM nor any affiliate of BAM has purchased, or committed to purchase, any of the Certificates, whether at the initial offering or otherwise. (Remainder of Page Intentionally Left Blank) vi SUMMARY STATEMENT This Summary Statement is subject in all respects to the more complete information contained in this Official Statement. The offering of the Certificates to potential investors is made only by means of this entire Official Statement, including the schedules and appendices hereto. No person is authorized to detach this Summary Statement from this Official Statement or to otherwise use it without this entire Official Statement including the Appendices hereto. The Issuer The City of Sanger, Texas (the “City”), is located in Denton County, Texas. For information regarding the City, see Appendices A and B. The Certificates $9,240,000 Combination Tax and Revenue Certificates of Obligation, Series 2017, dated May 1, 2017 maturing on the dates and in the amounts set forth on the inside front cover of this Official Statement. Interest on the Certificates will accrue from their date of delivery and will be paid semiannually on May 15 and November 15, commencing May 15, 2018, until maturity or prior redemption. Purpose of Certificates Proceeds from the sale of the Certificates will be used to pay contractual obligations to be incurred for (1) the restoration, replacement, rehabilitation and expansion of the wastewater and water systems, including the treatment plant; (2) street and drainage and improvements; and (3) professional services related thereto. See “THE CERTIFICATES – Sources and Uses of Funds” herein. Authorization and Security The Certificates are direct obligations of the City, issued pursuant to Chapter 271, Subchapter C, Texas Local Government Code, Chapter 1502, Texas Government Code, and an ordinance to be enacted by the City Council of the City (the “City Council”) on May 1, 2017. The Certificates are payable from ad valorem taxes to be levied, within the limits prescribed by law, on all taxable property within the City and a limited subordinate pledge of surplus net revenues derived from the City’s water and sewer system, not to exceed $10,000, as provided in the ordinance authorizing the Certificates. Optional Redemption The Certificates maturing on and after May 15, 2027, are subject to optional redemption in whole or in part on May 15, 2026, or on any date thereafter at a price of par plus accrued interest as more fully described herein. See “THE CERTIFICATES – Optional Redemption” herein. Tax Exemption In the opinion of Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Certificates is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986. In the further opinion of Bond Counsel, interest on the Certificates is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Certificates. See “TAX MATTERS. See “TAX MATTERS” for a discussion of the opinion of Bond Counsel, including a description of alternative minimum tax consequences for corporations. The City has designated the Certificates as “Qualified Tax-exempt Obligations.” Ratings The Certificates are rated “AA” by S&P Global Ratings, a division of S&P Global, Inc. (“S&P”) based upon the Municipal Bond Insurance Policy issued by Build America Mutual Assurance Company. The Certificates have also been assigned an underlying rating of “A1” by Moody’s Investor’s Service, Inc. (“Moody’s”). An explanation of the significance of such ratings may be obtained from S&P and Moody’s. See “RATINGS” herein. Book-Entry-Only System The Certificates are initially issuable only to Cede & Co., the nominee of The Depository Trust Company, New York, New York, pursuant to the book-entry only system described herein. Beneficial ownership of the Certificates may be acquired in principal denominations of $5,000 or integral multiples thereof. No physical delivery of the Certificates will be made to the purchasers thereof. Principal of, premium if any, and interest on the Certificates will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the DTC Participants (as defined herein) for subsequent remittance to the owners of the beneficial interests in the Certificates. See “BOOK-ENTRY-ONLY SYSTEM” herein. Payment Record The City has never defaulted on the payment of its bonded indebtedness. vii SELECTED FINANCIAL INFORMATION (Unaudited) 2016 Certified Taxable Assessed Valuation………………………………………………... $525,943,493 (a) (100% of Market Value as of January 1, 2016) City Debt: Outstanding Tax Supported Debt (as of September 30, 2016)………………….……. $17,130,000 (b) Plus: The Certificates……………………………………………………………... 9,240,000 Total Tax Supported Debt…………………………………………………………. $26,370,000 Estimated Overlapping Debt………………………………………………………………... $14,884,769 Direct and Estimated Overlapping Debt……………………………………………………. $40,704,769 Debt Service Fund Balance (as of Sept. 30, 2016)………………………………………….. $404,096 % of 2016 Assessed Valuation 2016 Per Capita (7,747) Debt Ratios: Direct Tax Supported Debt……………. 5.01% $3,404 Direct Tax Supported and Estimated Overlapping Debt………….. 7.74% $5,254 2016 Tax Rate (per $100 of Assessed Valuation) Maintenance and Operation $0.513353 Debt Service ……………………………………………………………………… 0.166147 Total ……………………………………………………………………………… $0.679500 Estimated Annual Debt Service Requirements…………………………………………….. Average…………………………………………………………………………… $1,790,072 Maximum (2020)…………………………………………………………………. $2,358,735 Tax Collections Current Year………………………………………………………………………. 99.22% Total Collections………………………………………………………………….. 96.88% _______________________ (a) Provided by the Denton Central Appraisal District (the “Appraisal District”) and net of exemptions. Such value is further subject to changes as additions, corrections and deletions are made to the tax roll. (b) Includes self-supporting debt. 1 OFFICIAL STATEMENT RELATING TO $9,240,000 CITY OF SANGER, TEXAS (Denton County) Combination Tax and Revenue Certificates of Obligation, Series 2017 INTRODUCTORY STATEMENT This Official Statement, which includes the cover page, the schedules and the appendices hereto, provides certain information regarding the issuance by the City of Sanger, Texas (the “City”) of $9,240,000 Combination Tax and Revenue Certificates of Obligation, Series 2017 (the “Certificates”). The Certificates will be authorized to be issued, sold and delivered by an ordinance enacted by the City’s governing body (th e “City Council”), and such ordinance is referred to herein as the “Ordinance.” Capitalized terms used in this Official Statement have the same meaning assigned to such terms in the Ordinance, except as otherwise indicated herein. The City is a political subdivision of the State of Texas (the “State”) and a municipal corporation organized and existing under the laws of the State and the City’s home rule charter (the “City Charter”), which was initially approved by the electorate o f the City on November 2, 1999. For information regarding the City, see Appendices A and B of this Official Statement. All financial and other information presented in this Official Statement has been provided by the City, except for informatio n expressly attributed to other sources. The presentation of information, including tables of receipts from taxes and other sources, is intended to show recent historic information, and is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as is shown by that financial and other information, will necessarily continue to be repeated in the future. THE CERTIFICATES Purpose Proceeds from the sale of the Certificates will be used to pay contractual obligations to be incurred for (1) the restoration, replacement, rehabilitation and expansion of the wastewater and water systems, including the treatment plant; (2) street and drainage and improvements; and (3) professional services related thereto. See “THE CERTIFICATES – Sources and Uses of Funds” herein. Authorization The Certificates are direct obligations of the City, issued pursuant to Chapter 271, Subchapter C, Texas Local Government Code, as amended, Chapter 1502, Texas Government Code, as amended, and the Ordinance, as authorized by the City Charter. Security for the Certificates The Certificates are payable from ad valorem taxes to be levied and collected, within the limits prescribed by law, on all taxable property within the City, and by a limited subordinate pledge of surplus net revenues derived from the City’s water and sewer system (the “System”), not to exceed $10,000, as provided in the Ordinance. Optional Redemption The City reserves the right, at its option, to redeem the Certificates having stated maturities on and after May 15, 2027, in whole or in part, in integral multiples of $5,000, on May 15, 2026, or any date thereafter, such redemption date or dates to be fixed by the City, at a redemption price equal to the principal amount thereof plus accrued interest to the date fixed for redemption. If less than all of the Certificates are to be redeemed, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar (as defined herein) to select by lot the Certificates, or portions thereof, within each maturity to be redeemed. 2 Notice of Redemption Not less than 30 days prior to a redemption date for the Certificates, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to each registered owner of a Certificate to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. If notice is so given and sufficient funds are provided for the payment of the redemption price of the Certificates, interest shall cease to accrue after the date fixed for redemption whether or not the Certificates have been submitted for payment. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, AND THE FUNDS NECESSARY TO REDEEM SUCH CERTIFICATES HAVING BEEN PROVIDED, THE CERTIFICATES CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY CERTIFICATE OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH CERTIFICATE OR PORTION THEREOF SHALL CEASE TO ACCRUE. Sources and Uses of Funds The proceeds from the sale of the Certificates will be applied approximately as follows: Sources Principal Amount of Certificates $ 9,240,000.00 Original Issue Premium 757,696.65 Total Sources of Funds $ 9,997,696.65 Uses Deposit to Construction Fund $ 9,755,407.16 Costs of Issuance 171,274.49 Underwriters’ Discount 71,015.00 Total Uses of Funds $ 9,997,696.65 GENERAL INFORMATION REGARDING THE CERTIFICATES General Description The Certificates will be dated May 1, 2017 (the “Dated Date”), and will be issued in fully registered form in denominations of $5,000 or any integral multiple thereof. The Certificates will bear interest from the date of delivery to the underwriters listed on the cover page hereof (the “Underwriters”), and interest will be paid semiannually on each May 15 and November 15, commencing May 15, 2018. Interest will accrue on the Certificates on the basis of a 360-day year consisting of twelve 30-day months. The Certificates will be issued as book-entry only securities pursuant to arrangements made with The Depository Trust Company, New York, New York. See “BOOK-ENTRY-ONLY SYSTEM.” Principal of the Certificates will be payable to the registered owners (the “Owners”) at maturity or prior redemption upon presentation and surrender of such Certificates at the principal corporate office of the paying agent/registrar (the “Paying Agent/Registrar”), initially BOKF, NA, Austin, Texas. Interest on the Certificates will be payable by check dated as of the interest payment date and mailed by the Paying Agent/Registrar to Owners as shown on the records of the Paying Agent/Registrar on the Record Date (see “REGISTRATION, TRANSFER AND EXCHANGE – Record Date for Interest Payment” herein), or by such other customary banking arrangement, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the Owner. If the date for the payment of the principal of or interest on a Certificate shall be a Saturday, Sunday, legal holiday, or a day on which banking institutions in the city where 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 a 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. The Certificates will mature on the dates, in the amounts and bear interest at the rates as set forth on inside cover page of this Official Statement. 3 Legality The Certificates are offered when, as and if issued, subject to the approvals of legality by the Attorney General of the State of Texas and Orrick, Herrington & Sutcliffe LLP, Houston, Texas, Bond Counsel. (See “LEGAL MATTERS” and Appendix C – “Form of Opinion of Bond Counsel”). Defeasance The Ordinance provides that the City may defease the Certificates and discharge its obligation to the holders of any or all of the Certificates to pay the principal of and interest thereon in any manner now or hereafter permitted by law, including by depositing with the Registrar or with the Comptroller of the State of Texas either: (a) cash in an amount equal to the principal amount of and interest thereon to the date of maturity or redemption; or (b) pursuant to an escrow or trust agreement, cash and/or (i) direct noncallable obligations of 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, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the Board approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than “AAA” or its equivalent; or (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 Board approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than “AAA” or its equivalent, which, in the case of (i), (ii), or (iii), may be in book entry form, and the principal of and inter est on which will, when due or redeemable at the option of the holder, without further investment or reinvestment of either the principal amount thereof or the interest earnings thereon, provide money in an amount which, together with other moneys, if any, held in such escrow at the same time and available for such purpose, shall be sufficient to provide for the timely payment of the principal of and interest thereon to the date of maturity or earlier redemption; provided, however, that if any of the Certificates are to be redeemed prior to their respective dates of maturity, provision shall be made for the giving of notice of redemption as provided in the Ordinance. Any surplus amount not required to accomplish such defeasance shall be returned to the City. Upon such deposit as described above, such Certificates shall no longer be regarded to be outstanding or unpaid. After firm banking and financial arrangements for the discharge and final payment or redemption of the Certificates have been made as described above, all rights of the City to initiate proceedings to call the Certificates for redemption or take any other action amending the terms of the Certificates are extinguished; provided, however, that the right to call the Certificates for redemption is not extinguished if the City: (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call the Certificates for redemption; (ii) gives notice of the reservation of that right to the owners of the Certificates immediately following the making of the firm banking and financial arrangements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorize. Amendments to the Ordinance In the Ordinance, the City has reserved the right to amend such Ordinance without the consent of any holder of the Certificates in any manner not detrimental to the interests of the holders of the Certificates, including the curing of any ambiguity, defect or omission therein. The Ordinance further provides that the holders of the Certificates aggregating in principal amount 51% of the outstanding Certificates shall have the right from time to time to approve any amendment not described above to the Ordinance; provided, however, that without the consent of 100% of the holders in original principal amount of the then outstanding Certificates no amendment may be made for the purpose of: (i) making any change in the maturity of any of the outstanding Certificates; (ii) reducing the rate of interest borne by any of the outstanding Certificates; (iii) reducing the amount of the principal of, or redemption premium, if any, payable on any outstanding Certificates; (iv) modifying the terms of payment of principal or of interest or redemption premium on outstanding Certificates; or (v) changing the minimum percentage of the principal amount of the Certificates necessary for consent to such amendment. Reference is made to the Ordinance for further provisions relating to the amendment thereof. OWNERSHIP The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Certificate is registered as the absolute owner of such Certificate for the purpose of making and receiving payment of principal and interest, and for all other purposes, whether or not such Certificate is overdue, and neither the City nor the Paying Agent/Registrar will be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the owner of any Certificate in accordance with the Ordinance will be valid and effectual and will discharge the liability of the City and the Paying Agent/Registrar upon such Certificate to the extent of the sums paid. 4 OWNER’S REMEDIES The Ordinance does not provide for the appointment of a trustee to represent the interests of the Certificateholders upon any failure of the City to perform in accordance with the terms of the Ordinance or upon any other condition and, in the event of any such failure to perform, the registered owners would be responsible for the initiation and cost of any legal action to enforce performance of the Ordinance. Furthermore, the Ordinance does not establish specific events of default with respect to the Certificates and, under State law, there is no right to the acceleration of maturity of the Certificates upon the failure of the City to observe any covenant under the Ordinance. A registered owner of Certificates could seek a judgment against the City if a default occurred in the payment of principal of or interest on any such Certificates; however, such judgment could not be satisfied by execution against any property of the City and a suit for monetary damages could be vulnerable to the defense of sovereign immunity. A registered owner’s only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the City to levy, assess, and collect an annual ad valorem tax sufficient to pay principal of and interest on the Certificates as it becomes due or perform other material terms and covenants contained in the Ordinance. However, the enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The City is also eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code (“Chapter 9”). Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of 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 Certificateholders 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 opinions of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Certificates are qualified with respect to the customary rights of debtors relative to their creditors, including rights afforded to creditors under the Bankruptcy Code. BOOK-ENTRY-ONLY SYSTEM This section describes how ownership of the Certificates is to be transferred and how the principal of, premium, if any, and interest on the Certificates are to be paid to and credited by The Depository Trust Company (“DTC”), New York, New York, while the Certificates 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 Financia l Advisor, and the Underwriters believe the source of such information to be reliable, but take no responsibility for the accuracy or completeness thereof. The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Certificates, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Certificates), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. Th e current rules applicable to DTC are on file with the United States Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Certificates. The Certificates will be issued as fully registered Certificates 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 security certificate will be issued for the Certificates, in the aggregate principal amount of such issue, 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, 5 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+”. 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. Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC’s records. The ownership interest of each actual purchaser of each Certificate (“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 Certificates 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 Certificates, except in the event that use of the book-entry system for the Certificates is discontinued. To facilitate subsequent transfers, all Certificates 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 Certificates 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 Certificates; DTC’s records reflect onl y the identity of the Direct Participants to whose accounts such Certificates 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 thei r customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subjec t to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates, such as redemptions, tenders, defaults, and proposed amendments to the Certificate documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates 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 shall be sent to DTC. If less than all of the Certificates 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 Certificates unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City 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 Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, interest, and redemption payments on the Certificates 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 recei pt of funds and corresponding detail information from the City or the Paying Agent/Registrar, on the 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, the Paying Agent/Registrar, o r the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, interest, and redemption payments 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 Certificates at any time by giving reasonable notice to the City or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Certificates 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, physical certificates will be printed and delivered. 6 Use of Certain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the Certificates are in the Book-Entry Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Certificates, but (i) all rights of ownership must be exercised through DTC and the Book- Entry Only System and (ii) except as described above, notices that are to be given to registered owners under the Ordinance will be given only to DTC. The information in this section concerning DTC and DTC’s book-entry-only system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. REGISTRATION, TRANSFER AND EXCHANGE Paying Agent/Registrar BOKF, NA, Austin, Texas has been named to serve as initial Paying Agent/Registrar for the Certificates. In the Ordinance, the City retains the right to replace the Paying Agent/Registrar. If the City replaces the Paying Agent/Registrar, such Paying Agent/Registrar shall, promptly upon the appointment of a successor, deliver the Paying Agent/Registrar’s records to the successor Paying Agent/Registrar, and the successor Paying Agent/Registrar shall act in the same capacity as the previous Paying Agent/Registrar. Any successor Paying Agent/Registrar selected by the City shall be a commercial bank; a trust company organized under applicable law; or other entity duly qualified and legally authorized to serve and perform the duties of the Paying Agent/Registrar for the Certificates. Upon any change in the Paying Agent/Registrar for the Certificates, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Certificates by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. In the event the Book-Entry Only System should be discontinued, interest on the Certificates will 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 will 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 and redemption payments of the Certificates 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 or interest on the Certificates is 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 will be the next succeeding day which is not such a day, and payment on such date will have the same force and effect as if made on the date payment was due. So long as Cede & Co. is the registered owner of the Certificates, principal, interest, and redemption payments on the Certificates will be made as described in “BOOK-ENTRY ONLY SYSTEM” above. Future Registration In the event the book-entry only system should be discontinued, printed Certificates will be delivered to the Owners and thereafter the Certificates may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender to the Paying Agent/Registrar, and such registration and transfer shall be without expense or service charge to the Owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. Certificates may be assigned by the execution of an assignment form on the Certificates or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. A new Certificate will be delivered by the Paying Agent/Registrar in lieu of the Certificate being transferred or exchanged at the designated office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered Owner at the Owner’s request, risk and expense. New Certificates issued in an exchange or transfer of Certificates will be delivered to the registered Owner or assignee of the Owner after the receipt of the Certificates to be canceled in the exchange or transfer and the written instrument of transfer or request for exchange duly executed by the Owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Certificates registered and delivered in an exchange or transfer shall be of like kind and in authorized denominations and for a like aggregate principal amount as the Certificate or Certificates surrendered for exchange or transfer. See “BOOK-ENTRY-ONLY SYSTEM” for a description of the system to be utilized initially in the settlement and transfer of the Certificates. Record Date for Interest Payment The record date (“Record Date”) for the interest payable on any interest payment date is the last business day of the month next preceding such interest payment date, as specified in the Ordinance. In the event of a nonpayment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (the “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. 7 Notice of the Special Record Date and of the scheduled payment date of the past due interest (the “Special Payment Date” which shall be 15 days after the Special Record Date) shall be sent at least 5 days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of each Owner of a Certificate appearing on the books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. Limitation on Transfer of Certificates Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Certificate (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 or (ii) with respect to any Certificate, or any portion thereof, called for redemption prior to maturity within 45 days prior to its redemption date, provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Certificate. Replacement of Certificates If any Certificate is mutilated, destroyed, stolen or lost, a new Certificate in the same principal amount as the Certificate so mutilated, destroyed, stolen or lost will be issued. In the case of a mutilated Certificate, such new Certificate will be delivered only upon surrender and cancellation of such mutilated Certificate. In the case of any Certificate issued in lieu of and in substitution for a Certificate which has been destroyed, stolen or lost, such new Certificate will be delivered only (a) upon filing with the City and the Paying Agent/Registrar evidence satisfactory to them that such Certificate has been destroyed, stolen or lost and proof of the ownership thereof and (b) upon furnishing the City and the Paying Agent/Registrar with indemnity satisfactory to them. The person requesting the authentication and delivery of a new Certificate must pay such expenses as the Paying Agent/Registrar may incur in connection therewith. TAX INFORMATION Ad Valorem Tax Law The appraisal of property within the City is the responsibility of the Denton 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 Property 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. In determining market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of (1) the market value of the property, or (2) the sum of (a) 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, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to Title I of the Texas Tax Code (the “Property 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 taxes. Article VIII of the State Constitution (“Article VIII”) and State law provide 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 Section 1-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant an exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision. Additionally, the governing body of a political subdivision may grant an exemption of up to 20% of the market value of all residence homesteads, with a minimum exemption of $5,000. Pursuant to a constitutional amendment approved by the voters on November 3, 2015 and Senate Bill 1 passed by the 84th Legislature, cities may not reduce the amount of or repeal an optional homestead exemption granted for the 2014 tax year (fiscal year 2015) for a period running through December 31, 2019. The surviving spouse of an individual who qualifies for the foregoing exemption for the residence homestead of a person 65 or older (but not the disabled) is entitled to an exemption for the same property in an amount equal to that of the exemption for which the deceased spouse qualified if (i) the deceased spouse died in a year in which the deceased spouse qualified for the 8 exemption, (ii) the surviving spouse was at least 55 years of age at the time of the death of the individual’s spouse and (iii) the property was the residence homestead of the surviving spouse when the deceased spouse died and remains the residence homestead of the surviving spouse. In the case of residence homestead exemptions granted under Section 1-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt i f cessation of the levy would impair the obligation of the contract by which the debt was created. State law and Section 2, Article VIII, mandate 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. A disabled veteran (and their surviving spouse) who receives from the United States Department of Veterans Affairs or its successor a rating of 100% disabled is entitled to an exemption from taxation of the total appraised value of the resident’s homestead. The surv iving spouse of a 100% disabled veteran who died prior to the effective date of the homestead exemption is entitled to exemption, but only if the surviving spouse has not remarried since the death of the disabled veteran. A partially disabled veteran or the surviving spouses of a partially disabled veteran is entitled to an exemption from taxation of a percentage of the appraised value of their residence homestead in an amount equal to the partially disabled veteran’s disability rating if the residence homest ead was donated by a charitable organization. Also, the surviving spouse of a member of the armed forces who was killed in action is, subject to certain conditions, entitled to an exemption of the total appraised value of the surviving spouse’s residence home stead, and subject to certain conditions, an exemption up to the same amount may be transferred to a subsequent residence homestead of the surviving spouse. 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 personal property, 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. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. 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 beginning 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 City may create tax increment financing zones, under which the tax values on property in the zone are “frozen” at the val ue of the property at the time of creation of the zone. Tax revenues collected on values above the “frozen” value must be deposited in a tax increment fund for 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 exempts from taxation 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 10 years. Cities are also authorized, pursuant to Chapter 380, Texas Local Government Code (“Chapter 380”) to establish programs to promote state or local economic development and to stimulate business and commercial activity in the City. In accordance with a program established pursuant to Chapter 380, the City may make loans or grant of public funds for economic development purposes; however, no obligations secured by ad valorem taxes may be issued for such purposes unless approved by voters of the City. Under Article VIII and State law, the governing body of a county, municipality or junior college district, may freeze the total amount of ad valorem taxes levied on the residence homestead of a disabled person or persons 65 years of age or older to the amount of taxes imposed in the year such residence qualified for such exemption. Also, upon receipt of a petition signed by five percent of the registered voters of the county, municipality or junior college district, an election must be held to determine by majority vote whether to establish such a limitation on taxes paid on residence homesteads of persons 65 years of age or who are disabled. Upon providing for such exemption, such freeze on ad valorem taxes is transferable to a different residence homestead. Also, a surviving spouse of a taxpayer who qualifies for the freeze on ad valorem taxes is entitled to the same exemption so long as the property was the residence homestead of the surviving spouse when the deceased spouse died and remains the residence homestead of the surviving spouse and the spouse was at least 55 years of age at the time of the death of the individual’s sp ouse. 9 If improvements (other than repairs or improvements required to comply with governmental requirements) are made to the property, the value of the improvements is taxed at the then current tax rate, and the total amount of taxes imposed is increased to reflect the new improvements with the new amount of taxes then serving as the ceiling on taxes for the following years. Once established, the tax rate limitation may not be repealed or rescinded. The City can make no representations or predictions concerning the impact such tax limitation would have on the City’s tax rate, financial condition or ability to ma ke debt service payments. Effective Tax Rate And Rollback Tax Rate By each September 1 or as soon thereafter as practicable, the City Council adopts a tax rate per $100 taxable value for the current year. The City Council will be required to adopt the annual tax rate for the City before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the City. If the City Council does not adopt a tax rate by such require d date the tax rate for that tax year is the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the City 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. Under the Property Tax Code, the City must annually calculate and publicize its “effective tax rate” and “rollback tax rate.” Effective 2005, a tax rate cannot be adopted by the City Council that exceeds the lower of the rollback tax rate or the effec tive tax rate until two public hearings have been held on the proposed tax rate following notice of such public hearings (including th e requirement that notice be posted on the City’s website if the City owns, operates or controls an internet website and pub lic notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. 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. “Effective tax rate” means the rate that will produce last 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 last year’s taxes and new values are not incl uded in this year’s taxable values. “Rollback tax rate” means the rate that will produce last year’s maintenance and operation tax levy (adjusted) from this year’s values (adjusted) multiplied by 1.08 plus a rate that will produce this year’s debt service from this year’s values (unadjust ed) divided by the anticipated tax collection 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 generally 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 February 1 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 Cumulative Penalty Cumulative 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 10 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, a 15% attorney’s collection fee is added to the total tax penalty and interest charge. Under certain circumstances, ta xes 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 parce ls, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. City Application of Property Tax Code The City grants an exemption of $30,000 of the market value of the residence homestead for persons 65 years of age or older and an exemption of $20,000 of the market value of the residence homestead for persons that are disabled. See Appendix A – Table 1 for a listing of the total amount of these exemptions. The City does not grant an additional exemption for residence homesteads. The City taxes only business personal property. The County Tax Collector collects property taxes for the City. The County does not permit split payments and does not allow discounts. The City grants the Article VIII, Section 1-j (“freeport property”) exemption but at this time has no Article VIII, Section 1-j property. Municipal Sales Tax The City has adopted the provisions of V.A.T.C.S. Tax Code § 321.001 et seq., which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City. The proceeds of such tax are credited to the General Fund and are not pledged to payment of the Certificates. Collections and enforcements are effected through the offices of the State Comptroller of Public Accounts, who monthly remits the proceeds of the tax, after deduction of a 2% service fee, to the City. The Tax Code provides certain cities and counties the option of assessing a maximum one-half percent (1/2%) sales tax on retail sales of taxable items for the purpose of reducing its ad valorem taxes, if approved by a majority of the voters in a local option election. If the additional tax is approved and levied, the ad valorem property tax levy must be reduced by the estimated amount of the sales tax revenues to be generated in the current year. Subject to the approval of a majority of the voters in a local option election, state law also provides certain cities the option of assessing a sales and use tax for a variety of other purposes, including economic and industrial development, municipal street maintenance and repair, and sports and community venues. State law limits the maximum aggregate sales and use tax rate in any area to 8¼%. Accordingly, the collection of local sales and use taxes in the area of the City (including sales and use taxes levied by the City) is limited to no more than 2% (when combined with the State sales and use tax rate of 6¼%). In addition to the one percent (1%) local sales and use tax referred to above, at an election held on May 2, 1998 voters of the City approved the imposition of an additional one-half percent (1/2%) sales and use tax for economic development purposes in accordance with Section 4A, Article 5190.6 of Vernon’s Annotated Texas Civil Statutes. Levy of the additional sales and use tax began in December, 1998. At an election held on May 2, 1998 voters of the City approved the imposition of an additional one- half percent (1/2%) sales and use tax for economic development purposes in accordance with Section 4B, Article 5190.6 of Vernon’s Annotated Texas Civil Statutes. Levy of the additional sales and use tax began in December, 1998. The City has not held an election regarding an additional sales tax for the purpose of reducing its ad valorem taxes. TAX RATE LIMITATIONS Article XI, Section 5, of the State Constitution is applicable to the City and imposes a limitation on ad valorem taxes which can be imposed by the City of $2.50 per $100 taxable assessed valuation. The Attorney General of Texas follows a policy, with respect to Home Rule Cities which have such a $2.50 limitation, of approving ad valorem tax bonds only to the extent that all of such city's ad valorem tax debt can be serviced by a debt service tax rate of $1.50 at 90% collection. 11 RETIREMENT PLAN The City participates in the Texas Municipal Retirement System which is a joint contributory retirement plan covering all full- time employees. There are no benefits guaranteed other than to the extent provided by employee and employer contributions, plus earnings, accumulated in the individual accounts of employees. The contribution rate for employees is 6% of their annua l covered salary. The City is required to contribute at an actuarially determined 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 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 actuarial liability over the remainder of the plan’s 25-year amortization period. Contributions by the City for the year ended September 30, 2016 totaled $247,432. For additional information regarding the City’s Pension Plans, see Appendix D - “Audited Financial Statements for the Fiscal Year Ended September 30, 2016, Note V – Other Information – Pension Plans”. INVESTMENT POLICIES Accounting Principles Generally Accepted in the United States The City policy is to adhere to accounting principles generally accepted in the United States (see Appendix D “Audited Financial Statements for the Fiscal Year Ended September 30, 2016”). Legal Investments Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is unconditionally guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States; (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit and share certificates meeting the requirements of the Texas Public Funds Investment Act (Chapter 2256, Texas Government Code) (i) that are issued by or through an institution that has its main office or a branch in the State, 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; (iii) 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; (iv) 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 (v) the City appoints the depository institution selected under (ii) above, an entity 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 issued for the account of the City; (8) fully collateralized repurchase agreements that have a defined termination date, are secured by a combination of cash and obligations described in clause (1) require the securities being purchased by the City or cash held by the City to be 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) 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; (10) 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; (11) 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 (12) 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 the this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than “AAA” or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations, including letters of credit, of the United States or its agencies an d 12 instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described below. A political subdivision such as the City may enter into 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 (10) through (12) above, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the City, held in the City's name and deposited at the time the investment is made with the City or a third party designated by the City; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less. 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. Investment Policies Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety o f 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, 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 mus t 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 o f 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 shall submit an investment report detailing: (1) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, and any additions and changes to market valu e and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund o r 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 strategy statements and (b) State law. No person may invest City funds without express written authority from the City Council. Additional Provisions Under State law, the City is additionally required to: (1) annually review its adopted policies and strategies; (2) adopt a written instrument by rule, order, ordinance or resolution stating that it has reviewed its investment policy and investment strategies and recording any changes made to either its investment policy or investment strategy; (3) require any investment officers with personal business relationships or relatives with firms seeking to sell securities to the City to disclose the relationship and file a statement with the Texas Ethics Commission and 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 th at 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 authorizati on 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 13 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 repurchase 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. Current Investments As of September 30, 2016, the City’s investment portfolio was invested in the following categories. As of such date, the market value of such investments was approximately 100% of their book value. Type of Investment Amount Certificates of Deposit $1,615,948 Total $1,615,948 RATINGS The Certificates are rated “AA” by S&P Global Ratings, a division of S&P Global, Inc. (“S&P”) based upon the Municipal Bond Insurance Policy issued by Build America Mutual Assurance Company. The Certificates have also been assigned an underlying rating of “A1” by Moody’s Investor’s Service, Inc. (“Moody’s”). The ratings reflect only the view of such organizations at the time such ratings were given and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by S&P or Moody’s, if in the judgment of S&P or Moody’s, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates. PENDING LITIGATION There is no material litigation currently pending against the City. LEGAL MATTERS The City will furnish a complete transcript of proceedings incident to the authorization and issuance of the Certificates, including the approving legal opinions of the Attorney General of the State of Texas to the effect that the Certificates are valid and binding obligations of the City, and based upon examination of such transcripts of proceedings, the approving legal opinions of Bond Counsel to the effect that (i) the Certificates issued in compliance with the provisions of the Ordinance are valid and legally binding obligations of the City and (ii) the interest on the Certificates is exempt from federal income taxation under existing statutes, published rulings, regulations, and court decisions (see “TAX MATTERS”). Bond Counsel has not been engaged to investigate the financial resources of the City or its ability to provide for payment of the Certificates, and the opinion of Bond Counsel will make no statement as to such matters, or any other information that may have been relied on by anyone in making the decision to purchase the Certificates. The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Certificates are contingent on the sale and delivery of the Certificates. The applicable legal opinion will be printed on or attached to the definitive Certificates. Bond Counsel has reviewed the statements and information appearing in the Official Statement under the captions “THE CERTIFICATES” (except the subcaption “Sources and Uses of Funds”), “GENERAL INFORMATION REGARDING THE CERTIFICATES,” “REGISTRATION, TRANSFER AND EXCHANGE,” “TAX RATE LIMITATIONS,” “LEGAL MATTERS,” “TAX MATTERS,” “QUALIFIED TAX EXEMPT OBLIGATIONS,” “LEGAL INVESTMENTS IN TEXAS,” “REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE” and “CONTINUING DISCLOSURE OF INFORMATION” (except the subcaption “Compliance With Prior Undertakings”) fairly summarizes the procedures and documents referred to therein and is correct as to matters of law. Bond Counsel has not independently verified any of the factual information contained in this Official Statement nor have they conducted an investigation of the affairs of the City for the purpose of passing upon the accuracy, completeness or fairness 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, completeness or fairness of any of the information contained herein. 14 TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP (“Bond Counsel”), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Certificates is excluded from gross income for federal income tax purposes under Section 1 03 of the Internal Revenue Code of 1986 (the “Code”). Bond Counsel is of the further opinion that interest on the Certificates is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix C hereto. To the extent the issue price of any maturity of the Certificates is less than the amount to be paid at maturity of such Certificates (excluding amounts stated to be interest and payable at least annually over the term of such Certificates), the difference constitutes “original issue discount,” the accrual of which, to th e extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Certificates which is excluded from gross income for federal income tax purposes. For this purpose, the issue price of a particular maturity of the Certificates is the first price at which a substantial amount of such maturity of the Certificates is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Certificates accrues daily over the term to maturity of such Certificates on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Certificates to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Certificates. Beneficial Owners of the Certificates should consult their own tax advisors with respect to the tax consequences of ownership of Certificates with original issue discount, including the treatment of Beneficial Owners who do not purchase such Certificates in the original offering to the public at the first price at which a substantial amount of such Certificates is sold to the public. Certificates purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Certificates”) will be treated as having amortizable certificate premium. No deduction is allowable for the amortizable certificate premium in the case of Certificates, like the Premium Certificates, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax- exempt interest received, and a Beneficial Owner’s basis in a Premium Certificate, will be reduced by the amount of amortizab le bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Certificates should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Certificates. The Issuer has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Certificates will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Certificates being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Certificates. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the Certificates may adversely affect the value of, or the tax status of interest on, the Certificates. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matter s. Although Bond Counsel is of the opinion that interest on the Certificates is excluded from gross income for federal income tax purposes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Certificates may otherwise affect a Beneficial Owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Certificates to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. For example, the Obama Administration’s budget proposals in recent years have proposed legislation that would limit the exclusion from gross income of interest on the Certificates to some extent for high-income individuals. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Certificates. Prospective purchasers of the Certificates should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Certificates for federal income tax purposes. It is not binding on the Internal Revenue Service (“IRS”) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the Issuer, or about the effect of future changes in the Code, 15 the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The Issuer has covenanted, however, to comply with the requirements of the Code. Bond Counsel’s engagement with respect to the Certificates ends with the issuance of the Certificates, and, unless separately engaged, Bond Counsel is not obligated to defend the Issuer or the Beneficial Owners regarding the tax-exempt status of the Certificates in the event of an audit examination by the IRS. Under current procedures, parties other than the Issuer and their appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt Certificates is difficult, obtaining an independent review of IRS positions with which the Issuer legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Certificates for audit, or the course or result of such audit, or an audit of Certificates presenting similar tax issues may affect the market price for, or the marketability of, the Certificates, and may cause the Issuer or the Beneficial Owners to incur significant expense. LEGAL INVESTMENTS IN TEXAS Under the Texas Public Security Procedures Act (Texas Government Code, Chapter 1201), the Certificates (1) are negotiable instruments, (2) are investment securities to which Chapter 8 of the Texas Uniform Commercial Code applies, and (3) are legal and authorized investments for (A) an insurance company, (B) a fiduciary or trustee, or (C) a sinking fund of a municipality or other political subdivision or public agency of the State of Texas. The Certificates are eligible to secure deposits of any public funds of the State, its agencies, and political subdivisions, and are legal security for those deposits to the extent of their market value. For political subdivisions in Texas which have adopted investment policies and guidelines in accordance with the Public Funds Investment Act (Texas Government Code, Chapter 2256), the Certificates may have to be assigned a rating of “A” or its equivalent as to investment quality by a national rating agency before such Certificates are eligible investments for sinking funds and other public funds. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investo r standard, the Certificates are legal investments for state banks, savings banks, trust companies with at least $1 million of capital and savings and loan associations. 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 Certificates for any of the foregoing purposes or limit the authority of such institutions or entities to purchase or invest in the Certificates for such purposes. The City has made no review of laws in other states to determine whether the Certificates are legal investments for various institutions in those states. REGISTRATION AND QUALIFICATION OF ISSUE FOR SALE No registration statement relating to the Certificates has been filed with the United States Securities and Exchange Commission under the federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Certificates have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Certificates been registered or qualified under the securities acts of any other jurisdiction. The City assumes no responsibility for registration or qualification of the Certificates under the securities laws of any other jurisdiction in which the Certificates may be offered, sold, or otherwise transferred. This disclaimer of responsibility for registration and qualification for sale or other disposition of the Certificates shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions in such other jurisdictions. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Certificates. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Certificates. 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 free of charge from the MSRB via Electronic Municipal Market Access (“EMMA”) system at www.emma.msrb.org. Annual Reports The City will provide certain updated financial information and operating data to the MSRB annually in an electronic format as prescribed by the MSRB. The information to be updated includes all quantitative financial information and operating data wit h respect to the City of the general type included this Official Statement in Appendix A - Financial Information Regarding the City of Sanger. Texas (Tables 1-10) and in Appendix D. The City will update and provide this information within six months after the end of each fiscal year. 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 “Rule”). The updated information will include audited financial statements, 16 if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide unaudited financial statements by the required time and audited financial statements when and if such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in APPENDIX B 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 last day of March in each year following the end of its fiscal year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify the MSRB of the change. Material Event Notices The City will also provide timely notices of certain events to the MSRB (not in excess of ten (10) days after the occurrence of the event). The City will provide notice of any of the following events with respect to the Certificates: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, 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 status of the Certificates, or other material events affecting the tax status of the Certificates; (7 ) modifications to rights of holders of the Certificates, if material; (8) Certificate calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Certificates, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the City; (13) the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, 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, if material; and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material. (Neither the Certificates nor the Ordinance make any provision for debt service reserves, liquidity enhancement, or credit enhancement). In addition, the City will provide timely notice of any failure by the City t o provide information, data, or financial statements in accordance with its agreement described above under “Annual Reports”. All documents provided to the MSRB shall be accompanied by identifying information, as prescribed by the MSRB. 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 the Certificates 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 and beneficial owners of the Certificates may seek a writ of mandamus to compel the City to comply with its agreement. This continuing disclosure agreement may be amended by the City from time to time to adapt to changed circumstances that aris e 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, as so amended, would have permitted an underwriter to purchase or sell Certificates in the primary offering of the Certificates 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 registered owners of a majority in aggregate principal of the outstanding Certificates consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interest of the registered owners and beneficial owners of the Certificates. 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 Certificates in the primary offering of the Certificates. If the City amends its agreement, it must include with the next financial information and opening 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 type of information and data provided. 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 enter s 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 Certificates in the primary offering of the Certificates. Compliance with Prior Undertakings During the last five years, the City has not failed to comply in any material respect with any continuing disclosure agreement made by it in accordance with the Rule. 17 OTHER INFORMATION Financial Advisor In its role as Financial Advisor, Government Capital Securities Corporation has relied on the City for certain information concerning the City and the Certificates. The fee of the Financial Advisor for services with respect to the Certificates is contingent upon the issuance and sale of the Certificates. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of th e information in this Official Statement. The Financial Advisor has provided the following sentence for inclusion in this Official Statement. The Financial Advisor has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to the City and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. Audited Financial Statements BrooksCardiel, PLLC, the City’s independent auditor, has not reviewed, commented on, or approved, a nd is not associated with, this Official Statement. The report of BrooksCardiel, PLLC, relating to City’s financial statements for the fiscal year ended September 30, 2016, is included in this Official Statement in APPENDIX D; however, BrooksCardiel, PLLC has not performed any procedures on such financial statements since the date of such report, and has not performed any procedures on any other financial information of the City, including without limitation any of the information contained in this Official Statement. Underwriting Oppenheimer & Co. Inc. and William Blair & Company, the Underwriters, have agreed to purchase the Certificates from the City for $9,926,681.65 (being the principal amount of the Certificates, plus a net premium of $757,696.65, less an Underwriters’ discount of $71,015.00). The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information set forth in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. Forward-Looking Statements 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 n o obligations to update any such forward-looking statements. It is important to note that the City’s actual results could differ materially from those 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 a nd 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. Concluding statement The information set forth herein has been obtained from the City’s records, audited financial statements and other sources wh ich are considered to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will ever be realized. All of the summaries of the statutes, documents and the Ordinance contained in this Official Statement are made subject to all of the provisions of such statutes, documents, and the Ordinance. These summaries do not purport to be complete 18 statements of such provisions and reference is made to such summarized documents for further information. Reference is made to official documents in all respects. The City has reviewed and approved the Official Statement and said instrument has been authorized for use and distribution by the Underwriters for the purpose of offering the Certificates. /s/ Thomas Muir Mayor, City of Sanger, Texas ATTEST: /s/ Cheryl Price Secretary, City of Sanger, Texas APPENDIX A FINANCIAL INFORMATION REGARDING THE CITY OF SANGER, TEXAS A-1 FINANCIAL INFORMATION FOR THE CITY ASSESSED VALUATION TABLE 1 2016 Total Value of Taxable Property $601,163,729 Less Exemptions: Local, Optional Over-65 and/or Disabled Homestead Exemptions $ 11,421,053 Disabled and Deceased Veterans’ Exemptions 2,099,400 Productivity Value Loss 31,307,498 Homestead 10% Cap Adjustment 6,071,303 Abatement 0 Freeport 12,690,882 Other 11,639,100 75,220,236 2016 Net Taxable Assessed Valuation (100% of Actual)(a) $525,943,493 ________________ (a)See “TAX INFORMATION - City Application of the Property Tax Code” in the Official Statement for a description of the City’s taxation procedures. Source: Denton County Appraisal District PRINCIPAL TAXPAYERS TABLE 2 Name Type of Business 2016 Net Taxable Assessed Valuation % of Total 2016 Assessed Valuation* Wal-Mart Stores East Distribution $113,142,214 21.51% DCM Sanger Property Real Estate 12,000,000 2.28% Altec Capital Service Financial Services 9,765,915 1.86% Sam’s East, Inc Distribution 8,776,472 1.67% Willbros T & D Service Engineering 3,683,760 0.70% Springer Family Rentals Real Estate 3,240,786 0.62% Maccamp Ltd RV Sales & Service 3,164,739 0.60% Stonewood Resorts LLC Real Estate 2,677,315 0.51% Springer John D Real Estate 2,556,775 0.49% Latham Zane Warehouse 2,192.464 0.42% Total $161,200,440 30.66% * Based on 2016 Net Taxable Assessed Valuation of $525,943,493. ________________ Source: Texas Comptroller of Public Accounts and Denton Central Appraisal District A-2 PROPERTY TAX RATES AND COLLECTIONS(a) TABLE 3 Fiscal Tax Net Taxable Tax Collection % Year Year Assessed Valuation Rate Current Total(b) Ended 2002 $226,882,983 0.565470 97.03% 99.39% 9-30-03 2003 289,937,097 0.565470 97.38% 99.71% 9-30-04 2004 312,537,172 0.570830 97.40% 99.70% 9-30-05 2005 338,298,363 0.590460 98.16% 99.70% 9-30-06 2006 353,244,529 0.599600 97.36% 99.74% 9-30-07 2007 372,374,916 0.620000 98.13% 99.68% 9-30-08 2008 383,511,572 0.620000 97.72% 99.43% 9-30-09 2009 363,053,298 0.620000 97.78% 98.99% 9-30-10 2010 365,706,678 0.633049 97.70% 97.70% 9-30-11 2011 358,015,773 0.633049 98.69% 98.71% 9-30-12 2012 389,390,028 0.633049 99.20% 101.00% 9-30-13 2013 415,503,377 0.665000 99.80% 101.92% 9-30-14 2014 435,573,587 0.679500 99.27% 99.27% 9-30-15 2015 465,804,829 0.679500 99.21% 99.21% 9-30-16 2016 525,943,493 0.679500 In progress 9-30-17 ________________ (a)See “TAX INFORMATION - The City Application of the Property Tax Code” in the Official Statement for a description of the City’s taxation procedures. (b)Excludes interest and penalties. Source: Texas Municipal Report published by the Municipal Advisory Council of Texas, the Denton County Appraisal District, and the City’s 2016 Annual Financial Statements. Note: Assessed Valuations may change during the year due to various supplements and protests, and valuations on a later date or in other tables of this Official Statement may not match those shown on this table. TAX RATE DISTRIBUTION TABLE 4 2016-17 2015-16 2014-15 2013-14 2012-13 Maintenance & Operations $0.513353 $0.433353 $0.418751 $0.409405 $0.446044 Dedicated for Street Maintenance 0 0.080000 0.080000 0.080000 I & S Fund 0.166147 0.166147 0.180749 0.175595 0.187005 TOTAL $0.679500 $0.679500 $0.679500 $0.665000 $0.633049 ________________ Source: City A-3 WATER RATES TABLE 5 Existing Rates Residential (Effective April 1, 2017) Minimum per unit served for 0 - 1,000 gallons $21.74 Next 4,000 gallons 3.86 per thousand gallons Next 10,000 gallons 4.25 per thousand gallons Next 15,000 gallons 5.30 per thousand gallons Over 30,000 7.68 per thousand gallons Commercial (Effective April 1, 2017) Minimum per unit served for 0 - 1,000 gallons $28.32 Next 4,000 gallons 4.49 per thousand gallons Next 10,000 gallons 4.86 per thousand gallons Next 15,000 gallons 5.50 per thousand gallons Over 30,000 6.79 per thousand gallons PRINCIPAL WATER CUSTOMERS 2015-16 TABLE 6 (For the twelve months ending September 30, 2016) Name of Customer Average Monthly Consumption in Gallons Average Monthly Bill Stonewood Resorts 604,250 $3,824 Walmart Dist Center 362,150 2,093 SISD Sanger High School 321,750 1,468 SISD Butterfied Elementary 317,092 1,874 Chisum Trail 136,733 1,153 SISD Berry Middle School 109,175 559 Karl Klements Properties 75,308 670 Khosrow Sadeghian 74,258 542 Babe’s Chicken 69,942 412 Miguelito’s Restaurant 65,350 378 Total 2,136,008 $12,973 A-4 SEWER RATES TABLE 7 Existing Rates Residential (Effective April 18, 2016) Minimum (first 1,000 gallons) $27.50 Per 1,000 gallons over first 1,000 gallons 3.90 Per 1,000 gallons in excess of 10,000 gallons 4.34 Maximum per month 65.00 Commercial (Effective April 18, 2016) ¾ inch meter $ 40.48 1 inch meter 44.30 1½ inch meter 50.40 2 inch meter 61.30 3 inch meter 75.60 4 inch meter 140.32 6 inch meter 186.50 8 inch meter 246.14 Per 1,000 gallons over first 1,000 gallons 3.90 Per 1,000 gallons in excess of 10,000 gallons 4.34 Multi-Family Dwellings The amount due for multi-family dwellings shall be the residential rate multiplied by the number of occupied dwelling units. PRINCIPAL SEWER CUSTOMERS TABLE 8 (For the twelve months ending September 30, 2016) Name of Customer Average Monthly Bill Stonewood Resorts LLC $4,143 SISD Sanger High School 953 Walmart Distribution Center 1,417 SISD Butterfield Elementary 1,203 Chisum Trail 1,304 SISD Berry Middle School 397 Babe’s Chicken 314 Karl Klement Properties 757 Sanger Inn 272 The Sportsman 265 Total $11,025 A-5 ELECTRIC RATESTABLE 9 Existing Rates (Effective April 18, 2107) Residential Commercial Large Industrial Facility Charge (minimum per month) $ 10.00 $ 16.00 $35.00 Energy Charge (per KWH) $ 0.1175 $ 0.12 $0.105 ERCOT Pass-through per month $ 4.00 $ 4.00 $ 4.00 PRINCIPAL ELECTRIC CUSTOMERS 2015-2016TABLE 10 (For the twelve months ending September 30, 2016) Name of Customer Average Monthly Consumption in Kilowatt Hours Average Monthly Bill Walmart Distribution Center 1,255,000 $109,848 Maccamp LTD 117.400 11.888 Super Save 103.847 10,575 Wagon Master RV Park 92,700 9,290 Sam’s – Walmart Stores East LP 57,633 5,816 McDonalds 52,480 5,356 Latham Stairs Millwork Inc. 37,807 3,842 SISD Chisholm Trail Elementary 34,327 3,258 North Texas Plastics 32,353 3,334 The Sportsman 32,140 3,252 Total 1,815,687 $166,459  None of the City’s revenues from its electric system is pledged to the payment of the Certificates. A-6 PRO FORMA GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS TABLE 11 Fiscal Year 30-Sept Existing Debt Service Principal Interest Total Debt Service 2018 $1,989,435 $ - $ 363,545 $ 2,352,980 2019 1,991,970 - 366,600 2,358,570 2020 1,992,135 - 366,600 2,358,735 2021 1,989,780 - 366,600 2,356,380 2022 1,198,061 85,000 366,600 1,649,661 2023 1,184,635 100,000 364,050 1,648,685 2024 1,175,045 115,000 361,050 1,651,095 2025 1,173,605 115,000 357,600 1,646,205 2026 1,178,308 115,000 353,000 1,646,308 2027 910,945 390,000 348,400 1,649,345 2028 773,325 545,000 332,800 1,651,125 2029 775,200 560,000 311,000 1,646,200 2030 774,844 585,000 288,600 1,648,444 2031 778,000 605,000 265,200 1,648,200 2032 774,938 630,000 241,000 1,645,938 2033 770,656 660,000 215,800 1,646,456 2034 450,313 1,010,000 189,400 1,649,713 2035 449,656 1,050,000 149,000 1,648,656 2036 453,344 1,090,000 107,000 1,650,344 2037 - 1,585,000 63,400 1,648,400 TOTAL $20,784,194 $ 9,240,000 $5,777,245 $35,801,439 APPENDIX B GENERAL INFORMATION REGARDING THE CITY OF SANGER, TEXAS B-1 General The City of Sanger is a residential community located on Interstate Highway 35 northeast of the Dallas-Fort Worth industrial area. The City’s close proximity to both Dallas and Fort Worth has been a significant factor in the City’s growth. According to the 2010 U.S. Census, the City’s 2010 population was 6,916. U.S. Census estimates indicate an estimated population of 7,747 as of September 30, 2016. The area continues to see a large influx of new residents each year and this trend is expected to continue for the foreseeable future. In addition to the City’s close proximity to Interstate Highway 35, the City also provides ready access to both rail transportation and developable industrial land. The City of Sanger offers access to several financial institutes, churches of various denominations and a wide variety of retail outlets. The public school system offers a low student to teacher ratio and the City currently has three daycare centers. The City is also located within minutes of Lake Ray Roberts, which provides a variety of sporting and outdoor activities. The local economy is gaining strength and the City has recently seen increases in both construction and sales tax. Education The City is served by the Sanger Independent School District. The District covers approximately 42 square miles in Denton County and serves the City and its surrounding rural areas. The District is comprised of one early childhood center for grades pre-kindergarten through kindergarten, one elementary school for grades first through third, one intermediate school for grades fourth through sixth, one junior high school for grades seventh through eighth, and one high school for grades ninth through twelfth. All campuses offer enriched curricula with special programs for gifted/talented students as well as students achieving below grade level and are equipped with computers and cafeteria service. Denton County Denton County is located in north central Texas, encompassing 911 square miles, and was created in 1846 from Fannin County. The County is the third largest county of the nine counties comprising the Dallas-Fort Worth Consolidated Metropolitan Statistical Area. The County is traversed by Interstate Highway 35, US Highways 77, 377 and 380 and State Highways 114 and 121. The economy is diversified by manufacturing, state supported institutions and agriculture. According to the 2010 U.S. Census, the County’s 2010 population was 662,614. APPENDIX C FORM OF OPINION OF BOND COUNSEL May 18, 2017 City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017 (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel to the City of Sanger, Texas (the “City”) in connection with the issuance of $9,240,000 aggregate principal amount of Obligations designated as “City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017” (the “Obligations”). The Obligations are authorized by an ordinance adopted by the City Council of the City (the “City Council”) on May 1, 2017 (the “Ordinance”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Ordinance. In such connection, we have reviewed the Ordinance, the tax certificate of the City dated the date hereof (the “Tax Certificate”), certificates of the City, and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Obligations has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the City. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Ordinance and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Obligations to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Obligations, the Ordinance and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against issuers in the State of Texas. We express no opinion with respect to any indemnification, contribution, liquidated May 18, 2017 Page 2 damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents. Our services did not include financial or other non- legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Obligations and express no opinion with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The Obligations constitute the valid and binding obligations of the City. 2. The City Council has power and is obligated to levy an annual ad valorem tax, within the limits prescribed by law, upon taxable property located within the City, which taxes have been pledged irrevocably to pay the principal of and interest on the Obligations. 3. The Obligations are also secured by a pledge of subordinate revenues of the water and sewer system of the City not to exceed $10,000. 4. Interest on the Obligations is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986. Interest on the Obligations is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted current earnings when calculating corporate alternative minimum taxable income. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Obligations. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP APPENDIX D AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2016 ANNUAL FINANCIAL REPORT of the City of Sanger, Texas For the Year Ended September 30, 2016 (This page intentionally left blank.) City of Sanger, Texas TABLE OF CONTENTS September 30, 2016 FINANCIAL SECTION Independent Auditor’s Report 1 Management’s Discussion and Analysis 7 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 16 Statement of Activities 18 Fund Financial Statements Governmental Funds: Balance Sheet 20 Reconciliation of the Balance Sheet to the Statement of Net Position- Governmental Funds 23 Statement of Revenues, Expenditures, and Changes in Fund Balance- Governmental Funds 24 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 27 Proprietary Funds: Statement of Net Position 28 Statement of Revenues, Expenses, and Changes in Fund Net Position 29 Statement of Cash Flows 30 Notes to Financial Statements 33 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures, and Changes in Fund Balances- Budget and Actual -General Fund 70 Schedule of Changes in Net Pension Liability and Related Ratios 73 Schedule of Employer Contributions to Plan 75 COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS Combining Schedule of Revenues, Expenses, and Changes in Fund Net Position -Proprietary Funds –by Department 78 (This page intentionally left blank.) 1 Bro oksCardiel,PLLC Certified Public Accountants 1095 Evergreen Circle | Suite 200 | The Woodlands, TX 77380 |Tel: 281.907.8788 | Fax: 888.875.0587 | www.BrooksCardiel.com ` INDEPENDENT AUDITOR’S REPORT To the Honorable Mayor and Members of the City Council City of Sanger, Texas: Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Sanger, Texas (the “City”) as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements The City’s management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes 2 evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of September 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, schedule of changes in net pension liability and related ratios, schedule of employee contributions to pension plan, and budgetary comparison information be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise City of Sanger, Texas’s basic financial statements. The combining schedule by department for the proprietary fund are presented for purposes of additional analysis and are not a required part of the basic financial statements. 3 The combining schedule by department for the proprietary fund is the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the ba sic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements the mselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. BrooksCardiel, PLLC Certified Public Accountants The Woodlands, Texas January 27, 2017 (This page intentionally left blank.) 4 MANAGEMENT'S DISCUSSION AND ANALYSIS 5 (This page intentionally left blank.) 6 City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) September 30, 2016 7 As management of the City of Sanger, Texas (the “City”), we offer readers of the City’s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, 2016. Financial Highlights The City's total combined net position is $31,097,598 at September 30,2016.Of this, $10,903,640 (unrestricted net position) may be used to meet the City’s ongoing obligations to its citizens and creditors. At the close of the current fiscal year, the City’s governmental funds reported combined fund balances of $6,609,647, an increase of $1,036,833. As of the end of the year, the unassigned fund balance of the general fund was $2,397,437 or 47%of total general fund expenditures. The City had an overall increase in net position of $2,149,474, which is primarily due to strong general and utility revenues. Overview of the Financial Statements The discussion and analysis provided here are intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements consist of three components: 1)government- wide financial statements, 2) fund financial statements, and 3) the notes to financial statements. This report also includes supplementary information intended to furnish additional detail to support the basic financial statements themselves. Government-Wide Statements The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private-sector business. The statement of net position presents information on all of the City’s assets, liabilities, and deferred inflows/outflows with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. Other non-financial factors, such as the City’s property tax base and the condition of the City’s infrastructure, need to be considered in order to assess the overall health of the City. The statement of activities presents information showing how the City’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS, Continued September 30, 2016 8 are reported for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business- type activities). The governmental activities of the City include general government, public safety, public works, and culture and recreation. The business-type activities of the City include water, sewer and electric operations. The government-wide financial statements include not only the City itself (known as the primary government), but also the legally separate Sanger Industrial De velopment Corporation (“4A fund”) and the Sanger Te xas De velopment Corporation (“4B fund”), for which the City is financially accountable. Both corporations, although legally separate, function for all practical purposes as a department of the City and therefore have been included as an integral part of the primary government. FUND FINANCIAL STATEMENTS Funds may be considered as operating companies of the parent corporation,which is the City of Sanger. They are usually segregated for specific activities or objectives. The City of Sanger uses fund accounting to ensure and demonstrate compliance with finance-related legal reporting requirements. The two categories of City funds are governmental and proprietary. Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources,as well as on balances of spendable resources available at the end of the year. Such information may be useful in evaluating the City’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Sanger maintains five individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS, Continued September 30, 2016 9 expenditures, and changes in fund balances for the general,debt service, 4A, 4B, and capital projects funds which are considered to be major funds. The City of Sanger adopts an annual appropriated budget for all funds. A budgetary comparison schedule has been provided to demonstrate compliance with the general fund budget. Proprietary Funds The City maintains two different types of proprietary funds. Proprietary funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses a proprietary fund to account for its public utilities. All activities associated with providing such services are accounted for in these funds, including administration, operation, maintenance, debt service, capital improvements, meter maintenance, billing and collection. The City's intent is that costs of providing the services to the general public on a continuing basis is financed through user charges in a manner similar to a private enterprise. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City’s various functions. The City uses internal service funds to account for the maintenance and purchase of equipment. Notes to Financial Statements The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes are the last section of the basic financial statements. Other Information In addition to the basic financial statements, MD&A, and accompanying notes, this report also presents certain Required Supplementary Information (RSI). The RSI that GASB Statement No. 34 requires is a budgetary comparison schedule for the general fund and schedules for the City’s Defined Pension Plan. RSI can be found after the basic financial statements. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted previously, net position may serve over time as a useful indicator of the City’s financial position. For the City of Sanger, assets exceeded liabilities by $31,097,598 as of September 30, 2016,in the primary government. The largest portion of the City’s net position, $16,012,082,reflects its investments in capital assets (e.g., land, city hall, police station, streets, and drainage systems, as well as the public works facilities),less any de bt used to acquire those assets that are still outstanding. The City uses these capital assets to provide services to citizens; consequently,these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS, Continued September 30, 2016 10 resources needed to repay this debt must be provided from other sources, since the assets themselves cannot be used to liquidate these liabilities. An additional portion of the City’s net position, $4,181,876, represents resources that are subject to external restrictions on how they may be used. The remaining balance of $10,903,640 is unrestricted and may be used to meet the government’s ongoing obligations to its citizens and creditors. Current and other assets of business-type activities as of September 30, 2016 and September 30, 2015 were $16,009,888 and $12,028,084, respectively. The increase of $3,981,804 was primarily attributable to unspent bond proceeds from a new bond issuance during the year. Long term liabilities of business-type activities as of September 30, 2016 and September 30, 2015 were $12,579,894 and $7,892,587, respectively. The increase of $4,687,307 was due to the aforementioned bond issuance during the year. Statement of Net Position: The following table reflects the condensed Statement of Net Position: Current and other assets $7,117,640 $16,009,888 $23,127,528 $6,134,675 $12,028,084 $18,162,759 Capital assets, net 14,773,440 15,045,344 29,818,784 15,107,078 12,923,737 28,030,815 Total Assets 21,891,080 31,055,232 52,946,312 21,241,753 24,951,821 46,193,574 of Resources 489,156 196,393 685,549 228,086 111,646 339,732 Other liabilities 1,295,696 2,364,581 3,660,277 490,649 1,483,627 1,974,276 Long-term liabilities 6,294,092 12,579,894 18,873,986 7,718,319 7,892,587 15,610,906 Total Liabilities 7,589,788 14,944,475 22,534,263 8,208,968 9,376,214 17,585,182 Net Position: Net investment net of related debtin capital assets 8,615,983 7,396,099 16,012,082 8,122,596 7,831,965 15,954,561 Restricted 4,181,876 - 4,181,876 3,713,890 - 3,713,890 Unrestricted 1,992,589 8,911,051 10,903,640 1,424,385 7,855,288 9,279,673 Total Net Position $14,790,448 $16,307,150 $31,097,598 $13,260,871 $15,687,253 $28,948,124 2016 2015 Governmental Business-Type Activities Activities Governmental Business-Type ActivitiesActivities Total Deferred Outflows Total City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS, Continued September 30, 2016 11 Statement of Activities: The following table provides a summary of the City’s changes in net position: Revenues Program revenues: Charges for services $1,663,963 $11,236,562 $12,900,525 $1,570,157 $11,569,275 $13,139,432 Grants and contributions 185,385 - 185,385 271,386 - 271,386 General revenues: Property taxes 3,329,733 - 3,329,733 2,981,429 - 2,981,429 Sales taxes 1,605,187 - 1,605,187 1,600,961 - 1,600,961 Franchise and local taxes 240,206 - 240,206 231,380 - 231,380 Investment income 9,206 21,429 30,635 4,429 15,128 19,557 Other revenues 212,026 - 212,026 250,444 39,738 290,182 Total Revenues 7,245,706 11,257,991 18,503,697 6,910,186 11,624,141 18,534,327 Expenses General government 2,753,293 - 2,753,293 2,632,058 - 2,632,058 Public safety 2,506,460 - 2,506,460 2,187,268 - 2,187,268 Public works 998,940 - 998,940 1,073,312 - 1,073,312 Culture and recreation 751,747 - 751,747 712,298 - 712,298 Interest and fiscal charges 277,536 395,154 672,690 272,652 289,691 562,343 Water, sewer, & electric - 8,541,016 8,541,016 - 8,251,045 8,251,045 Total Expenses 7,287,976 8,936,170 16,224,146 6,877,588 8,540,736 15,418,324 Change in Net Position Before Transfers (42,270)2,321,821 2,279,551 32,598 3,083,405 3,116,003 Transfers 1,701,924 (1,701,924) - 1,720,428 (1,720,428)- Total 1,701,924 (1,701,924) - 1,720,428 (1,720,428)- Change in Net Position 1,659,654 619,897 2,279,551 1,753,026 1,362,977 3,116,003 Beginning Net Position 13,260,871 15,687,253 28,948,124 11,507,845 14,324,276 25,832,121 Ending Net Position $14,920,525 $16,307,150 $31,227,675 $13,260,871 $15,687,253 $28,948,124 Primary Total Primary Governmental ActivitiesGovernment For the Year Ended September 30, 2016 Business-Type Government For the Year Ended September 30, 2015 Total Activities Business-TypeGovernmental Activities Activities City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS, Continued September 30, 2016 12 Graphic presentations of selected data from the summary tables are displayed below to assist in the analysis of the City’s activities. For the year ended September 30, 2016, revenues from governmental activities totaled $7,245,706. Property tax, sales tax and charges for services are the City’s largest revenue sources. Property tax increased by $348,304 or 12%due to higher property values and new growth.Charges for services increased $93,806 or 6%primarily due to increases in EMS service collections and sanitation fees. Grants and contributions decreased by $86,001 due to a land donation in prior year that was a one time donation.All other revenues remained relatively stable when compared to the previous year. This graph shows the governmental function expenses of the City: For the year ended September 30, 2016, expenses for governmental activities totaled $7,287,976. This represents an increase of $410,388 or 8% from the prior year. The City’s largest functional expense is general government of $2,753,293 which primarily includes contractual costs for garbage removal, salaries for finance and city administration,plus depreciation of related capital assets.General government expenditures increased by $121,235 or 15%primarily due to increases in salaries and legal City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS, Continued September 30, 2016 13 fees. Public safety expenditures increased by $319,192 or 5%primarily due to increases in depreciation on capital asset equipment purchased and increases in salaries expense for EMS and fire for additional personnel. All other expenditures remained relatively consistent with the previous year. Business-type activities are shown comparing operating costs to revenues generated by related services. For the year ended September 30, 2016, charges for services by business-type activities totaled $11,236,562. This is a decrease of $332,713, or 3%, from the previous year.The decrease was due to a decrease in consumption compared to prior year. Total expenses increased $395,434 primarily due to increases in bond issuance and interest fees, and increases in repairs and maintenance expense. FINANCIAL ANALYSIS OF THE CITY’S FUNDS As noted earlier, fund accounting is used to demonstrate and ensure compliance with finance-related legal requirements. Governmental Funds -The focus of the City’s governmental funds is to provide information of near- term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unreserved fund balance may serve as a useful measure of the City’s net resources available for spending at the end of the year. As of the end of the year the general fund reflected a total fund balance of $2,548,000. Of this, $7,971 is restricted for municipal court, $9,480 is restricted for tourism, $79,393 is restricted for library improvements, and $23,385 for public safety. Unassigned fund balance totaled $2,397,437 as of year end. City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS, Continued September 30, 2016 14 There was an increase in governmental fund balance of $1,036,833 over the prior year. The increase was primarily due to revenues exceeding budgeted expectations. Proprietary Funds -The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. GENERAL FUND BUDGETARY HIGHLIGHTS There was a total positive budget variance of $562,082 in the general fund. This is a combination of a positive revenue variance of $443,056, a positive expenditure variance of $209,627,and a negative variance of $90,601 in other financing sources and uses. The most significant variances were for property taxes, sales taxes, charges for services, and the police department, which all had positive variances for the City. CAPITAL ASSETS As of the end of the year, the City’s governmental activities funds had invested $14,773,440 in a variety of capital assets and infrastructure, net of accumulated depreciation. Depreciation is included with the governmental capital assets as required by GASB Statement No. 34. The City’s business-type activities funds had invested $15,045,344 in a variety of capital assets and infrastructure, net of accumulated depreciation. Major capital asset events during the current year include the following: Renovation work on a church building for $416,681 McReynolds road construction in the amount of $69,900 Purchase of police department vehicles and radio system totaling $193,057 Street improvements to Smith, Sims, Kirkland, Jones & Lois for $75,126 New water well for $1,604,235 Sewer plant expansion for $224,687 Water and sewer line relocations, expansions, and a new lift station totaling $590,021 Acquisition of land for water department for $173,693 Purchase of vehicles for water department for $122,709 More detailed information about the City’s capital assets is presented in note IV. C to the financial statements. City of Sanger, Texas MANAGEMENT’S DISCUSSION AND ANALYSIS, Continued September 30, 2016 15 LONG-TERM DEBT At the end of the current year, the City had total bonds outstanding of $17,230,000, notes payable of $396,451 and capital leases of $777,536. During the year, the City had principal payments on bonds, notes payable and capital leases of $1,665,229. During the year, the City refunded a bond with a principal balance outstanding of $2,615,000 for a refunding bond with a principal balance of $2,535,000. During the year, the City had a $5,870,000 bond issuance for the water, sewer, and electric fund. More detailed information about the City’s long-term liabilities is presented in note IV. D to the financial statements. ECONOMIC FACTORS AND NEXT YEAR’S BUDGET The Mayor and City Council are committed to maintaining and improving the overall wellbeing of the City of Sanger and improving services provided to their public citizens. The City is budgeting for growth in the upcoming year. CONTACTING THE CITY’S FINANCIAL MANAGEMENT This financial report is de signed to provide a general overview of the City of Sanger’s finances for all those with an interest in the City’s finances. Questions concerning this report or requests for additional financial information should be directed to the City Manager at the City of Sanger City Hall at 502 Elm Street, Sanger, Texas 76266. Current assets: Cash and cash equivalents $5,528,666 $7,430,681 $12,959,347 Investments 900,618 415,330 1,315,948 Receivables, net 688,356 1,716,811 2,405,167 Inventory - 494,626 494,626 7,117,640 10,057,448 17,175,088 Restricted cash - 5,652,440 5,652,440 Restricted investments - 300,000 300,000 Capital assets: Non-depreciable 2,017,458 3,946,813 5,964,271 Net depreciable capital assets 12,755,982 11,098,531 23,854,513 14,773,440 20,997,784 35,771,224 21,891,080 31,055,232 52,946,312 Deferred Outflows of Resources Deferred charge on refunding 33,787 59,153 92,940 Pension contributions 139,479 42,036 181,515 Pension investment earnings 299,661 90,312 389,973 Pension (gains) losses 16,229 4,892 21,121 Total Deferred Outflows of Resources 489,156 196,393 685,549 See Notes to Financial Statements. Primary Government City of Sanger, Texas STATEMENT OF NET POSITION (Page 1 of 2) September 30, 2016 Activities Activities Assets Governmental Business-Type Total Assets Total Current Assets Total 16 Liabilities Current liabilities: Accounts payable and accrued liabilities $300,948 $975,928 $1,276,876 Accrued interest payable 43,267 117,591 160,858 Customer deposits - 397,567 397,567 Long term debt due within one year 951,481 873,495 1,824,976 1,295,696 2,364,581 3,660,277 Noncurrent liabilities: Debt due in more than one year 5,404,265 12,311,717 17,715,982 Net pension liability 889,827 268,177 1,158,004 6,294,092 12,579,894 18,873,986 7,589,788 14,944,475 22,534,263 Net investment in capital assets 8,615,983 7,396,099 16,012,082 Restricted for: Debt service 404,096 - 404,096 Capital projects 1,030,871 - 1,030,871 Economic development 2,626,680 - 2,626,680 Other purposes 120,229 - 120,229 Unrestricted 1,992,589 8,911,051 10,903,640 $14,790,448 $16,307,150 $31,097,598 See Notes to Financial Statements. Total Current Liabilities Net Position Total Net Position Total Liabilities September 30, 2016 Activities Total Business-Type STATEMENT OF NET POSITION (Page 2 of 2) Governmental Activities Primary Government City of Sanger, Texas 17 Capital Grants and Contributions Primary Government Governmental Activities General government $2,753,293 $940,697 $107,541 $- Economic development 130,077 - - - Public safety 2,506,460 723,266 77,844 - Public works 998,940 - - - Culture and recreation 751,747 - - - Interest and fiscal charges 277,536 - - - 7,418,053 1,663,963 185,385 - Business-Type Activities Water 1,101,705 1,641,413 - - Sewer 684,295 1,642,998 - - Electric 6,527,241 7,893,277 - - Fleet services 1,562 - - - Utility administration 621,367 58,874 - - Total Business-Type Activities 8,936,170 11,236,562 - - Total Primary Government $16,354,223 $12,900,525 $185,385 - General Revenues: Taxes Property taxes Sales taxes Franchise and local taxes Investment income Other revenues Gain on sale of assets Insurance recoveries Transfers Change in Net Position Beginning Net Position Ending Net Position See Notes to Financial Statements. Expenses Contributions Total Governmental Activities Functions/Programs Services Total General Revenues and Transfers City of Sanger, Texas STATEMENT OF ACTIVITIES Operating For the Year Ended September 30, 2016 Program Revenues Charges for Grants and 18 $(1,705,055) $- $(1,705,055) (130,077) - (130,077) (1,705,350) - (1,705,350) (998,940) - (998,940) (751,747) - (751,747) (277,536) - (277,536) (5,568,705) - (5,568,705) - 539,708 539,708 - 958,703 958,703 - 1,366,036 1,366,036 - (1,562) (1,562) - (562,493) (562,493) - 2,300,392 2,300,392 (5,568,705) 2,300,392 (3,268,313) 3,329,733 - 3,329,733 1,605,187 - 1,605,187 240,206 - 240,206 9,206 21,429 30,635 179,476 - 179,476 30,618 - 30,618 1,932 - 1,932 1,701,924 (1,701,924) - 7,098,282 (1,680,495)5,417,787 1,529,577 619,897 2,149,474 13,260,871 15,687,253 28,948,124 $14,790,448 $16,307,150 $31,097,598 Activities Net (Expense) Revenue and Changes in Net Position Primary Government Governmental Total Business-Type Activities 19 Cash and cash equivalents $1,937,682 $403,823 $1,579,165 Investments 529,524 - 94,266 Receivables, net 517,072 20,202 88,652 $2,984,278 $424,025 $1,762,083 Liabilities Accounts payable and accrued liabilities $212,561 $- $5,864 212,561 - 5,864 Deferred Inflows of Resources Unavailable revenue Property taxes 43,237 19,929 - EMS revenue 180,480 - - Total Deferred Inflows of Resources 223,717 19,929 - Restricted for: Municipal court 7,971 - - Tourism 9,480 - - Library 79,393 - - Public safety 23,385 - - Debt service - 404,096 - Capital projects - - - Economic development - - 1,756,219 Committed for: Employee benefits 30,334 - - Unassigned reported in: General fund 2,397,437 - - 2,548,000 404,096 1,756,219 $2,984,278 $424,025 $1,762,083 See Notes to Financial Statements. City of Sanger, Texas BALANCE SHEET GOVERNMENTAL FUNDS September 30, 2016 4A FundGeneral Total Liabilities Debt Service Total Liabilities and Fund Balances Total Fund Balances Total Assets Fund Balances Assets 20 $531,203 $1,076,793 $5,528,666 276,828 - 900,618 62,430 - 688,356 $870,461 $1,076,793 $7,117,640 $- $45,922 $264,347 - 45,922 264,347 - - 63,166 - - 180,480 - - 243,646 - - 7,971 - - 9,480 - - 79,393 - - 23,385 - - 404,096 - 1,030,871 1,030,871 870,461 - 2,626,680 - - 30,334 - - 2,397,437 870,461 1,030,871 6,609,647 $870,461 $1,076,793 $7,117,640 Funds Total GovernmentalCapital Projects Fund4B Fund 21 (Page intentionally left blank.) 22 Fund Balances - Total Governmental Funds $6,609,647 Adjustments for the Statement of Net Position: Capital assets used in governmental activities are not current financial resources and, therefore, not reported in the governmental funds. Capital assets - non-depreciable 2,017,458 Capital assets - net depreciable 12,722,179 Other long-term assets are not available to pay for current-period expenditures and, therefore, are deferred in the governmental funds. Property tax receivable 63,166 EMS receivable 180,480 Deferred outflows of resources, represent a consumption of net position that applies to a future period(s) and is not recognized as an outflow of resources (expense/ expenditure) until then. Deferred charge on refunding 33,787 Pension contributions 104,035 Pension investment earnings 223,512 Pension gains (losses)12,105 Internal service funds are used by management to charge the cost of internal services to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net position. Capital assets 33,803 Deferred outflows - pension contributions 35,444 Deferred outflows - investment earnings 76,149 Deferred outflows - pension gains (losses)4,124 Accounts payable and accrued liabilities (36,601) Non-current liabilities due in one year (24,243) Non-current liabilities due in more than one year (2,694) Net pension liability (226,120) Net position - governmental activities (140,138) Some liabilities, including bonds payable and deferred charges, are not reported as liabilities in the governmental funds. Accrued interest (43,267) Compensated absences (137,565) Bond premium (147,108) Net pension liability (663,707) Non-current liabilities due in one year (803,429) Non-current liabilities due in more than one year (5,240,707) $14,790,448 See Notes to Financial Statements. Net Position of Governmental Activities RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION City of Sanger, Texas September 30, 2016 GOVERNMENTAL FUNDS 23 Revenues Property tax $2,447,998 $793,038 $- Sales tax 815,547 - 394,820 Franchise and local taxes 240,206 - - License and permits 111,189 - - Charges for services 829,508 - - Fire and rescue 586,833 - - Contributions and donations 325 - - Intergovernmental 77,844 - Fines and forfeitures 136,433 - - Investment income 6,296 114 1,457 Other revenue 96,817 3,992 78,667 5,348,996 797,144 474,944 Expenditures Current: General government 951,828 1,110 - Economic development - - 130,077 Police department 1,262,092 - - Municipal court 195,182 - - Fire and EMS 940,549 - - Parks and recreation 463,483 - - Public works 616,616 - - Debt service: Principal 194,056 620,300 42,997 Interest 28,835 207,646 18,270 Bond issuance costs 37,964 - - Capital outlay 365,269 - - 5,055,874 829,056 191,344 Excess of Revenues Over (Under) Expenditures 293,122 (31,912) 283,600 Other Financing Sources (Uses) Transfers in 1,152,539 217,358 50,000 Transfers (out)(942,492) (166,536) (175,000) Bond issuance 1,166,100 - - Premium 98,406 - - Payment to refunding bond escrow agent (1,226,542) - - Proceeds from sale of capital assets 30,618 - - Insurance recoveries 1,932 - - 280,561 50,822 (125,000) 573,683 18,910 158,600 Beginning fund balances 1,974,317 385,186 1,597,619 $2,548,000 $404,096 $1,756,219 See Notes to Financial Statements. City of Sanger, Texas STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS For the Year Ended September 30, 2016 4A FundService Ending Fund Balances Total Other Financing Sources (Uses) Total Expenditures Net Change in Fund Balances General Total Revenues Debt 24 $- $- $3,241,036 394,820 1,605,187 - - 240,206 - - 111,189 - - 829,508 - - 586,833 - 107,216 107,541 - 77,844 - - 136,433 1,339 - 9,206 - - 179,476 396,159 107,216 7,124,459 - - 952,938 - - 130,077 - - 1,262,092 - - 195,182 - - 940,549 20,185 - 483,668 - - 616,616 - - 857,353 - - 254,751 - - 37,964 - 525,050 890,319 20,185 525,050 6,621,509 375,974 (417,834) 502,950 - 675,000 2,094,897 (347,500) - (1,631,528) - - 1,166,100 - - 98,406 - - (1,226,542) - - 30,618 - - 1,932 (347,500)675,000 533,883 28,474 257,166 1,036,833 841,987 773,705 5,572,814 $870,461 $1,030,871 $6,609,647 Projects Fund4B Fund Funds GovernmentalCapital Total 25 (This page intentionally left blank.) 26 Amounts reported for governmental activities in the statement of activities are different because: Net changes in fund balances - total governmental funds $1,036,833 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. Capital outlay 886,579 Capital assets transferred to business-type activies (210,245) Depreciation expense (1,043,775) Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. EMS receivable 88,697 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. Compensated absences (19,325) Accrued interest 7,543 Pension expense (54,570) The issuance of long-term debt (e.g., bonds, leases, certificates of obligation) 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 position. Also, governmental funds report the effect of premiums, discounts, and similar items when they are 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. Deferred charges on refunding 11,781 Premium on debt (78,909) Debt issued 43,752 Principal payments 850,401 Internal service funds are used by management to charge the cost of internal services to individual funds. The City reports the net gain (loss) of internal service funds within governmental activities.10,815 $1,529,577 See Notes to Financial Statements. Change in Net Position of Governmental Activities For the Year Ended September 30, 2016 City of Sanger, Texas RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES 27 Current Assets Cash and cash equivalents $7,430,681 $ Investments 415,330 - Receivables, net 1,716,811 - Inventory 494,626 - 10,057,448 - Noncurrent Assets Restricted cash 5,652,440 - Restricted investments 300,000 - Capital assets: Non-depreciable 3,946,813 - Net depreciable capital assets 11,098,531 33,803 20,997,784 33,803 31,055,232 33,803 Pension contributions 42,036 35,444 Pension investment earnings 90,312 76,149 Pension gains (losses)4,892 4,124 Deferred charge on refunding 59,153 - Total Deferred Outflows of Resources 196,393 115,717 Current Liabilities Accounts payable and accrued liabilities 975,928 36,601 Accrued interest 117,591 - Customer deposits 397,567 - Compensated absences-current 74,043 24,243 Bonds and capital leases payable-current 799,452 - 2,364,581 60,844 Noncurrent Liabilities Compensated absences 8,226 2,694 Net pension liability 268,177 226,120 Bonds and capital leases payable 12,303,491 - 14,944,475 289,658 Net investment in capital assets 7,396,099 - Unrestricted 8,911,051 (140,138) $16,307,150 $(140,138) See Notes to Financial Statements. & Electric Total Current Assets City of Sanger, Texas STATEMENT OF NET POSITION PROPRIETARY FUND September 30, 2016 Activities Assets Water, Sewer Service Internal Governmental Total Net Position Net Position Total Noncurrent Assets Total Assets Liabilities Total Liabilities Total Current Liabilities Deferred Outflows of Resources 28 Operating Revenues Charges for services $10,829,058 $- Connection fees 61,130 - Tap fees 287,500 - Other revenue 58,874 - 11,236,562 - Operating Expenses Salaries and wages 1,069,751 1,032,753 Contracted services 49,896 254,902 Utilities 308,370 32,822 Materials and supplies 81,437 73,809 Water and electric purchases 5,504,359 - Repairs and maintenance 507,210 42,200 Depreciation 811,063 1,499 8,332,086 1,437,985 2,904,476 (1,437,985) Nonoperating Revenues (Expenses) Investment income 21,429 - Bond issuance costs (208,930) Interest expense (395,154) - (582,655)- 2,321,821 (1,437,985) Transfers in 230,937 1,448,800 Transfers (out)(1,932,861)- 619,897 10,815 15,687,253 (150,953) $16,307,150 $(140,138) See Notes to Financial Statements. Ending Net Position Total Operating Revenues Total Operating Expenses Change in Net Position Operating Income (Loss) Total Nonoperating Revenues (Expenses) Income (Loss) Before Transfers Beginning net position Internal Service Governmental Activities City of Sanger, Texas STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION PROPRIETARY FUND For the Year Ended September 30, 2016 Water, Sewer & Electric 29 Cash Flows from Operating Activities Receipts from customers $11,120,907 $- Payments to suppliers (6,532,993) (430,832) Payments to employees (1,044,926) (1,013,439) 3,542,988 (1,444,271) Cash Flows from Noncapital Financing Activities Operating transfers in 20,692 1,448,800 Operating transfers out (1,932,861) - (1,912,169) 1,448,800 Cash Flows from Capital and Related Financing Activities Capital asset purchases (2,722,425) (35,302) Proceeds from bond issuance 6,084,857 - Principal paid on debt (807,874) - Interest paid on debt (366,280) - 2,188,278 (35,302) Cash Flows from Investing Activities Purchases of investments, net (2,974) - Interest on investments 21,429 - 18,455 - 3,837,552 (30,773) 9,245,569 30,773 $13,083,121 $- See Notes to Financial Statements. Net Increase (Decrease) in Cash and Cash Equivalents Net Cash Provided by Operating Activities & Electric Water, Sewer Net Cash Provided by Noncapital Financing Activities Net Cash (Used) by Capital and Related Financing Activities Ending Cash and Cash Equivalents Net Cash Provided by Investing Activities Beginning cash and cash equivalents City of Sanger, Texas STATEMENT OF CASH FLOWS PROPRIETARY FUND (Page 1 of 2) For the Year Ended September 30, 2016 Internal Service Governmental Activities 30 Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating Income $2,904,476 $(1,437,985) Adjustments to reconcile operating income to net cash provided: Depreciation 811,063 1,499 Changes in Operating Assets and Liabilities: (Increase) Decrease in: Accounts receivable (120,986) - Inventory (20,292) - Deferred outflows of resources - pension contributions (3,783) (3,190) Deferred outflows of resources - pension investment earnings (80,952) (68,257) Deferred outflows of resources - pension (gains) losses 9,604 8,098 Increase (Decrease) in: Accounts payable and accrued liabilities (61,429) (27,099) Compensated absences 2,776 723 Customer deposits 5,331 - Net pension liability 97,180 81,940 $3,542,988 $(1,444,271) Capital assets transferred from governmental activities $210,245 $- Debt refunding $1,484,420 $- See Notes to Financial Statements. Schedule of Non-Cash Capital and Related Financing Activities & Electric Water, Sewer Net Cash Provided by Operating Activities Internal Service Governmental Activities PROPRIETARY FUND (Page 2 of 2) For the Year Ended September 30, 2016 City of Sanger, Texas STATEMENT OF CASH FLOWS 31 (This page intentionally left blank.) 32 City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS  September 30, 2016    33  I.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES    A. Description of Government‐Wide Financial Statements    The government‐wide financial statements (i.e., the statement of net position and  the statement of activities) report information on all of the nonfiduciary activities of  the primary government and its component units. Governmental activities, which  normally are supported by taxes, intergovernmental revenues, and other  nonexchange transactions, are reported separately from business‐type activities,  which rely to a significant extent on fees and charges to external customers for  support. Likewise, the primary government is reported separately from certain legally  separate component units for which the primary government is financially  accountable.    B. Reporting Entity    The City of Sanger, Texas (the “City”) was incorporated in 1886 and operates under  a Council‐Manager form of government. The City provides: general government,  public safety, public works, culture and recreation, water, sewer, and electricity  operations.     The City is an independent political subdivision of the State of Texas governed by  an elected council and a mayor and is considered a primary government.  As  required by generally accepted accounting principles, these basic financial  statements have been prepared based on considerations regarding the potential for  inclusion of other entities, organizations, or functions as part of the Cityʹs financial  reporting entity.  The Sanger Industrial Development Corporation (“4A fund”) and  the Sanger Texas Development Corporation (“4B fund”), although legally separate,  are considered part of the reporting entity.  No other entities have been included in  the Cityʹs reporting entity. Additionally, as the City is considered a primary  government for financial reporting purposes, its activities are not considered a part  of any other governmental or other type of reporting entity.    Considerations regarding the potential for inclusion of other entities, organizations  or functions in the Cityʹs financial reporting entity are based on criteria prescribed  by generally accepted accounting principles.  These same criteria are evaluated in  considering whether the City is a part of any other governmental or other type of  reporting entity.  The overriding elements associated with prescribed criteria  considered in determining that the Cityʹs financial reporting entity status is that of a  primary government are that it has a separately elected governing body; it is legally  separate; and is fiscally independent of other state and local governments.   City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  34  Additionally prescribed criteria under generally accepted accounting principles  include considerations pertaining to organizations for which the primary  government is financially accountable, and considerations pertaining to  organizations for which the nature and significance of their relationship with the  primary government are such that exclusion would cause the reporting entityʹs  financial statements to be misleading or incomplete.    Blended Component Units    Sanger Industrial Development Corporation (4A)     The Sanger Texas Industrial Development Corporation (“4A fund”) is governed by  a board of five directors, all of whom are appointed by the City Council of the City  of Sanger and any of whom can be removed from office by the City Council at its  will. The 4A fund was incorporated in the state of Texas as a non‐profit industrial  development corporation under Section 4A of the Development Corporation Act of  1979. The purpose of the 4A fund is to promote economic development within the  City of Sanger.    Sanger Texas Development Corporation (4B)    The Sanger Texas Development Corporation (“4B fund”) is governed by a board of  seven directors, all of whom are appointed by the City Council at its will. The 4B  fund was incorporated in the state of Texas as a nonprofit industrial development  corporation under Section 4B of the Development Corporation Act of 1979. The  purpose of the 4B fund is to promote economic and community development  within the City of Sanger.    C. Basis of Presentation Government‐Wide and Fund Financial Statements    While separate government‐wide and fund financial statements are presented, they  are interrelated. The governmental activities column incorporates data from  governmental funds while business‐type activities incorporate data from the  government’s enterprise funds. Separate financial statements are provided for  governmental funds and the proprietary funds.    As a general rule, the effect of interfund activity has been eliminated from the  government‐wide financial statements. Exceptions to this general rule are payments  in lieu of taxes where the amounts are reasonably equivalent in value to the  interfund services provided and other charges between the government’s water and  transit functions and various other functions of the government. Elimination of  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  35  these charges would distort the direct costs and program revenues reported for the  various functions concerned.    The fund financial statements provide information about the government’s funds,  including its blended component units. Separate statements for each fund  category—governmental and proprietary are presented. The emphasis of fund  financial statements is on major governmental and enterprise funds, each displayed  in a separate column. All remaining governmental and enterprise funds are  aggregated and reported as nonmajor funds. Major individual governmental and  enterprise funds are reported as separate columns in the fund financial statements.     The government reports the following major governmental funds:    Governmental Funds     Governmental funds are those funds through which most governmental functions  are typically financed.    General Fund     The general fund is used to account for all financial transactions not properly  includable in other funds.  The principal sources of revenues include local  property taxes, sales and franchise taxes, licenses and permits, fines and  forfeitures, and charges for services.  Expenditures include general government,  public safety, parks and recreation and public works.     Debt Service Fund     The debt service fund is used to account for debt service activities for  governmental fund types.    4A Fund     The purpose of the 4A fund is to promote economic development within the  City of Sanger.    4B Fund     The purpose of the 4B fund is to promote economic and community  development within the City of Sanger.    City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  36  Capital Projects Fund     The capital projects fund is used to account for capital asset activities for  governmental fund types.    Proprietary Fund Types     Proprietary funds are used to account for activities that are similar to those often  found in the private sector.  All assets, liabilities, equities, revenues, expenses, and  transfers relating to the government’s business activities are accounted for through  proprietary funds.  The measurement focus is on determination of net income,  financial position, and cash flows.  Proprietary funds distinguish operating  revenues and expenses from non‐operating items.  Operating revenues include  charges for services.  Operating expenses include costs of materials, contracts,  personnel, and depreciation.  All revenues and expenses not meeting this definition  are reported as non‐operating revenues and expenses.  Proprietary fund types  follow GAAP prescribed by the Governmental Accounting Standards Board (GASB)  and all financial Accounting Standards Board’s standards issued prior to November  30, 1989.  Subsequent to this date, the City accounts for its enterprise funds as  presented by GASB. The proprietary fund types used by the City include enterprise  funds.    The government reports the following major enterprise fund:    Water, Sewer, & Electric Fund     This fund is used to account for the provision of water, sewer and electric  services to the residents of the City. Activities of the fund include administration,  operations and maintenance of the water production and distribution system,  water collection and treatment systems, and electric services. The fund also  accounts for the accumulation of resources for and the payment of long‐term  debt. All costs are financed through charges to utility customers.    Additionally, the government reports the following fund type:    Internal Service Fund    Revenues and expenses related to services provided to organizations inside the  City on a cost reimbursement basis are accounted for in an internal service fund.  The Cityʹs internal service fund was set up to provide administrative support  services to other funds of the City.  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  37  During the course of operations the government has activity between funds for  various purposes. Any residual balances outstanding at year end are reported as  due from/to other funds and advances to/from other funds. While these balances  are reported in fund financial statements, certain eliminations are made in the  preparation of the government‐wide financial statements. Balances between the  funds included in governmental activities (i.e., the governmental and internal  service funds) are eliminated so that only the net amount is included as internal  balances in the governmental activities column. Similarly, balances between the  funds included in business‐type activities (i.e., the enterprise funds) are eliminated  so that only the net amount is included as internal balances in the business‐type  activities column.    Further, certain activity occurs during the year involving transfers of resources  between funds. In fund financial statements these amounts are reported at gross  amounts as transfers in/out. While reported in fund financial statements, certain  eliminations are made in the preparation of the government‐wide financial  statements. Transfers between the funds included in governmental activities are  eliminated so that only the net amount is included as transfers in the governmental  activities column. Similarly, balances between the funds included in business‐type  activities are eliminated so that only the net amount is included as transfers in the  business‐type activities column.    D. Measurement Focus and Basis of Accounting     The accounting and financial reporting treatment is determined by the applicable  measurement focus and basis of accounting. Measurement focus indicates the type  of resources being measured such as current financial resources or economic resources.  The basis of accounting indicates the timing of transactions or events for recognition  in the financial statements.    The government‐wide financial statements are reported using the economic resources  measurement focus and the accrual basis of accounting. Revenues are recorded when  earned and expenses are recorded when a liability is incurred, regardless of the  timing of related cash flows. Property taxes are recognized as revenues in the year  for which they are levied. Grants and similar items are recognized as revenue as  soon as all eligibility requirements imposed by the provider have been met.    The governmental fund financial statements are reported using the current financial  resources measurement focus and the modified accrual basis of accounting. Revenues are  recognized as soon as they are both measurable and available. Revenues are  considered to be available when they are collectible within the current period or  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  38  soon enough thereafter to pay liabilities of the current period. For this purpose, the  government considers revenues to be available if they are collected within 60 days  of the end of the current fiscal period. Expenditures generally are recorded when a  liability is incurred, as under accrual accounting. However, debt service  expenditures, as well as expenditures related to compensated absences, and claims  and judgments, are recorded only when payment is due. General capital asset  acquisitions are reported as expenditures in governmental funds. Issuance of long‐ term debt and acquisitions under capital leases are reported as other financing  sources.    Property taxes, sales taxes, franchise taxes, licenses, and interest associated with the  current fiscal period are all considered to be susceptible to accrual and so have been  recognized as revenues of the current fiscal period. Entitlements are recorded as  revenues when all eligibility requirements are met, including any time  requirements, and the amount is received during the period or within the  availability period for this revenue source (within 60 days of year end).  Expenditure‐driven grants are recognized as revenue when the qualifying  expenditures have been incurred and all other eligibility requirements have been  met, and the amount is received during the period or within the availability period  for this revenue source (within 60 days of year end). All other revenue items are  considered to be measurable and available only when cash is received by the  government.    E. Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net  Position/Fund Balance    1. Deposits and Investments    The City’s cash and cash equivalents are considered to be cash on hand, demand  deposits and short term investments with original maturities of three months or less  from the date of acquisition.  For the purpose of the statement of cash flows, the  proprietary fund types consider temporary investments with maturity of three  months or less when purchased to be cash equivalents.    In accordance with GASB Statement No. 31, Accounting and Reporting for Certain  Investments and External Investment Pools, the City reports all investments at fair  value, except for “money market investments” and “2a7‐like pools.”  Money market  investments, which are short‐term highly liquid debt instruments that may include  U.S. Treasury and agency obligations, are reported at amortized costs.  Investment  positions in external investment pools that are operated in a manner consistent with  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  39  the SEC’s Rule 2a7 of the Investment Company Act of 1940, such as TexPool, are  reported using the pools’ share price.    The City has adopted a written investment policy regarding the investment of its  funds as defined in the Public Funds Investment Act, Chapter 2256, of the Texas  Governmental Code.  In summary, the City is authorized to invest in the following:    Direct obligations of the U.S. Government  Fully collateralized certificates of deposit and money market accounts  Statewide investment pools    2. Fair Value    As of September 30, 2016, the City has applied Governmental Accounting  Standards Board (“GASB”) Statement No. 72, Fair Value Measurement and  Application. GASB Statement No. 72 provides guidance for determining a fair value  measurement for reporting purposes and applying fair value to certain investments  and disclosures related to all fair value measurements.    3. Receivables and Interfund Transactions    Transactions between funds that are representative of lending/borrowing  arrangements outstanding at the end of the year are referred to as either “interfund  receivables/payables” (i.e., the current portion of interfund loans) or “advances  to/from other funds” (i.e., the non‐current portion of interfund loans).  All other  outstanding balances between funds are reported as “due to/from other funds” in  the fund financial statements.  If the transactions are between the primary  government and its component unit, these receivables and payables are classified as  “due to/from component unit/primary government.”  Any residual balances  outstanding between the governmental activities and business‐type activities are  reported in the government‐wide financial statements as “internal balances.”    Advances between funds are offset by a fund balance reserve account in the  applicable governmental fund to indicate they are not available for appropriation  and are not expendable available financial resources.    All trade receivables are shown net of any allowance for uncollectible amounts.          City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  40  4. Property Taxes    Property taxes are levied by October 1 on the assessed value listed as of the prior  January 1 for all real and business personal property in conformity with Subtitle E,  Texas Property Tax Code. Taxes are due on receipt of the tax bill and are delinquent  if not paid before February 1 of the year following the year in which imposed.  Penalties are calculated after February 1 up to the date collected by the government  at the rate of 6% for the first month and increased 1% per month up to a total of  12%. Interest is calculated after February 1 at the rate of 1% per month up to the  date collected by the government. Under state law, property taxes levied on real  property constitute a lien on the real property which cannot be forgiven without  specific approval of the State Legislature. The lien expires at the end of twenty  years. Taxes levied on personal property can be deemed uncollectible by the City.    5. Inventories and Prepaid Items    The costs of governmental fund type inventories are recorded as expenditures when  the related liability is incurred, (i.e., the purchase method).  The inventories are  valued at the lower of cost or market using the first‐in/first‐out method. Certain  payments to vendors reflect costs applicable to future accounting periods (prepaid  expenditures) are recognized as expenditures when utilized.     6. Capital Assets    Capital assets, which include property, plant, equipment, and infrastructure assets  (e.g., roads, bridges, sidewalks, and similar items) are reported in the applicable  governmental or business‐type activities columns in the government‐wide financial  statements.  Capital assets are defined by the government, as assets with an initial  individual cost of more than $5,000 and an estimated useful life in excess of one  year.  Such assets are recorded at historical cost or estimated historical cost if  purchased or constructed.  Donated capital assets are recorded at estimated fair  market value at the date of donation.  Major outlays for capital assets and  improvements are capitalized as projects are constructed.    Interest costs incurred in connection with construction of enterprise fund capital  assets are capitalized when the effects of capitalization materially impact the  financial statements.    The costs of normal maintenance and repairs that do not add to the value of the  asset or materially extend assets’ lives are not capitalized.    City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  41  Property, plant, and equipment of the primary government, as well as the  component units, are depreciated using the straight‐line method over the following  estimated useful years.        Asset Description   Estimated   Useful Life  Vehicles  5‐10 years  Furniture and equipment  5 to 10 years  Infrastructure  10‐30 years  Water and sewer system  10‐30 years  Buildings and improvements  5‐40 years      7. Deferred Outflows/Inflows of Resources    In addition to assets, the statement of financial position will sometimes report a  separate section for deferred outflows of resources. This separate financial  statement element, deferred outflows of resources, represents a consumption of net  position that applies to a future period(s) and so will not be recognized as an  outflow of resources (expense/ expenditure) until then. An example is a deferred  charge on refunding reported in the government‐wide statement of net position. A  deferred charge on refunding results from the difference in the carrying value of  refunded debt and its reacquisition price. This amount is deferred and amortized  over the shorter of the life of the refunded or refunding debt.    In addition to liabilities, the statement of financial position will sometimes report a  separate section for deferred inflows of resources. This separate financial statement  element, deferred inflows of resources, represents an acquisition of net position that  applies to a future period(s) and so will not be recognized as an inflow of resources  (revenue) until that time. The government has only one type of item, which arises  only under a modified accrual basis of accounting, which qualifies for reporting in  this category. Accordingly, the item, unavailable revenue, is reported only in the  governmental funds balance sheet. The governmental funds report unavailable  revenues from two sources: property taxes and EMS revenues. These amounts are  deferred and recognized as an inflow of resources in the period that the amounts  become available.    8. Net Position Flow Assumption    Sometimes the government will fund outlays for a particular purpose from both  restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In  order to calculate the amounts to report as restricted – net position and unrestricted  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  42  – net position in the government‐wide and proprietary fund financial statements, a  flow assumption must be made about the order in which the resources are  considered to be applied.    9. Fund Balance Flow Assumptions    Sometimes the government will fund outlays for a particular purpose from both  restricted and unrestricted resources (the total of committed, assigned, and  unassigned fund balance). In order to calculate the amounts to report as restricted,  committed, assigned, and unassigned fund balance in the governmental fund  financial statements a flow assumption must be made about the order in which the  resources are considered to be applied. It is the government’s policy to consider  restricted fund balance to have been depleted before using any of the components  of unrestricted fund balance. Further, when the components of unrestricted fund  balance can be used for the same purpose, committed fund balance is depleted first,  followed by assigned fund balance. Unassigned fund balance is applied last.    10. Fund Balance Policies    Fund balance of governmental funds is reported in various categories based on the  nature of any limitations requiring the use of resources for specific purposes. The  government itself can establish limitations on the use of resources through either a  commitment (committed fund balance) or an assignment (assigned fund balance).    The committed fund balance classification includes amounts that can be used only  for the specific purposes determined by a formal action of the government’s highest  level of decision‐making authority. The governing council is the highest level of  decision‐making authority for the government that can, by adoption of an  ordinance prior to the end of the fiscal year, commit fund balance. Once adopted,  the limitation imposed by the ordinance remains in place until a similar action is  taken (the adoption of another ordinance) to remove or revise the limitation.    Amounts in the assigned fund balance classification are intended to be used by the  government for specific purposes but do not meet the criteria to be classified as  committed. The governing body (council) has by resolution authorized the City  Manager to assign fund balance. The Council may also assign fund balance as it  does when appropriating fund balance to cover a gap between estimated revenue  and appropriations in the subseq uent year’s appropriated budget. Unlike  commitments, assignments generally only exist temporarily. In other words, an  additional action does not normally have to be taken for the removal of an  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  43  assignment. Conversely, as discussed above, an additional action is essential to  either remove or revise a commitment.    11. Compensated Absences    The liability for compensated absences reported in the government‐wide and  proprietary fund statements consist of unpaid, accumulated vacation balances. The  liability has been calculated using the vesting method, in which leave amounts for  both employees who currently are eligible to receive termination payments and  other employees who are expected to become eligible in the future to receive such  payments upon termination are included. Vested or accumulated vacation leave  and compensated leave of government‐wide and proprietary funds are recognized  as an expense and liability of those funds as the benefits accrue to employees.    It is the Cityʹs policy to liquidate compensated absences with future revenues rather  than with currently available expendable resources. Accordingly, the Cityʹs  governmental funds recognize accrued compensated absences when it is paid.    12. Long‐Term Obligations    In the government‐wide financial statements, long‐term debt and other long‐term  obligations are reported as liabilities in the applicable governmental activities  statement of net position. The long‐term debt consists primarily of bonds payable  and accrued compensated absences.    Long‐term debt for governmental funds is not reported as liabilities in the fund  financial statements until due. The debt proceeds are reported as other financing  sources, net of the applicable premium or discount and payments of principal and  interest reported as expenditures.  In the governmental fund types, issuance costs,  even if withheld from the actual net proceeds received, are reported as debt service  expenditures.  However, claims and judgments paid from governmental funds are  reported as a liability in the fund financial statements only for the portion expected  to be financed from expendable available financial resources.    Long‐term debt and other obligations, financed by proprietary funds, are reported  as liabilities in the appropriate funds.  For proprietary fund types, bond premiums,  and discounts are deferred and amortized over the life of the bonds using the  effective interest method, if material.  Bonds payable are reported net of the  applicable bond premium or discount.  Issuance costs are expensed as incurred in  accordance with GASB statement no. 65.    City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  44  Assets acquired under the terms of capital leases are recorded as liabilities and  capitalized in the government‐wide financial statements at the present value of net  minimum lease payments at inception of the lease.  In the year of acquisition, capital  lease transactions are recorded as other financing sources and as capital outlay  expenditures in the general fund.  Lease payments representing both principal and  interest are recorded as expenditures in the general fund upon payment with an  appropriate reduction of principal recorded in the government‐wide financial  statements.    13. Estimates    The preparation of financial statements, in conformity with generally accepted  accounting principles, requires management to make estimates and assumptions  that affect the reported amounts of assets and liabilities and disclosure of contingent  assets and liabilities at the date of the financial statements and the reported  amounts of revenues and expenditures/expenses during the reporting period.   Actual results could differ from those estimates.    14. Pensions    For purposes of measuring the net pension liability, deferred outflows of resources  and deferred inflows of resources related to pensions, and pension expense,  information about the Fiduciary Net Position of the Texas Municipal Retirement  System (TMRS) and additions to/deductions from TMRS’s Fiduciary Net Position  have been determined on the same basis as they are reported by TMRS. For this  purpose, plan contributions are recognized in the period that compensation is  reported for the employee, which is when contributions are legally due. Benefit  payments and refunds are recognized when due and payable in accordance with  the benefit terms. Investments are reported at fair value.    II. 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 position.    The governmental fund balance sheet includes reconciliation between fund balance‐ total governmental funds and net position‐governmental activities as reported in the  government‐wide statement of net position.  One element of that reconciliation  explains that long‐term liabilities, including bonds, are not due and payable in the  current period and, therefore, are not reported in the funds.  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  45  B. Explanation of certain differences between the governmental fund statement of  revenues, expenditures, and changes in fund balances and the government‐wide  statement of activities.    The governmental fund statement of revenues, expenditures, and changes in fund  balances includes a reconciliation between net changes in fund balances – total  governmental funds and changes in net position of governmental states that, “the  issuance of long‐term debt (e.g., bonds) 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.  Also,  governmental funds report the effect of premiums, discounts, and similar items  when debt is first issued, whereas these amounts are deferred and amortized in the  statement of activities.”      III.  STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY    Annual budgets are adopted on a basis consistent with generally accepted  accounting principles for all governmental and enterprise funds.     The appropriated budget is prepared by fund, function, and department. The legal  level of control is the fund level. No funds can be transferred or added to a  budgeted item without Council approval.  Appropriations lapse at the end of the  year. Budget amendments were only re‐classes at the function level and below and  there was no increase in budgeted revenues or expenses by function from  amendments.     A.  Deficit Fund Equity    The internal service fund had a deficit balance of $140,138 as of September 30, 2016  due to the net pension liability balance exceeding total assets.  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  46  IV.  DETAILED NOTES ON ALL FUNDS     A.  Deposits and Investments    As of September 30, 2016, the primary government had the following investments:    Investment Type Certificates of deposit $ 1,615,948 0.48 Total fair value $ 1,615,948 Portfolio weighted average maturity 0.48 Average Maturity Fair Value  (Years)     Interest rate risk – In accordance with its investment policy, the City manages its  exposure to declines in fair values by limiting the weighted average of maturity not  to exceed five years; structuring the investment portfolio so that securities mature to  meet cash requirements for ongoing operations; monitoring credit ratings of  portfolio position to assure compliance with rating requirements imposed by the  Public Funds Investment Act;  and invest operating funds primarily in short‐term  securities or similar government investment pools.    Credit risk – The City’s investment policy limits investments to obligations of the  United States, State of Texas, or their agencies and instrumentalities with an  investment quality rating of not less than “A” or its equivalent, by a nationally  recognized investment rating firm. Other obligations must be unconditionally  guaranteed (either express or implied) by the full faith and credit of the United  States Government or the issuing U.S. agency and investment pools with an  investment quality not less than AAA or AAA‐m, or equivalent, by at least one  nationally recognized rating service.     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.  State statutes require  that all deposits in financial institutions be insured or fully collateralized by U.S.  government obligations or its agencies and instrumentalities or direct obligations of  Texas or its agencies and instrumentalities that have a market value of not less than  the principal amount of the deposits. As of September 30, 2016, the market values of  pledged securities and FDIC exceeded bank balances.     Custodial credit risk – investments  For an investment, this is the risk that, in the event  of the 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.   The City’s investment policy requires that it will seek to safekeeping securities at  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  47  financial institutions, avoiding physical possession.  Further, all trades, where  applicable, are executed by delivery versus payment to ensure that securities are  deposited in the City’s safekeeping account prior to the release of funds.      B.  Receivables     The following comprise receivable balances of the primary government at year end:    Property taxes $ 75,799 $ 31,347 $‐                  $‐                      $‐                    $ 107,146          Sales tax 145,729 ‐                  62,430        62,430             ‐                    270,589          Franchise & local taxes 33,799 ‐                  ‐                  ‐                      ‐                    33,799            EMS 449,032 ‐                  ‐                  ‐                      ‐                    449,032          Accounts 123,705 ‐                  26,222        ‐                      1,906,200 2,056,127       Other 62 ‐                  ‐                  ‐                      ‐                    62                   Allowance (311,054)     (11,145)       ‐                  ‐                      (189,389)       (511,588)        $ 517,072      $ 20,202        $ 88,652        $ 62,430            $ 1,716,811      $ 2,405,167       4A Fund 4B Fund Total Water, Sewer & ElectricService Debt General                                               City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  48  C.  Capital Assets    A summary of changes in governmental activities capital assets for the year end  was as follows:    Capital assets, not being depreciated: Land $ 1,044,933            $‐                        $‐                         $ 1,044,933        Construction in progress 567,694               486,581             (81,750)               972,525           1,612,627 486,581 (81,750) 2,017,458 Capital assets, being depreciated: Infrastructure 11,853,211          103,314             1,863                  11,958,388      Buildings and improvements 7,086,986            30,837                ‐                         7,117,823        Machinery and equipment 3,486,768            301,149             (130,358)             3,657,559        22,426,965 435,300 (128,495) 22,733,770 Less accumulated depreciation Infrastructure 5,485,959            330,942             ‐                         5,816,901        Buildings and improvements 1,617,823            318,109             ‐                         1,935,932        Machinery and equipment 1,828,732            396,223             ‐                         2,224,955        Total accumulated depreciation 8,932,514 1,045,274 ‐                         9,977,788 Net capital assets being depreciated 13,494,451          (609,974)           (128,495)             12,755,982      $ 15,107,078          $ (123,393)           $ (210,245)             $ 14,773,440      Beginning Ending Balances Increases Total Capital Assets Total capital assets not being depreciated Total capital assets being depreciated BalancesReclassifications   Depreciation was charged to governmental functions as follows:    General government $ 91,479                  Public safety 301,930                Public works 370,115                Culture and recreation 280,251                Internal service fund 1,499                    $ 1,045,274            Total Governmental Activities Depreciation Expense                 City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  49  A summary of changes in business‐type activities capital assets for the year end  was as follows:    Capital assets, not being depreciated: Land $ 323,164            $ 173,693            $‐                         $ 496,857             Construction in progress 1,980,103         2,418,943         (949,090)             3,449,956          Total capital assets not being depreciated 2,303,267         2,592,636         (949,090)             3,946,813          Capital assets, being depreciated: Infrastructure 22,617,455       ‐                        949,090              23,566,545        Buildings and improvements 865,245            ‐                        ‐                         865,245             Machinery and equipment 1,742,577         129,789            210,245              2,082,611          Total capital assets being depreciated 25,225,277       129,789            1,159,335           26,514,401        Less accumulated depreciation Infrastructure 12,965,356       651,802            ‐                         13,617,158        Buildings and improvements 367,713            51,855              ‐                         419,568             Machinery and equipment 1,271,738         107,406            ‐                         1,379,144          Total accumulated depreciation 14,604,807       811,063            ‐                         15,415,870        Net capital assets being depreciated 10,620,470       (681,274)           1,159,335           11,098,531        $ 12,923,737       $ 1,911,362         $ 210,245              $ 15,045,344       Total Capital Assets Beginning Ending Balances Increases Reclassifications Balances   Depreciation was charged to business‐type activities as follows:    Water $ 282,736 Sewer 232,995 Electric 276,487 Other 18,845 $ 811,063              Total Business‐type Activities Depreciation Expense                     City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  50  D.   Long‐term Debt    The following is a summary of changes in the City’s total governmental long‐term  liabilities for the year ended. The City uses the debt service fund to liquidate  governmental activities debts.  Governmental Activities: Bonds, notes and other payables: General Obligation Bonds $ 972,400     $ 1,166,100 $ (191,700)    $‐                  $ 1,946,800      $ 372,500    Certificates of Obligation 4,596,100   ‐               (428,600)    (1,202,900) 2,964,600      224,300    Less deferred amounts: For issuance premiums 68,199       98,406     (12,545)      (6,952)        147,108         ‐                5,636,699  1,264,506 (632,845)    (1,209,852) 5,058,508      596,800    Other liabilities: Notes payable 439,448      ‐                 (42,997)        ‐                   396,451         43,949        Capital leases payable 930,341     ‐               (194,056)    ‐                  736,285        162,680    Compensated absences 144,454     135,950   (115,902)    ‐                  164,502        148,052    $ 7,150,942   $ 1,400,456  $ (985,800)      $ (1,209,852)   $ 6,355,746      $ 951,481      Long‐term liabilities due in more than one year $ 5,404,265       Business‐Type Activities: General Obligation Bonds $ 1,237,600  $ 1,368,900 $ (243,300)    $‐                  $ 2,363,200      $ 452,500    Certificates of Obligation 5,943,900  5,870,000 (446,400)    (1,412,100) 9,955,400      305,700    Less deferred amounts: For issuance premiums 301,170     494,741   (44,659)      (8,161)        743,091        ‐                7,482,670  7,733,641 (734,359)    (1,420,261) 13,061,691    758,200    Other liabilities: Capital leases payable 159,427     ‐               (118,176)    ‐                  41,251          41,251      Compensated absences 79,493       67,990     (65,213)      82,270          74,044      $ 7,721,590   $ 7,801,631  $ (917,748)      $$ 13,185,212    $ 873,495      Long‐term liabilities due in more than one year $ 12,311,717     Amounts Beginning Amortization/Ending Due within Balance Additions Payments Balance Total Business‐Type  Activities One Year Total Governmental  Activities Refunded   City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  51  Long‐term liabilities applicable to the City’s governmental activities are not due  and payable in the current period and accordingly, are not reported as fund  liabilities in the governmental funds.  Interest on long‐term debt is not accrued in  governmental funds, but rather is recognized as an expenditure when due.  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  52  Long‐term debt at year end was comprised of the following debt issues:  General Obligation Bonds: $3,495,000 General Obligation Refunding Bond, Series 2012, due in   installments through 2021, interest at 2% to 3% $ 787,600      $ 1,002,400      $1,790,000     $2,535,000 General Obligation Refunding Bond, Series 2016, due in   installments through 2021, interest at 2% to 4% 1,159,200   1,360,800      2,520,000     $ 1,946,800   $ 2,363,200      $4,310,000     Certificates of Obligation: $1,750,000 Certificates of Obligation, Series 2007,  due in annual installments through 2027, interest at 4.4%$ 391,000      $759,000         $1,150,000     $3,200,000 Certificates of Obligation, Series 2009,  due in annual installments through 2026, interest at 3% to 4.75%2,120,000   ‐                     2,120,000     $4,260,000 Certificates of Obligation, Series 2013,  due in annual installments through 2033, interest at 2% to 3.7%453,600      3,326,400      3,780,000     $5,870,000 Certificates of Obligation, Series 2015,  due in annual installments through 2035, interest at 3.4% to 5.5%‐                 5,870,000      5,870,000     $ 2,964,600   $ 9,955,400      $ 12,920,000   Less deferred amounts: Issuance premium $ 147,108      $743,091         $890,199        $ 147,108      $743,091         $890,199        Notes Payable: $660,000 Notes payable to a financial institution, due in monthly installments of $5,106 through June 2024, including interest at 4.6% $ 396,451      $‐                     $396,451        $ 396,451      $‐                     $396,451        Capital Leases Payable: $190,309 Capital lease payable to financial institution, due in annual installments of $50,235 through 2017, interest at 2.89%$‐                 $41,251           $41,251          $435,000 Capital lease payable to financial institution, due in annual installments of $51,535 through 2024, interest at 3.346%356,075      ‐                     356,075        $500,000 Capital lease payable to financial institution, due in annual installments of $134,279 through 2019, interest at 2.947%380,210      ‐                     380,210        $ 736,285      $41,251           $777,536        Compensated Absences 164,502      82,270           246,772        $ 6,355,746   $ 13,185,212    $ 19,540,958  Total Long‐term Liabilities Total Business ‐ Total General Obligation Bonds Total Certificates of Obligation Governmental Type Activities Activities Total Deferred Amounts Total Notes Payable  Total Capital Leases Payable    City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  53  The annual requirements to amortize governmental and business‐type activities  debt issues outstanding at year ending were as follows:    General Obligation Bonds    Year ending September 30, 2017 $ 372,500            $ 64,416            $ 452,500          $ 77,834              2018 377,000            55,426            458,000          66,824              2019 392,800            41,908            477,200          50,492              2020 410,900            27,824            499,100          33,476              2021 393,600            13,929            476,400          16,746              $ 1,946,800         $ 203,503          $ 2,363,200       $ 245,372            Principal Interest Principal Interest Governmental Activities Business‐Type Activities                                                     City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  54  Combination Tax and Revenue Certificates of Obligations    Year ending September 30, 2017 $ 224,300            $ 128,067            $ 305,700            $ 365,408             2018 229,900            119,387          325,100          357,798            2019 241,600            110,391          328,400          349,179            2020 248,900            100,919          331,100          339,916            2021 261,200            91,050            408,800          328,055            2022 273,500            79,919            531,500          313,142            2023 286,400            68,258            533,600          296,377            2024 297,000            55,768            543,000          279,277            2025 309,300            42,686            560,700          260,919            2026 323,900            28,194            586,100          240,113            2027 71,800              13,024              608,200            217,921             2028 28,800              9,768              541,200          193,557            2029 30,600              8,400                564,400            171,800             2030 31,800              6,870              588,200          147,974            2031 33,600              5,280              616,400          122,720            2032 35,400              3,600              639,600          96,338              2033 36,600              1,830              663,400          68,826              2034 ‐                       ‐                      410,000          40,313              2035 ‐                       ‐                      425,000          24,656              2036 ‐                       ‐                      445,000          8,344                $ 2,964,600         $ 873,412          $ 9,955,400       $ 4,222,631         Governmental Activities Business‐Type Activities Principal Interest Principal Interest   General obligation bonds are direct obligations of the City for which its full faith  and credit are pledged. Repayment of general obligation bonds are from taxes  levied on all taxable property located within the City. The City is not obligated in  any manner for special assessment debt.                      City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  55  Capital Leases    Year ending September 30, 2017 $ 162,680            $ 23,135            $ 41,251            $ 1,411                2018 167,632            18,182             ‐                        ‐                        2019 172,736            13,079             ‐                        ‐                        2020 43,716              7,819               ‐                        ‐                        2021 45,179              6,357               ‐                        ‐                        2022 46,690              4,845               ‐                        ‐                        2023 48,252              3,283               ‐                        ‐                        2024 49,400              1,668               ‐                        ‐                        $ 736,285            $ 78,368            $ 41,251            $ 1,411                Business‐Type Activities Principal Interest Governmental Activities Principal Interest     The City has entered into capital lease agreements. The leased property under  capital leases is classified as machinery and equipment with a total carrying value  net of depreciation of approximately $956,406 as of year end.    Note Payable    Year ending September 30, 2017 $ 43,949            $ 17,318              2018 46,014            15,253              2019 48,176            13,091              2020 50,439            10,828              2021 52,809            8,458                2022 55,290            5,977                2023 57,887            3,380                2024 41,887            4,063                $ 396,451          $ 78,368              Governmental Activities Principal Interest     E. Conduit Debt    From time to time, the City has issued notes payable for the purpose of assisting  with financing needed by not‐for‐profit organizations to promote their cause. The  notes are secured by the property financed and are payable solely from payments  received on the underlying loans. Upon repayment of the notes, ownership of the  acquired facilities transfers to the not‐for‐profit entity served by the note issuance.   City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  56    The City has no liability for the notes payable in the event of default by the  borrowers. Accordingly, the bonds are not reported as liabilities in the City’s  financial statements.    F. Deferred Charge on Refunding    Deferred charges resulting from the issuance of the 2012 and 2016 general  obligation refunding bonds have been recorded as a deferred outflow of resources  and are being amortized to interest expense over the terms of the respective  refunded debts. Current year balances for governmental and business‐type  activities totaled $33,787 and $59,153, respectively. Current year amortization  expense for governmental and business‐type activities totaled $4,909 and $9,977,  respectively.    G. Advance Refunding    On June 13, 2016, the City issued $2,535,000 in general obligation refunding bonds  with an interest rate of 2 ‐ 4%. The proceeds were used to advance refund $2,615,000  of outstanding 2006 combination tax and revenue certificates of obligation which  had an interest rate ranging from 4% to 5%. The net proceeds of $2,666,396 (after  payment of $82,530 in underwriting fees and other issuance costs) were deposited  in an irrevocable trust with an escrow agent to provide funds for the future debt  service payment on the refunded bonds. As a result, the obligations are considered  defeased and the liability for those bonds has been removed from the statement of  net position.    The reacquisition price exceeded the net carrying amount of the old debt by $36,283.  This amount is being amortized over the remaining life of the refunding debt. This  advance refunding reduced its total debt service payments by $140,422 and resulted  in an economic gain (difference between the present values of the debt service  payments on the old and new debt) of $135,810.                    City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  57  H. Interfund Transactions     Amounts transferred between funds relate to amounts collected, various capital  expenditures, annual funding, and debt payments.    Transfer out: General $‐                  $‐                  $‐                    $390,000         $ 230,937        1 $ 531,800      $ 1,152,737    4A ‐                   ‐                  ‐                    175,000         ‐                    ‐                  175,000       4B ‐                  212,500      25,000          110,000         ‐                    ‐                  347,500       Debt Service 166,536      ‐                  ‐                    ‐                    ‐                    ‐                  166,536       Enterprise 986,003      4,858          25,000          ‐                    ‐                    917,000      1,932,861    $ 1,152,539   $ 217,358      $ 50,000          $675,000         $ 230,937        $ 1,448,800   $ 3,774,634    1 ‐ This value is after full conversion to the accrual method. For the general fund, this balance is greater than the amount reported within the  governmental funds statement of revenues, expenditures, and changes in fund balance by $210,245. This amount is only recognized at the  government wide level for the general fund, and is due to the amount of capital assets transferred from the general fund to the water, sewer, and  electric fund.  General Debt Service  4A Total Transfer In  Internal  Service   Enterprise   Capital  Projects    I.  Fund Equity     The City records fund balance restrictions on the fund level to indicate that a  portion of the fund balance is legally restricted for a specific future use or to  indicate that a portion of the fund balance is not available for expenditures.     The following is a list of fund balances restricted/committed by the City:    Municipal court $ 7,971              $‐                        Tourism 9,480              ‐                        Library 79,393            ‐                        Public safety 23,385            ‐                        Debt service 404,096          ‐                        Capital projects 1,030,871       ‐                        Economic development 2,626,680       ‐                        Employee benefits ‐                      30,334             $ 4,181,876       $ 30,334             Restricted Committed         City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  58  V.  OTHER INFORMATION    A. Risk Management    The City is exposed to various risks of loss related to torts; theft of, damage to and  destruction of assets, errors and omissions; and natural disasters for which the City  participates along with 2,800 other entities in the Texas Municipal League’s  Intergovernmental Risk Pools.  The Pool purchases commercial insurance at group  rates for participants in the Pool.  The City has no additional risk or responsibility to  the Pool outside of the payment of insurance premiums.  The City has not  significantly reduced insurance coverage or had settlements which exceeded  coverage amounts for the past three years.    B. Contingent Liabilities    Amounts received or receivable from granting agencies are subject to audit and  adjustment by grantor agencies, principally the federal government.  Any  disallowed claims, including amounts already collected, may constitute a liability of  the applicable funds.  The amounts of expenditures which may be disallowed by the  grantor cannot be determined at this time although the City expects such amounts,  if any, to be immaterial.    Liabilities are reported when it is probable that a loss has occurred and the amount  of the loss can be reasonably estimated.  Liabilities include an amount for claims  that have been incurred but not reported.  Claim liabilities are calculated  considering the effects of inflation, recent claim settlement trends, including  frequency and amount of payouts, and other economic and social factors.                              City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  59  C. Construction commitments    The government has active construction projects as of September 30, 2016. The  projects include street construction and improvements, sewer plant and the  construction of additional water lines and repairs. At year end the government’s  commitments with contractors are as follows:    Project McReynolds Road Reconstruction Pacheco Koch, LLC $ 17,473           McReynolds Road Reconstruction HRM Land Acquisition 397                17,870           Server Consolidation Austin Lane Technology 20,166           20,166 Church building restoration Eikon Consultant 10,159 Cima 7,996 Mabak Directional 10,000 28,155 Capital improvement plan Perkins Engineering 30,633 12ʺ Water Line Chapman to Belz Pacheco Koch, LLC 3,092 12ʺ Water Line Chapman to Belz Card Services 255 Water Line Lois to View Pacheco Koch, LLC 7,390 Water Well and Ground Storage Cory Miller Drilling 39,729 Water Well and Ground Storage Perkins Engineering 64,830 Water Well and Ground Storage Vessels Construction 622,714 15ʺ Line Chapman to Belz Pacheco Koch, LLC 3,715 15ʺ Line Chapman to Belz Card Services 255 WWL FM455 to Lois Pacheco Koch LLC 91,097 WWL FM455 to Lois HRM Land Acquisition 14,858 12ʺ Line Lois to View Pacheco Koch LLC 25,709 New Sewer Plant Alan Plummer Associates 8,067 912,344 $ 978,535 Remaining  CommitmentVendor Total Project Total Project Total Project Total Project Total     City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  60  D. Related Party Activity    On March 1, 2012, the City entered into a non‐cancelable lease agreement with a  corporation of which a former city council member is a principal member of  management. The leased property is owned by the 4A Fund and has a cost  $1,083,797 with accumulated depreciation of $253,145 as of September 30, 2016. The  lease provides for a base rent and an adjustment each year related to excess  operating expenses (if any) incurred annually. The lease was continued on a month  to month basis beginning in July 2015. On January 6, 2017, the City terminated the  lease agreement.    During the year ended September 30, 2016, the City recognized $78,667 in rental  revenue from this lease. As of September 30, 2016 the City had a receivable from  this company for $26,222.     E. Arbitrage     The Tax Reform Act of 1986 instituted certain arbitrage consisting of complex  regulations with respect to issuance of tax‐exempt bonds after August 31, 1986.   Arbitrage regulations deal with the investment of tax‐exempt bond proceeds at an  interest yield greater than the interest yield paid to bondholders.  Generally, all  interest paid to bondholders can be retroactively rendered taxable if applicable  rebates are not reported and paid to the Internal Revenue Service at least every five  years for applicable bond issues.  Accordingly, there is the risk that if such  calculations are not performed correctly, a substantial liability to the City could  result.  The City does anticipate that it will have an arbitrage liability and performs  annual calculations to estimate this potential liability.   The City will also engage an  arbitrage consultant to perform the calculations in accordance with Internal  Revenue Service’s rules and regulations if indicated.    F. Defined Benefit Pension Plans    1.   Plan Description    The City of Sanger, Texas participates as one of 866 plans in the nontraditional, joint  contributory, hybrid defined benefit pension plan administered by the Texas  Municipal Retirement System (TMRS). TMRS is an agency created by the State of  Texas and administered in accordance with the TMRS Act, Subtitle G, Title 8, Texas  Government Code (the TMRS Act) as an agent multiple‐employer retirement  system for municipal employees in the State of Texas. The TMRS Act places the  general administration and management of the System with a six‐member Board of  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  61  Trustees. Although the Governor, with the advice and consent of the Senate,  appoints the Board, TMRS is not fiscally dependent on the State of Texas. TMRS’s  defined benefit pension plan is a tax‐qualified plan under Section 401 (a) of the  Internal Revenue Code. TMRS issues a publicly available comprehensive annual  financial report (CAFR) that can be obtained at www.tmrs.com.    All eligible employees of the city are required to participate in TMRS.    2.  Benefits Provided    TMRS provides retirement, disability, and death benefits. Benefit provisions are  adopted by the governing body of the city, within the options available in the state  statutes governing TMRS.    At retirement, the benefit is calculated as if the sum of the employee’s contributions,  with interest, and the city‐financed monetary credits with interest were used to  purchase an annuity. Members may choose to receive their retirement benefit in one  of seven payments options. Members may also choose to receive a portion of their  benefit as a Partial Lump Sum Distribution in an amount equal to 12, 24, or 36  monthly payments, which cannot exceed 75% of the member’s deposits and  interest.    The plan provisions are adopted by the governing body of the City, within the  options available in the state statutes governing TMRS. Plan provisions for the City  were as follows:     Plan Year 2015 Plan Year 2016  Employee deposit rate 6.0% 6.0%  Matching ratio (city to  employee)  2 to 1 2 to 1  Years required for vesting 5 5  Service retirement eligibility  (expressed as age / years of  service)  60/5, 0/25 60/5, 0/25  Updated service credit 100% Repeating Transfers 100% Repeating Transfers  Annuity increase (to retirees) 0% of CPI  0% of CPI             City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  62  Employees covered by benefit terms    At the December 31, 2015 valuation and measurement date, the following  employees were covered by the benefit terms:    Inactive employees or beneficiaries currently receiving benefits 12  Inactive employees entitled to but not yet receiving benefits 22  Active employees 65  Total 99     3.  Contributions    The contribution rates for employees in TMRS are either 5%, 6%, or 7% of employee  gross earnings, and the city matching percentages are either 100%, 150%, or 200%,  both as adopted by the governing body of the City. Under the state law governing  TMRS, the contribution rate for each city is determined annually by the actuary,  using the Entry Age Normal (EAN) actuarial cost method. The actuarially  determined rate is the estimated amount necessary to finance the cost of benefits  earned by employees during the year, with an additional amount to finance any  unfunded accrued liability.    Employees for the City of Sanger were required to contribute 6% of their annual  gross earnings during the fiscal year. The contribution rates for the City of Sanger  were 7.09% and 7.13% in calendar years 2015 and 2016, respectively. The City’s  contributions to TMRS for the year ended September 30, 2016, were $247,432, and  were equal to the required contributions.    4.  Net Pension Liability    The City’s Net Pension Liability (NPL) was measured as of December 31, 2015, and  the Total Pension Liability (TPL) used to calculate the Net Pension Liability was  determined by an actuarial valuation as of that date.                    City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  63  Actuarial assumptions:    The Total Pension Liability in the December 31, 2015 actuarial valuation was  determined using the following actuarial assumptions:    Inflation         2.5% per year  Overall payroll growth      3.0% per year  Investment Rate of Return    6.75%, net of pension plan investment expense,    including inflation        Salary increases were based on a service‐related table. Mortality rates for active  members, retirees, and beneficiaries were based on the gender‐distinct RP2000  Combined Healthy Mortality Table, with male rates multiplied by 109% and female  rates multiplied by 103%. The actuarial assumptions were developed primarily  from the actuarial investigation of the experience of TMRS over the four year period  from December 31, 2010 to December 31, 2014. They were adopted in 2015 and first  used in the December 31, 2015 actuarial valuation. The post‐retirement mortality  assumption for healthy annuitants and Annuity Purchase Rate (APRs) are based on  the Mortality Experience Investigation Study covering 2009 through 2011 and dated  December 31, 2013. In conjunction with these changes first used in the December 31,  2013 valuation, the System adopted the Entry Age Normal actuarial cost method  and a one‐time change to the amortization policy. The rates are projected on a fully  generational basis by scale BB to account for future mortality improvements. For  disabled annuitants, the gender‐distinct RP2000 Disabled Retiree Mortality Table  with Blue Collar Adjustment are used with males rates multiplied by 109% and  female rates multiplied by 103% with a 3‐year set‐forward for both males and  females. In addition, a 3% minimum mortality 16 rate is applied to reflect the  impairment for younger members who become disabled. The rates are projected on  a fully generational basis by scale BB to account for future mortality improvements  subject to the 3% floor.    Actuarial assumptions used in the December 31, 2015, valuation were based on the  results of actuarial experience studies. The experience study in TMRS was for the  period December 31, 2010 through December 31, 2014. Healthy post‐retirement  mortality rates and annuity purchase rates were updated based on a Mortality  Experience Investigation Study covering 2009 through 2011, and dated December  31, 2013. These assumptions were first used in the December 31, 2013 valuation,  along with a change to the Entry Age Normal (EAN) actuarial cost method.  Assumptions are reviewed annually. No additional changes were made for the 2014  valuation. After the Asset Allocation Study analysis and experience investigation  study, the Board amended the long‐term expected rate of return on pension plan  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  64  investments from 7% to 6.75%. Plan assets are managed on a total return basis with  an emphasis on both capital appreciation as well as the production of income, in  order to satisfy the short‐term and long‐term funding needs of TMRS.    The long‐term expected rate of return on pension plan investments was determined  using a building‐block method in which best estimate ranges of expected future real  rates of return (expected returns, net of pension plan investment expense and  inflation) are developed for each major asset class. These ranges are combined to  produce the long‐term expected rate of return by weighting the expected future real  rates of return by the target asset allocation percentage and by adding expected  inflation. In determining their best estimate of a recommended investment return  assumption under the various alternative asset allocation portfolios, GRS focused  on the area between (1) arithmetic mean (aggressive) without an adjustment for  time (conservative) and (2) the geometric mean (conservative) with an adjustment  for time (aggressive). At its meeting on July 30, 2015, the TMRS Board approved a  new portfolio target allocation. The target allocation and best estimates of real rates  of return for each major asset class are summarized in the following table:    Asset Class Target Allocation Long‐Term Expected Real  Rate of Return  (Arithmetic)  Domestic Equity 17.5% 4.55%  International Equity 17.5% 6.10%  Core Fixed Income 10.0% 1.00%  Non‐Core Fixed Income 20.0% 3.65%  Real Return 10.0% 4.03%  Real Estate 10.0% 5.00%  Absolute Return 10.0% 4.00%  Private Equity 5.0% 8.00%     Total 100.0%     Discount Rate:    The discount rate used to measure the Total Pension Liability was 6.75%. The  projection of cash flows used to determine the discount rate assumed that employee  and employer contributions will be made at the rates specified in statute. Based on  that assumption, the pension plan’s Fiduciary Net Position was projected to be  available to make all projected future benefit payments of current active and  inactive employees. Therefore, the long‐term expected rate of return on pension  plan investments was applied to all periods of projected benefit payments to  determine the Total Pension Liability.  City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  65  Changes in the Net Pension Liability:    Total Pension  Liability (a) Plan Fiduciary  Net Position (b) Net Pension  Liability (a) – (b) Balance at 12/31/14 $           7,400,331 $              6,661,957 $                    738,374  Changes for the year:    Service Cost              369,950                            ‐                        369,950     Interest (on the Total Pension Liab.)             521,853                            ‐                        521,853     Difference between expected and         actual experience              (89,808)                          ‐                        (89,808)    Contributions – employer                        ‐                    231,097                    (231,097)    Contributions – employee                        ‐                    195,568                    (195,568)    Net investment income                        ‐                        9,831                        (9,831)    Benefit payments, including     refunds of emp. contributions            (260,514)               (260,514)                             ‐       Administrative expense                        ‐                       (5,988)                        5,988     Other changes                47,847                        (296)                      48,143       Net changes              589,328                  169,698                      419,630  Balance at 12/31/15 $           7,989,659 $              6,831,655 $                 1,158,004    Sensitivity of the net pension liability to changes in the discount rate    The following presents the net pension liability of the City, calculated using the  discount rate of 6.75%, as well as what the City’s net pension liability would be if it  were calculated using a discount rate that is 1‐percentage‐point lower (5.75%) or 1‐ percentage‐point higher (7.75%) than the current rate:    1% Decrease Current Single Rate 1% Increase 5.75% Assumption 6.75% 7.75%  $2,491,376                       $1,158,004                     $73,544                              Pension Plan Fiduciary Net Position:    Detailed information about the pension plan’s Fiduciary Net Position is available in  a separately‐issued TMRS financial report. That report may be obtained on the  internet at www.tmrs.com.    City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  66  5.  Pension Expense and Deferred Outflows of Resources Related to Pensions    At September 30, 2016, the City reported deferred outflows of resources related to  pensions from the following sources:    Difference between projected and  investment earnings $389,973                               Differences between expected and  actual economic experience 21,121                                 Contributions subsequent to the  measurement date 181,515                                  Total $592,609                              Deferred  Outflows of Resources   The City reported $181,515 as deferred outflows of resources related to pensions  resulting from contributions subsequent to the measurement date that will be  recognized as a reduction of the net pension liability for the year ending September  30, 2016. Other amounts reported as deferred outflows of resources related to  pensions will be recognized in pension expense as follows:    Year ended December 31: 2016 $ 107,439         2017 107,439         2018 103,937         2019 92,279           2020 ‐                      Thereafter ‐                      $ 411,094             Supplemental Death Benefits Plan    The City also participates in the cost sharing multiple‐employer defined benefit  group‐term life insurance plan operated by the Texas Municipal Retirement System  (TMRS) known as the Supplemental Death Benefits Fund (SDBF). The City elected,  by ordinance, to provide group‐term life insurance coverage to both current and  retired employees. The City may terminate coverage under and discontinue  participation in the SDBF by adopting an ordinance before November 1 of any year  to be effective the following January 1.   City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  67  The death benefit for active employees provides a lump‐sum payment  approximately equal to the employee’s annual salary (calculated based on the  employee’s actual earnings, for the 12‐month period preceding the month of death);  retired employees are insured for $7,500; this coverage is an “other  postemployment benefit,” or OPEB.    The City contributes to the SDBF at a contractually required rate as determined by  an annual actuarial valuation. The rate is equal to the cost of providing one‐year  term life insurance. The funding policy for the SDBF program is to assure that  adequate resources are available to meet all death benefit payments for the  upcoming year; the intent is not to pre‐fund retiree term life insurance during  employees’ entire careers.     The City’s retiree contribution rates to the TMRS SDBF for the years ended 2016,  2015 and 2014 are as follows:    Plan/  Calendar Year  Annual  Required  Contribution  (Rate)  Actual  Contribution  Made  (Rate)  Percentage of  ARC  Contributed  2014 0.01% 0.01% 100.0%  2015 0.01% 0.01% 100.0%  2016 0.01% 0.01% 100.0%    The City’s contributions to the TMRS SDBF for the years ended 2016, 2015, and 2014  were $348, $322, and $306, respectively, which equaled the required contributions  each year.    G. Subsequent Events    In November of 2016, the City was awarded a purchase contract on land to be  acquired for expansion of the City’s wastewater treatment plant. The $273,000  contract was the result of an eminent domain claim made by the City to purchase  the land.      On January 6, 2017, the City terminated their lease agreement for a building owned  by the 4A fund. The lease generated $78,667 in rental income on an annual basis.  The City plans to sell the related building, which had a carrying value of $830,652 as  of September 30, 2016.    City of Sanger, Texas  NOTES TO FINANCIAL STATEMENTS, Continued  September 30, 2016  68  Subsequent events were evaluated through January 27, 2017, the date the financial  statements were available to be issued.     H. New Accounting Pronouncements    The GASB issued Statement No. 72, entitled Fair Value Measurement and Application;  The provisions of GASB Statement No. 72 are effective for reporting periods  beginning after June 15, 2015. GASB Statement No. 72 provides guidance for  applying fair value to certain investments and disclosures related to all fair value  measurements. The statement generally requires state and local governments to  measure investments at fair value. The statement defines an investment as a security  or other asset that (a) a government holds primarily for the purpose of income or  profit and (b) has a present service capacity based solely on its ability to generate  cash or to be sold to generate cash. Fair value is defined as the price that would be  received to sell an asset or paid to transfer a liability in an orderly transaction  between participants at the measurement date. The City has adopted this statement  during the current fiscal year, but it had no material effect on these accompanying  financial statements.     The GASB issued Statement No. 74 titled, Financial Reporting for Postemployment  Benefit Plans Other Than Pension Plans; GASB Statement No. 75, titled, Accounting and  Financial Reporting for Postemployment Benefits Other Than Pensions; GASB Statement  No. 77; titled, Tax Abatement Disclosures; GASB Statement No. 78, titled, Pensions  Provided through Certain Multiple‐Employer Defined Benefit Pension Plans, which will  require adoption in the future, if applicable. These statements may or will have a  material effect on the City’s financial statements once implemented. The City will  be analyzing the effects of these pronouncements and plans to adopt them as  applicable by their effective date.    REQUIRED SUPPLEMENTARY INFORMATION 69 Revenues Property tax $2,340,000 $2,447,998 $107,998 Sales tax 730,000 815,547 85,547 Franchise and local taxes 212,700 240,206 27,506 License and permits 125,750 111,189 (14,561) Charges for services 735,000 829,508 94,508 Fire and rescue 495,000 586,833 91,833 Contributions and donations - 325 325 Intergovernmental - 77,844 77,844 Fines and forfeitures 140,000 136,433 (3,567) Investment income 2,500 6,296 3,796 Other revenue 124,990 96,817 (28,173) 4,905,940 5,348,996 443,056 Expenditures Current: General government 972,240 951,828 20,412 Police department 1,445,739 1,262,092 183,647 Municipal court 240,718 195,182 45,536 Fire and EMS 928,550 940,549 (11,999) Parks and recreation 513,090 463,483 49,607 Public works 657,928 616,616 41,312 Debt service: Principal 153,324 194,056 (40,732) Interest 13,212 28,835 (15,623) Bond issuance costs - 37,964 (37,964) Capital outlay 340,700 365,269 (24,569) 5,265,501 5,055,874 209,627 Revenues Over (Under) Expenditures $(359,561) $293,122 $652,683 Total Revenues Variance with City of Sanger, Texas SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL- GENERAL FUND (Page 1 of 2) For the Year Ended September 30, 2016 Original & Final Budget Total Expenditures Actual Final Budget 70 Transfers in $1,140,031 $1,152,539 $12,508 Transfers (out)(806,869) (942,492) (135,623) Bond issuance - 1,166,100 1,166,100 Premium - 98,406 98,406 Payment to refunding bond escrow agent - (1,226,542) (1,226,542) Sale of capital assets 25,000 30,618 5,618 Insurance recoveries 13,000 1,932 (11,068) 371,162 280,561 (90,601) Net Change in Fund Balance $11,601 573,683 $562,082 Beginning fund balance 1,974,317 $2,548,000 Notes to Required Supplementary Information 1. Annual budgets are adopted on a basis consistent with generally accepted accounting principles (GAAP). Variance with Actual Final Budget IN FUND BALANCE - BUDGET AND ACTUAL- GENERAL FUND (Page 2 of 2) For the Year Ended September 30, 2016 Original & Final Budget Ending Fund Balance Total Other Financing Sources Other Financing Sources (Uses) City of Sanger, Texas SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES 71 (This page intentionally left blank.) 72 SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS 1 Total pension liability Service cost $369,950 $340,004 Interest (on the Total Pension Liability)521,853 476,571 Changes in benefit terms - - Differences between expected and actual experience (89,808) 47,610 Changes of assumptions 47,847 - Benefit payments, including refunds of participant contributions (260,514) (204,026) Net change in total pension liability 589,328 660,159 Total pension liability - beginning 7,400,331 6,740,172 Total pension liability - ending (a)$7,989,659 $7,400,331 Plan fiduciary net position Contributions - employer $231,097 $211,283 Contributions - members 195,568 187,821 Net investment income 9,831 350,203 Benefit payments, including refunds of participant contributions (260,514) (204,026) Administrative expenses (5,988) (3,656) Other (296) (301) Net change in plan fiduciary net position 169,698 541,324 Plan fiduciary net position - beginning 6,661,957 6,120,633 Plan fiduciary net position - ending (b)$6,831,655 $6,661,957 Fund's net pension liability - ending (a) - (b)$1,158,004 $738,374 85.51%90.02% Covered employee payroll $3,259,471 $3,130,346 35.53% 23.59% Notes to schedule: 1) This schedule is presented to illustrate the requirement to show information for ten years. However, until a full ten-year trend is compiled, only available information is shown. 2015 Plan fiduciary net position as a percentage of the total pension City of Sanger, Texas For The Years Ended December 31, 2015 and 2014 Fund's net position as a percentage of covered employee payroll 2014 73 (This page intentionally left blank.) 74 2016 2015 1 Actuarially determined employer contributions $247,432 $225,111 $ 247,432 $ 225,111 Contribution deficiency (excess)$- $- Annual covered employee payroll $3,475,512 $3,130,346 7.12%7.19% Valuation Date: Notes Actuarially determined contribution rates are calculated as of December 31 and become effective in January 13 months later. Methods and Assumptions Used to Determine Contribution Rates: Actuarial Cost Method Entry Age Normal Amortization Method Level Percentage of Payroll, Closed Remaining Amortization Period 25 years Asset Valuation Method 10 Year smoothed market; 15% soft corridor Inflation 2.5% Salary Increases 3.0% to 10.5% including inflation Investment Rate of Return 6.75% Retirement Age Experience-based table of rates that are specific to the City's plan of benefits. Last updated for the 2015 valuation pursuant to an experience study of the period 2010 - 2014 Mortality RP2000 Combined Mortality Table with Blue Collar Adjustment with male rates multiplied by 109% and female rates multiplied by 103% and projected on a fully generational basis with scale BB Other Information: Notes There were no benefit changes during the year. NOTES TO SCHEDULE OF EMPLOYER CONTRIBUTIONS TO PENSION PLAN City of Sanger, Texas SCHEDULE OF EMPLOYER CONTRIBUTIONS TO PENSION PLAN For The Years Ended September 30, 2016 and 2015 1) This schedule is presented to illustrate the requirement to show information for ten years. However, until a full ten-year trend is compiled, only available information is shown. Contributions in relation to the actuarially determined contribution Employer contributions as a percentage of covered employee payroll 75 (This page intentionally left blank.) 76 OTHER SUPPLEMENTARY INFORMATION 77 Operating Revenues Charges for services $1,519,913 $1,476,998 $7,832,147 $- Connection fees - - 61,130 - Tap fees 121,500 166,000 - - Other revenue - - - - 1,641,413 1,642,998 7,893,277 - Operating Expenses Salaries and wages 334,757 160,690 574,304 - Contracted services 5,306 147 44,443 - Utilities 150,319 149,671 8,380 - Materials and supplies 37,923 7,307 36,207 - Water and electric purchases 64,044 - 5,440,315 - Repairs and maintenance 226,620 133,485 147,105 - Depreciation 282,736 232,995 276,487 1,562 1,101,705 684,295 6,527,241 1,562 539,708 958,703 1,366,036 (1,562) Nonoperating Revenues (Expenses) Investment income - - - - Bond issuance costs - - - - Interest expense - - - - - - - - Income Before Transfers 539,708 958,703 1,366,036 (1,562) Transfers in - 230,937 - - Transfers (out)- - (678,495) - $539,708 $1,189,640 $687,541 $(1,562) Sewer Electric Fleet Services City of Sanger, Texas COMBINING SCHEDULE OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS - BY DEPARTMENT For the Year Ended September 30, 2016 Water Total Operating Revenues Total Operating Expenses Operating Income (loss) Total Nonoperating Revenues (Expenses) Change in Net Position 78 $- $10,829,058 - 61,130 - 287,500 58,874 58,874 58,874 11,236,562 - 1,069,751 - 49,896 - 308,370 - 81,437 - 5,504,359 - 507,210 17,283 811,063 17,283 8,332,086 41,591 2,904,476 21,429 21,429 (208,930) (208,930) (395,154) (395,154) (582,655) (582,655) (541,064) 2,321,821 - 230,937 (1,254,366) (1,932,861) $(1,795,430) $619,897 Administration Total 79 APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY MUNICIPAL BOND INSURANCE POLICY ISSUER: [NAME OF ISSUER] MEMBER: [NAME OF MEMBER] Policy No: _____ BONDS: $__________ in aggregate principal amount of [NAME OF TRANSACTION] [and maturing on] Effective Date: _________ Risk Premium: $__________ Member Surplus Contribution: $ _________ Total Insurance Payment: $_________ BUILD AMERICA MUTUAL ASSURANCE COMPANY (“BAM”), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the “Trustee”) or paying agent (the “Paying Agent”) for the Bonds named above (as set forth in the documentation providing for the issuance and securing of the Bonds), for the benefit of the Owners or, at the election of BAM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the first Business Day following the Business Day on which BAM shall have received Notice of Nonpayment, BAM will disburse (but without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of the Bonds, the face amount of principal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner’s right to receive payment of such principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner’s rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any of whom may submit an amended Notice of Nonpayment. Upon disbursement under this Policy in respect of a Bond and to the extent of such payment, BAM shall become the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or interest on such Bond and shall be fully subrogated to the rights of the Owner, including the Owner’s right to receive payments under such Bond. Payment by BAM either to the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpayment shall discharge the obligation of BAM under this Policy with respect to said Nonpayment. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. “Business Day” means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer’s Fiscal Agent (as defined herein) are authorized or required by law or executive order to remain closed. “Due for Payment” means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. “Nonpayment” means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. “Nonpayment” shall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction. “Notice” means delivery to BAM of a notice of claim and certificate, by certified mail, email or telecopy as set forth on the attached Schedule or other acceptable electronic delivery, in a form satisfactory to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, (d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. “Owner” means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that “Owner” shall not include the Issuer, the Member or any other person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds. 2 BAM may appoint a fiscal agent (the “Insurer’s Fiscal Agent”) for purposes of this Policy by giving written notice to the Trustee, the Paying Agent, the Member and the Issuer specifying the name and notice address of the Insurer’s Fiscal Agent. From and after the date of receipt of such notice by the Trustee, the Paying Agent, the Member or the Issuer (a) copies of all notices required to be delivered to BAM pursuant to this Policy shall be simultaneously delivered to the Insurer’s Fiscal Agent and to BAM and shall not be deemed received until received by both and (b) all payments required to be made by BAM under this Policy may be made directly by BAM or by the Insurer’s Fiscal Agent on behalf of BAM. The Insurer’s Fiscal Agent is the agent of BAM only, and the Insurer’s Fiscal Agent shall in no event be liable to the Trustee, Paying Agent or any Owner for any act of the Insurer’s Fiscal Agent or any failure of BAM to deposit or cause to be deposited sufficient funds to make payments due under this Policy. To the fullest extent permitted by applicable law, BAM agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignment or otherwise, to the extent that such rights and defenses may be available to BAM to avoid payment of its obligations under this Policy in accordance with the express provisions of this Policy. This Policy may not be canceled or revoked. This Policy sets forth in full the undertaking of BAM and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto, any premium paid in respect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds prior to maturity. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. THIS POLICY IS ISSUED WITHOUT CONTINGENT MUTUAL LIABILITY FOR ASSESSMENT. In witness whereof, BUILD AMERICA MUTUAL ASSURANCE COMPANY has caused this Policy to be executed on its behalf by its Authorized Officer. BUILD AMERICA MUTUAL ASSURANCE COMPANY By: _______________________________________ Authorized Officer 3 Notices (Unless Otherwise Specified by BAM) Email: claims@buildamerica.com Address: 1 World Financial Center, 27th floor 200 Liberty Street New York, New York 10281 Telecopy: 212-962-1524 (attention: Claims) CITY OF SANGER, TEXAS (A political subdivision of the State of Texas located in Denton County) $9,240,000 COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2017 BOND PURCHASE AGREEMENT May 1, 2017 Honorable Mayor and City Council City of Sanger, Texas 502 Elm Street Sanger, Texas 76266 Ladies and Gentlemen: The undersigned, Oppenheimer & Co., Inc. (the "Representative"), acting on its own behalf and on behalf of the other Underwriters listed on Schedule I hereto (collectively, the "Underwriters"), and not acting as a fiduciary or agent for the City of Sanger, Texas (the "Issuer"), offers to enter into the following agreement (this "Agreement") with 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., Sanger, Texas time, on May 1, 2017, and, if not so accepted, will be subject to withdrawal by the Underwriters upon 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). 1. Purchase and Sale of the Certificates. Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein, the Underwriters hereby agree 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 $9,240,000 Combination Tax and Revenue Certificates of Obligation, Series 2017 (the "Certificates"). The Issuer acknowledges and agrees that (i) the purchase and sale of the Certificates pursuant to this Agreement is an arm's-length commercial transaction between the Issuer and the Underwriters, (ii) in connection therewith and with the discussions, undertakings, and procedures leading up to the consummation of this transaction, the Underwriters are and have been acting solely as a principal and are not acting as the agent or fiduciary of the Issuer, (iii) the Underwriters have not assumed an advisory or fiduciary responsibility in favor of the Issuer with respect to the offering described herein or the discussions, undertakings, and procedures leading thereto (regardless of whether the Underwriters have provided other services or are currently providing other services to the Issuer HOU:3782656.2 on other matters) and the Underwriters have no obligation to the Issuer with respect to the offering described herein except the obligations expressly set forth in this Agreement, and (iv) the Issuer has consulted its own legal, tax, accounting, financial and other advisors to the extent it has deemed appropriate. The principal amount of the Certificates to be issued, the dated date therefor, and the maturities, redemption provisions and interest rates per annum are set forth in Schedule II hereto. The Certificates shall be as described in, and shall be issued and secured under and pursuant to the provisions of the ordinance adopted by the Issuer on May 1, 2017 (the "Ordinance"). The purchase price for the Certificates shall be $9,926,681.65 (representing the par amount of the Certificates, plus an original issue premium of $757,696.65, and less an underwriting discount of $71,015.00), and no accrued interest on the Certificates. The Underwriters have delivered a completed and notarized Form 1295 for the Underwriters in connection with such Underwriters' participation in the execution of this Agreement generated by the Texas Ethics Commission's (the "TEC") electronic filing application in accordance with the provisions of Section 2252.908 of the Texas Government Code and the rules promulgated by the TEC (the "Form 1295"). The Issuer hereby confirms receipt of the Form 1295 from the Underwriters and agrees to acknowledge such form with the TEC through its electronic filing application not later than the 30th day after the date of this Agreement. The Underwriters and the Issuer understand and agree that, with the exception of information identifying the Issuer and the contract identification number, neither the Issuer nor its consultants are responsible for the information contained in the Form 1295 and neither the Issuer nor its consultants have verified such information. 2. Public Offering. The Underwriters agree to make a bona fide public offering of all of the Certificates at prices or yields not to exceed the public offering prices or yields set forth on page ii of the Official Statement and may subsequently change such offering prices or yields without any requirement of prior notice. The Underwriters may offer and sell the Certificates to certain dealers (including dealers depositing Certificates into investment trusts) and others at prices lower than the public offering prices or yields stated on page ii of the Official Statement; provided that on or before the Closing, the Representative shall execute and deliver to Orrick, Herrington & Sutcliffe LLP, Houston, Texas ("Bond Counsel") an issue price certificate for the Certificates prepared by Bond Counsel verifying the initial offering prices to the public at which the Underwriters reasonably expected to sell or in fact sold a substantial amount of each stated maturity of the Certificates to the public. 3. The Official Statement. (a) The Issuer previously has delivered, or caused to be delivered, to the Underwriters the Preliminary Official Statement dated April 26, 2017 (the "Preliminary Official Statement") in a "designated electronic format," as defined in the Municipal Securities Rulemaking Board's ("MSRB") Rule G-32 ("Rule G-32"). The Issuer will prepare, or cause to be prepared, a final Official Statement relating to the Certificates, which will be (i) dated the date of this Agreement, (ii) complete within the meaning of the United States Securities and Exchange Commission's Rule 15c2-12, as amended (the 2 HOU:3782656.2 "Rule"), (iii) in a "designated electronic format" and (iv) 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 Certificates, 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 sufficient quantities (which may be in electronic format) of the Preliminary Official Statement as the Representative deems reasonably necessary to satisfy the obligation of the Underwriters 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 for use by the Underwriters in connection with the public offering, sale and distribution of the Certificates. 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 Certificates 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 Certificates. The Issuer consents to the use by the Underwriters prior to the date hereof of the Preliminary Official Statement in connection with the public offering of the Certificates. 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 which is complete as of the date of its delivery to the Underwriters. The Issuer shall provide the Official Statement, or cause the Official Statement to be provided, (i) in a "designated electronic format" consistent with the requirements of Rule G-32 and (ii) in a printed format in such quantity as the Representative shall request in order for the Underwriters to comply with Section (b)(4) of the Rule and the rules of the MSRB. (d) If, after the date of this Agreement to and including the date the Underwriters is 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 the Rule) and (ii) the time when the Official Statement is available to any person from the MSRB, but in no case less than twenty-five (25) days after the "end of the underwriting period" for the Certificates), 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, in light of the circumstances under which they were made, 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 3 HOU:3782656.2 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 form and manner approved by the Representative), either an amendment or a supplement to the Official Statement 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, in light of the circumstances under which they were made, or necessary to make the statements therein not misleading or so that the Official Statement will comply with law; provided, however, that for all purposes of this Agreement and any certificate delivered by the Issuer in accordance herewith, the Issuer makes no representations with respect to the descriptions in the Preliminary Official Statement or the Official Statement of The Depository Trust Company, New York, New York ("DTC"), or its book -entry -only system or the information provided by Build America Mutual Insurance Company (the "Bond Insurer") under the caption `Bond Insurance." 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 reasonably deem necessary to evidence the truth and accuracy of such supplement or amendment to the Official Statement. The Issuer shall provide any such amendment or supplement, or cause any such amendment or supplement to be provided, in a "designated electronic format" consistent with the requirements of Rule G-32. (e) The Representative hereby agrees to file the Official Statement with the MSRB through its Electronic Municipal Market Access ("EMMA") system on or before the date of the Closing. 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 Home Rule city duly created and existing under the laws of the State of Texas (the "State"), and is issuing the Certificates pursuant to the provisions of Chapter 271, Subchapter C, Texas Local Government Code, as amended (the "Act"), and has full legal right, power and authority under the Act, and at the date of the Closing will have full legal right, power and authority (i) to adopt the Ordinance and enter into, execute and deliver this Agreement and 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 and the Continuing Disclosure Undertaking are hereinafter referred to as the "Issuer Documents"), (ii) to sell, issue and deliver the Certificates to the Underwriters as provided herein, and (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 material respects with the terms of the Act and the Issuer Documents, as they pertain to such transactions; 4 HOU:3782656.2 (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 Certificates, (ii) the approval, execution and delivery of, and the performance by the Issuer of the obligations on its part, contained in the Certificates and the Issuer Documents and (iii) the consummation by it of all other transactions described by 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 principals of sovereign immunity and subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws and principles of equity relating to or affecting the enforcement of creditors' rights; the Certificates, when issued, delivered and paid for, in accordance with the Ordinance and this Agreement, will constitute legal, valid and binding obligations of the Issuer, entitled to the benefits of the Ordinance and enforceable in accordance with their terms by mandamus or other relief permitted by law, subject to principles of sovereign immunity and subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws and principles of equity relating to or affecting the enforcement of creditors' rights, and subject to general principles of equity which permit the exercise of judicial discretion; and upon the issuance, authentication and delivery of the Certificates as aforesaid, the Ordinance will provide, for the benefit of the holders, from time to time, of the Certificates, the legally valid and binding pledge of and lien they purport to create as set forth in the Ordinance; (d) To the best of its knowledge, 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 that would have a material adverse effect upon the operations or financial condition of the Issuer; 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 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 Certificates, 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 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 otherwise subject or under the terms of any such law, regulation or instrument, except as provided by the Certificates and the Ordinance; (e) Except for the approval of the Certificates by the Attorney General of the State and the registration thereof by the Comptroller of Public Accounts of the State, all authorizations, approvals, licenses, permits, consents and orders of any governmental authority, legislative body, board, agency or commission having jurisdiction of the 5 HOU:3782656.2 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 Certificates have been duly obtained or will be obtained prior to 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 Certificates; (f) The Certificates and the Ordinance conform to the descriptions thereof contained in the Official Statement under the caption "GENERAL INFORMATION REGARDING THE CERTIFICATES- General Description"; the proceeds of the sale of the Certificates will be applied generally as described in the Official Statement under the subcaption "THE CERTIFICATES - Sources and Uses of Funds"; and the Continuing Disclosure Undertaking conforms to the description thereof contained in the Official Statement under the caption "CONTINUING DISCLOSURE OF INFORMATION"; (g) 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 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 after due inquiry, threatened against the Issuer, affecting the 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 Certificates or the collection of ad valorem taxes pledged to the payment of principal of and interest on the Certificates pursuant to the Ordinance or in any way contesting or affecting the validity or enforceability of the Certificates or the Issuer Documents, or contesting the exclusion from gross income of interest on the Certificates 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 Certificates, 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 Certificates 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; provided, however, that for all purposes of this Agreement including, without limitation, for purposes of (i) 0) and (k), and any certificate delivered by the Insurer in accordance herewith, the Issuer makes no representations with regard to the descriptions in the Preliminary Official Statement or the official statement of DTC and its book -entry -only system or the Bond Insurer; 0 HOU:3782656.2 0) 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; provided, however, that if the Issuer notifies the Underwriters of any fact or event as required by Section 3(d) hereof, and the Underwriters determine that such fact or event does not require preparation and publication of a supplement or amendment to the Official Statement, then the Official Statement in its then -current form shall be conclusively deemed to be complete and correct in all material respects and the Issuer shall have no further obligation under this section or Section 3(d) with respect to such event; (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; provided, however, that if the Issuer notifies the Underwriters of any fact or event as required by Section 3(d) hereof, and the Underwriters determine that such fact or event does not require preparation and publication of a supplement or amendment to the Official Statement, then the Official Statement in its then -current form shall be conclusively deemed to be complete and correct in all material respects and the Issuer shall have no further obligation under this section or Section 3(d) with respect to such event; (1) The Issuer will apply, or cause to be applied, the proceeds from the sale of the Certificates 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 Certificates; (m) The Issuer will furnish such information and execute such instruments and take such action in cooperation with the Representative as the Representative may reasonably request, at no expense to the Issuer, (i) to (A) qualify the Certificates 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 (B) determine the eligibility of the Certificates for investment under the laws of such states and other jurisdictions and (ii) to continue such qualifications in effect so long as required for the initial distribution of the Certificates by the Underwriters (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 notification with respect to FI HOU:3782656.2 the suspension of the qualification of the Certificates for sale in any jurisdiction or the initiation or threat of any proceeding for that purpose; (n) The financial statements of, and other financial information regarding, the Issuer 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 such financial position, results of operations or condition, financial or otherwise, of the Issuer since the dates of such statements and information; (o) Except as 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 financial condition of the Issuer; (p) Prior to the Closing, and except in the ordinary course of business, the Issuer will not offer or issue any bonds, notes or other obligations for borrowed money or incur any material liabilities, direct or contingent, payable from or secured by any of the taxes which will secure the Certificates . without the prior written approval of the Representative, such approval not to be unreasonably withheld; (q) The Issuer, to the extent heretofore requested by the Representative in writing, has delivered to the Underwriters true, correct, complete, and legible copies of all information, applications, reports, or other documents of any nature whatsoever submitted to any rating agency for the purpose of obtaining a rating for the Certificates or to any municipal bond insurance company to obtain a municipal bond insurance policy on the Certificates and, in each instance, true, correct, complete, and legible copies of all correspondence or other communications relating, directly or indirectly, thereto; (r) 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 (s) The Issuer covenants that between the date hereof and the Closing it will not intentionally take actions which will cause the representations and warranties made in this Section to be untrue in any material respect as of the Closing. By delivering the Official Statement to the Representative, the Issuer shall be deemed to have reaffirmed, with respect to such Official Statement, the representations, warranties and covenants set forth above with respect to the Preliminary Official Statement. 5. Closin . (a) At 10:00 a.m., Houston, Texas time, on May 18, 2017, or at such other time and date as shall have been mutually agreed upon by the Issuer and the Representative (the "Closing"), the Issuer will, subject to the terms and conditions hereof, deliver the Certificates to BOKF, NA, Austin, Texas (the "Paying Agent/Registrar "), as HOU:3782656.2 the entity appointed by the Issuer to take delivery of the Certificates, duly executed and authenticated, together with the other documents hereinafter mentioned, and the Paying Agent/Registrar, as the entity appointed by the Issuer to take delivery of the Certificates, will, subject to the terms and conditions hereof, accept such delivery and the Underwriters will pay the purchase price of the Certificates as set forth in Section 1 of this Agreement by wire transfer payable in immediately available funds to the order of the Issuer. Payment for the Certificates 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 Underwriters. The Initial Certificates shall be registered in the name of the Representative. (b) Delivery of the Certificates in definitive form shall be made through DTC, utilizing the book -entry only form of issuance, and the Issuer, if it has not done so previously, agrees to enter into such agreements, including a "Letter of Representations," as may be required to allow for the use of such book -entry only system. The definitive Certificates shall be delivered in fully registered form bearing CUSIP numbers without coupons with one certificate for each maturity of Certificates, registered in the name of Cede & Co. and shall be made available at the offices of DTC (or, if the Certificates are to be held in safekeeping for DTC by the Paying Agent/Registrar pursuant to DTC's FAST system, at the office of the Paying Agent/Registrar) to the Underwriters at least one (1) 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' obligations under this Agreement to purchase, to accept delivery of and to pay for the Certificates 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 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 Certificates shall be in full force and effect in the form heretofore approved by the Representative and shall not have been amended, modified or supplemented, except as may be required by the Attorney General of Texas, and the Official Statement shall not have been supplemented or amended, except in any such case as may have been agreed to by the 9 HOU:3782656.2 Representative; (ii) the net proceeds of the sale of the Certificates 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 Certificates and the Issuer Documents shall be in full force and effect and shall not have been amended, modified or supplemented; (e) At or prior to the Closing, the Ordinance shall have been duly adopted by the governing body of the Issuer and the Issuer shall have duly executed and delivered and the Paying Agent/Registrar shall have duly authenticated the Certificates; (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 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 Certificates on the terms and in the manner described 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 and to counsel for the Underwriters; and (i) At or prior to the Closing, the Underwriters shall have received copies 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, with such supplements or amendments to as may have been agreed to by the Underwriters or counsel to the Representative; (3) The undertaking of the Issuer set forth in the Ordinance (the "Continuing Disclosure Undertaking") which satisfies the requirements of Section (b)(5)(i) of the Rule; (4) The approving opinion of Bond Counsel, with respect to the Certificates, in substantially the form attached to the Official Statement; (5) A supplemental opinion of Bond Counsel addressed to the Issuer and the Underwriters substantially to the effect that: 10 HOU:3782656.2 (i) the Ordinance has been duly adopted by the Issuer and is in full force and effect; (ii) the Certificates are exempted securities within the meaning of 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 Certificates, to register the Certificates under the 1933 Act or to qualify the Ordinance under the Trust Indenture Act; and (iii) such firm 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 under the captions "THE CERTIFICATES" (except under the subcaption, "Sources and Uses of Funds," as to which no opinion is expressed), "GENERAL INFORMATION REGARDING THE CERTIFICATES," "REGISTRATION TRANSFER AND EXCHANGE," "TAX RATE LIMITATIONS," "TAX MATTERS," "CONTINUING DISCLOSURE OF INFORMATION" (except under the subheading "Compliance with Prior Undertakings" as to which no opinion is expressed), "LEGAL MATTERS," "LEGAL INVESTMENTS IN TEXAS," and "REGISTRATION AND QUALIFICATION OF ISSUANCE FOR SALE," in the Official Statement, and such firm is of the opinion that the information relating to the Certificates and legal matters 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 Certificates, such information conforms to the Ordinance; (6) An opinion, dated the date of the Closing and addressed to the Underwriters, of counsel to the Underwriters, to the effect that: (i) the Certificates are exempted securities under the 1933 Act and the Trust Indenture Act and it is not necessary, in connection with the offering and sale of the Certificates, to register the Certificates 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 11 HOU:3782656.2 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 the Bond Insurer and DTC and its book -entry -only system, as to which no view need be expressed); (7) A certificate, dated the date of the Closing, of an appropriate official of the Issuer to the effect that (i) the representations and warranties of the Issuer contained herein are true and correct in all material respects on and as of the date of the Closing as if made on the date of the Closing; (ii) except as disclosed in the Official Statement, no litigation, proceeding or tax challenge 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 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) contest the validity, due authorization and execution of the Certificates 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 revenues, including payments on the Certificates, pursuant to the Ordinance, and other income or the levy or collection of the taxes pledged or to be pledged to pay the principal of and interest on the Certificates, or the pledge thereof, (iii) all official action of the Issuer relating to the Official Statement, the Certificates and the Issuer Documents have been duly taken by the Issuer, are in full force and effect and have not been modified, amended, supplemented or repealed; (iv) to the best of his or her 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 the 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; and (v) there has not been any material adverse change in the financial condition of the Issuer since September 30, 2016, the latest date as of which audited financial information is available; (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 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 Certificates will be used in a manner that would cause the Certificates to be "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), and any 12 HOU:3782656.2 applicable regulations (whether final, temporary or proposed) issued pursuant to the Code; (9) The approving opinion of the Attorney General of the State of Texas and the registration certificates of the Comptroller of Public Accounts of the State of Texas in respect of the Certificates; (10) Any other certificates and opinions required by the Ordinance for the issuance thereunder of the Certificates; (11) Evidence of a rating assigned to the Certificates of "AA" by S&P Global Ratings, a division of S&P Global Inc., based upon the guaranty of the payment of the principal and interest on the Certificates by a Municipal Bond Insurance Policy (the "Municipal Bond Insurance Policy") issued by the Bond Insurer, and an underlying rating of "Al" by Moody's Investor Service, Inc., and that such ratings are in effect as of the date of the Closing; (12) The Municipal Bond Insurance Policy; and (13) 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 reasonably satisfactory to and approved by the Representative, such approval not to be unreasonably withheld. 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 Certificates contained in this Agreement, or if the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Certificates 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 the Underwriters' obligation to purchase the Certificates if between the date of this Agreement and the Closing, in the reasonable judgment of the Representative any of the following events shall occur: (a) legislation shall be enacted by the Congress of the United States or recommended to the Congress for passage by the President of the United States, or the 13 HOU3782656.2 Treasury Department of the United States or the Internal Revenue Service or any member of the Congress of the United States 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 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 Certificates, or the interest on the Certificates 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, which materially adversely affects the market price for the Certificates, or the market price generally of obligations of the general character of the Certificates, or the ability of the Underwriters to enforce contracts for sale of the Certificates; (b) legislation enacted (or resolution passed) by the Congress or an order, decree or injunction issued by any court of competent jurisdiction to the effect that (i) obligations of the general character of the Certificates, including any or all underlying arrangements, or the Ordinance, as the case may be, are not exempt from registration under or other requirements of the Securities Act of 1933, as amended and as then in effect, the Securities Exchange Act of 1934, as amended and as then in effect, or the Trust Indenture Act of 1939, as amended and as then in effect, and (ii) the market price for the Certificates, or the market price generally of obligations of the general character of the Certificates, or the ability of the Underwriters to enforce contracts for sale of the Certificates is materially adversely affected; (c) a stop order, ruling, regulation or official statement by the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter shall have been issued or made or any other event occurs, the effect of which is that the issuance, offering or sale of the Certificates, including any or all underlying arrangements, as described herein or by the Official Statement or otherwise, is or would be in violation of any provisions of the federal securities laws, including the Securities Exchange Act of 1934, as amended and as then in effect or the Trust Indenture Act of 1939, as amended and as then in effect; (d) any state blue sky or securities commission or other governmental agency or body in which more than 15% of the Certificates have been offered and sold shall have withheld registration, exemption or clearance of the offering of the Certificates as described herein, or issued a stop order or similar ruling relating thereto; provided that such withholding or stop order is not due to the malfeasance, misfeasance or nonfeasance of the Underwriters; (e) payment for and delivery of any of the Certificates is rendered impracticable or inadvisable because (i) there shall be in force a general suspension of trading in securities on the New York Stock Exchange, the effect of which on the 14 HOU:3782656.2 financial markets of the United States is such as would materially adversely affect the market for or market price of any of the Certificates; (ii) a general banking moratorium shall have been declared by federal, State of New York, or State officials authorized to do so, or a material disruption in commercial banking or securities settlement or clearance services shall have occurred; or (iii) there shall have occurred, since the date hereof, any outbreak or escalation of hostilities involving the United States (including, without limitation, an act of terrorism), declaration by the United States, of a national emergency or war or other calamity or crisis or any change in the financial or economic conditions in the United States the effect of which is to cause a material disruption in commercial banking or securities settlement or clearance services or to materially adversely affect the market for or market price of any of the Certificates; (f) the New York Stock Exchange or other national securities exchange or any governmental authority shall impose, as to the Certificates or as to obligations of the general character of the Certificates, 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, which change is subsequent to the date hereof and is not due to the malfeasance, misfeasance or nonfeasance of the Underwriters; (g) 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 assessments or the levies of taxes to pay principal of and interest on the Certificates; (h) 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 and, in either such event, the Issuer refuses to permit the Official Statement to be supplemented to supply such statement or information, or the effect of the Official Statement as so supplemented is to materially adversely affect the market price or marketability of the Certificates or the ability of the Underwriters to enforce contracts for sale of the Certificates; (i) there shall have occurred since the date of this Agreement any materially adverse change in the affairs or financial condition of the Issuer that will materially adversely affect the market for the Certificates or the ability of the Underwriters to enforce contracts for the sale of the Certificates, except for changes which the Official Statement discloses are expected to occur; (j) any fact or event shall exist or have existed that, in the Representative's reasonable judgment, requires or has required an amendment of or supplement to the Official Statement; 15 HOU:3782656.2 (k) there shall have occurred any downgrading or published negative credit watch or similar published information from a rating agency that at the date of this Agreement has published a rating (or has been asked to furnish a rating on the Certificates) on any of the Issuer's debt obligations that are secured in a like manner as the Certificates, which action reflects a change or possible change, in the ratings accorded any such obligations of the Issuer (including the ratings to be accorded the Certificates); and (1) the purchase of and payment for the Certificates by the Underwriters, or the resale of the Certificates by the Underwriters, on the terms and conditions herein provided shall be prohibited by any applicable law, governmental authority, board, agency or commission; provided, however, that such prohibition occurs after the date of this Agreement and is not caused by the action, or failure to act, of the Underwriters. With respect to the condition described in subparagraphs (f) and (1) 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 the Underwriters' 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 Certificates; (ii) the fees and disbursements of Bond Counsel and the Issuer's Financial Advisor; (iii) the fees and disbursements of any other engineers, accountants, and other experts, consultants or advisers retained by the Issuer; (iv) the fees for bond ratings; (v) the costs of preparing, printing and mailing the Preliminary Official Statement and the Official Statement; (vi) the fees and expenses of the Paying Agent/Registrar; (vii) advertising expenses (except any advertising expenses of the Underwriters as set forth below); (viii) the out-of-pocket, miscellaneous and closing expenses, including the cost of travel, of the officers and officials of the Issuer; (ix) the Attorney General's review fee; (x) the costs to obtain the Municipal Bond Insurance. Policy; and (xi) any other expenses mutually agreed to by the Issuer and the Underwriters to be reasonably considered expenses of the Issuer which are incident to the transactions described herein. (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 Certificates; and (iii) all other expenses incurred by them in connection with the public offering of the Certificates, including the fees and disbursements of counsel retained by the Underwriters. (c) The Issuer acknowledges that the Representative will pay from the Underwriters' expense allocation of the underwriting discount the applicable per bond assessment charged by the Municipal Advisory Council of Texas (the "M4C"), a non- 16 HOU:3782656.2 profit corporation whose purpose is to collect, maintain and distribute information relating to issuing entities of municipal securities. 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 Sanger, Texas, 502 Elm Street, Sanger, Texas 76266, Attention: City Manager; 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 Oppenheimer & Co., Inc., 13455 Noel Road, Suite 1200, 2 Galleria Tower, Dallas, Texas 75240, Attention: Dan Roseveare. 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 the Underwriters; (ii) delivery of and payment for the Certificates pursuant to this Agreement; and (iii) any termination of this Agreement. 11. Effectiveness. This Agreement shall become effective upon the acceptance hereof by the Issuer and shall be valid and enforceable in accordance with its terms 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 of Texas. 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 the New York Stock Exchange is open for trading. 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 17 HOU:3782656.2 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. 18. Entire Agreement. This Agreement represents the entire agreement between the Issuer and the Underwriters with respect to the preparation of the Preliminary Official Statement and the Official Statement, the conduct of the offering, and the purchase and sale of the Certificates. [Execution Page Follows] 18 HOU:3782656.2 If you agree with the foregoing, please sign the enclosed counterpart of this Agreement and return it to the Representative. This Agreement shall become a binding agreement between the Issuer and the Underwriters when at Ieast the counterpart of this letter shall have been signed by or on behalf of each of the parties hereto. OPPENHEIMER & CO., INC., as Representative of the Underwriters identified on Schedule I hereto By: Name: Daniel Roseveare Title: Managing Director ACCEPTED at a.m./p.m. Central Time this CITY OF SANGER, TEXAS By:_ Name: Title: Schedule I - List of Underwriters Schedule II - Schedule of Terms day of May 2017. S-1 City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017 HOU:37826561 If you agrec with the foregoing, please sign the enclosed counterpart of this �lgree�ncnt and return it to the Representative. This agreement sha.11 become a binding agreement between the Issuer and the Underwriters when at least the counterpart of this letter shall have been signed by or on behalf of each of the parties hereto. oPPENIR-u ER & CO., INC., as Representative of the Underwr ters identified on Schedule I hereto By:_ Name: Title: ACCEPTED at _j% "e rn../17.m. Central Time tl-.s -v4day of May 2017. CITY OF SANGER, TEXAS 4 7f7g Schedule I - Dist of Underwriters ,Schedule 11- Schecl.ide of Terms S-1. City of Sanger, 'Texas Combination Tax and Revenue Certificates of Obligation, Series 2017 P:rrorl Tlnlcrlown document properly natrlC. SCHEDULEI List of Underwriters Oppenheimer & Co., Inc. 13455 Noel Road, Suite 1200 2 Galleria Tower Dallas, Texas 75240 William Blair & Company 9910 IH 10 West, 800 Office 8056 San Antonio, Texas 78230 HOU:3782656.2 Schedule II $9,240,000 City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017 Interest Accrues From: Date of Delivery Maturity Date Principal Interest Initial a 15 Amount Rate Yield) 2022 $85,000 3.000% 1.950% 2023 100,000 3.000 2.050 2024 115,000 3.000 2.200 2025 115,000 4.000 2.350 2026 115,000 4.000 2.450 2027(a) 390,000 4.000 2.460 2028(a) 545,000 4.000 2.500 2029(a) 560,000 4.000 2.600 2030(a) 585,000 4.000 2.660 2031(a) 605,000 4.000 2.770 2032(a) 630,000 4.000 2.850 2033(a) 660,000 4.000 2.920 2034(a) 1,010,000 4.000 3.050 2035(a) 1,050,000 4.000 3.130 2036(a) 1,090,000 4.000 3.180 2037(a) 1,585,000 4.000 3.280 (a) The Certificates stated to mature on and after May 15, 2027 are subject to optional redemption prior to maturity, in whole or in part, on May 15, 2026 or any date thereafter, at a redemption price of par plus accrued interest to the date of redemption. (b) The initial reoffering prices or yields of the Certificates are furnished by the Underwriters and represent the initial offering prices or yields to the public, which may be changed by the Underwriters at any time. HOU:3782656.2 PAYING AGENT/REGISTRAR AGREEMENT THIS PAYING AGENT/REGISTRAR AGREEMENT dated as of May 1, 2017 (together with any amendments or supplements hereto, the "Agreement") is entered into by and between the CITY OF SANGER, TEXAS (the "Issuer"), and BOKF, NA, Austin, Texas, as paying agent/registrar (together with any successor in such capacity, the "Bank"). WITNESSETH: WHEREAS, the Issuer has duly authorized and provided for the issuance of its City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017 (the "Certificates") in the aggregate principal amount of $9,240,000 to be issued as fully registered certificates; WHEREAS, all things necessary to make the Certificates the valid obligations of the Issuer, in accordance with their terms, will be done upon the issuance and delivery thereof; WHEREAS, the Issuer and the Bank wish to provide the terms under which the Bank will act as Paying Agent to pay the principal of, redemption premium, if any, and interest on the Certificates, in accordance with the terms thereof, and under which the Bank will act as Registrar for the Certificates; and WHEREAS, the Issuer and the Bank have duly authorized the execution and delivery of this Agreement; and all things necessary to make this Agreement the valid agreement of the parties, in accordance with its terms, have been done. NOW, THEREFORE, it is mutually agreed as follows: ARTICLE ONE APPOINTMENT OF BANK AS PAYING AGENT AND REGISTRAR Section 1.01. Appointment, The Issuer hereby appoints the Bank to act as Paying Agent with respect to the Certificates, to pay to the Registered Owners of the Certificates, in accordance with the terms and provisions of this Agreement and the ordinance authorizing the issuance of the Certificates (the "Ordinance"), the principal of, redemption premium, if any, and interest on all or any of the Certificates. The Issuer hereby appoints the Bank as Registrar with respect to the Certificates. The Bank hereby accepts its appointment, and agrees to act as Paying Agent and Registrar with respect to the Certificates. OHSUSA:766779488.1 Section 1.02. Compensation. In consideration of the deposits of funds required to be made with the Bank by the Issuer pursuant to the provisions of the Ordinance, the Bank shall be paid the fees set forth in the Bank's fee schedule attached as Exhibit A hereto and agrees to abide by and accept the terms hereof and of the Ordinance relating to the duties of the Paying Agent/Registrar. FW11149re00I"yTH DEFINITIONS Section 2.01. Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: "Bank" means BOKF, NA, Austin, Texas, a commercial bank which is a national bank duly organized and existing under the laws of the United States of America. "Certificate" or "Certificates" means any one or all of the "City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017" authorized by the Ordinance. "Issuer" means the City of Sanger, Texas. "Ordinance" means the ordinance of the Issuer approved by its City Council on May 1, 2017 pursuant to which the Certificates are issued. "Paying Agent" means the Bank when it is performing the function of paying agent. "Person" means any individual, corporation, partnership, joint venture, associations, joint stock company, trust, unincorporated organization or government or any agency or political subdivision of a government or any entity whatsoever. "Registrar" means the Bank when it is performing the function of registrar. "Registered Owner" means the Person in whose name any Certificate is registered in the books of registration maintained by the Bank under this Agreement. All other capitalized terms shall have the meanings assigned to theirs in the Ordinance. 2 OHSUSA:766779488.1 ARTICLE THREE DUTIES OF THE BANK Section 3.01. Initial Delivery of the Certificates. The Certificates will be initially registered and delivered by the Bank to the purchaser designated by the Issuer as set forth in the Ordinance. If such purchaser delivers a written request to the Bank not later than five business days prior to the date of initial delivery, the Bank will, on the date of initial delivery, exchange the Certificates initially delivered for Certificates of authorized denominations, registered in accordance with the instructions in such request and the Ordinance. Section 3.02. Duties of Paying Agent. As Paying Agent, the Bank shall, provided adequate funds have been provided to it for such purpose by or on behalf of the Issuer, timely pay on behalf of the Issuer the principal of and interest on each Certificate in accordance with the provisions of the Ordinance. If the issue is to be Depository Trust Company (DTC) eligible, the Paying Agent will comply with all eligibility requirements as outlined and agreed upon in the eligibility questionnaire. Section 3.03. Duties of Re istrar. The Bank shall provide for the proper registration of the Certificates and the timely exchange, replacement and registration of transfer of the Certificates in accordance with the provisions of the Ordinance. Any changes to Registered Owners for such exchange, replacement and registration shall be made by the Bank only in accordance with the Ordinance. The Bank will maintain the books of registration in accordance with the Bank's general practices and procedures in effect from time to time; provided, however, that the Bank agrees to maintain books of registration for the Certificates at the City Secretary's office in City of Sanger, Texas, which books of registration may be a copy of the register which shall be kept current by the Bank. Section 3.04. Unauthenticated Certificates. The Issuer shall provide an adequate inventory of unauthenticated Certificates to facilitate transfers. The Bank covenants that it will maintain such Unauthenticated Certificates in safekeeping and will use reasonable care in maintaining such Certificates in safekeeping, which shall be not less than the care it maintains for debt securities of other government entities or corporations for which it serves as registrar, or which it maintains for its own bonds. 3 OHSUSA:766779488.1 Section 3.05. Reports. Upon request of the Issuer, the Bank will provide the Issuer reports which will describe in reasonable detail all transactions pertaining to the Certificates and the books of registration for the period of time specified by the Issuer. The Issuer may also inspect and make copies of the information in the books of registration and such other documents related to the Certificates and in the Bank's possession at any time the Bank is customarily open for business, provided that reasonable time is allowed the Bank to provide an up-to-date listing or to convert the information into written form. The Bank will not release or disclose the content of the books of registration to any person other than to, or at the written request of, an authorized officer or employee of the Issuer, except upon receipt of a subpoena, court order or as otherwise required by law. Upon receipt of a subpoena, court order or other lawful request, the Bank will notify the Issuer immediately so that the Issuer may contest the subpoena, court order or other request if it so chooses. Section 3.06. Canceled Certificates. All Certificates surrendered for payment, redemption, transfer, exchange or replacement, if surrendered to the Bank, shall be promptly canceled by it and, if surrendered to the Issuer, shall be delivered to the Bank and, if not already canceled, shall be promptly canceled by the Bank. The Issuer may at any time deliver to the Bank for cancellation any Certificates previously authenticated and delivered which the Issuer may have acquired in any manner whatsoever, and all Certificates so delivered shall be promptly canceled by the Bank. All canceled Certificates held by the Bank shall be destroyed and evidence of such destruction shall be furnished to the Issuer. Section 3.07. Reliance on Documents Etc. (a) The Bank may conclusively rely, as to the truth of the statements and correctness of the opinions expressed therein, on certificates or opinions furnished to the Bank by the Issuer. (b) The Bank shall not be liable to the Issuer for actions taken under this Agreement as long as it acts in good faith and exercises due diligence, reasonableness and care, as prescribed by law, with regard to its duties hereunder. (c) This Agreement is not intended to require the Bank to expend its own funds for performance of any of its duties hereunder. (d) The Bank may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attorneys. (e) The Bank is also authorized to transfer funds relating to the closing and initial delivery of the securities in the manner disclosed in the closing memorandum approved by the Issuer as prepared by the Issuer's financial advisor or other agent. The Bank may act on a M OHSUSA:766779488.1 facsimile transmission of the closing memorandum to be followed by an original of the closing memorandum signed by the financial advisor or the Issuer. Section 3.08. Money Held by Bank. Money held by the Bank hereunder shall be held in trust for the benefit of the Registered Owners of the Certificates, with such money in the account that exceed the deposit insurance available to the Issuer, provided by the Federal Deposit Insurance Corporation, to be fully collateralized with securities or obligations that are eligible under the laws of the State of Texas to secure and be pledged as collateral for trust accounts until the principal and interest on such Certificates have been presented for payment and paid to the Owner thereof. The Bank shall be under no obligation to pay interest on any money received by it hereunder. All money deposited with the Bank hereunder shall be secured in the manner and to the fullest extent required by law for the security of funds of the Issuer. Any money deposited with the Bank for the payment of the principal of or interest on any Certificates and remaining unclaimed by the Registered Owner after the expiration of three years from the date such funds have become due and payable shall be reported and disposed of by the Bank in accordance with the provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. To the extent such provisions of the Property Code do not apply to the funds, such funds shall be paid by the Bank to the Issuer upon receipt of a written request therefor from the Issuer. The Bank shall have no liability to the Registered Owners of the Certificates by virtue of actions taken in compliance with the foregoing provision. ARTICLE FOUR MISCELLANEOUS PROVISIONS Section 4.01. May Own Certificates. The Bank, in its individual or any other capacity, may become the owner or pledgee of Certificates with the same rights it would have if it were not the Paying Agent and Registrar for the Certificates. Section 4.02. Amendment. This Agreement may be amended only by an agreement in writing signed by both of the parties hereof. Section 4.03. Assignment. This Agreement may not be assigned by either party without the prior written consent of the other. OHSUSA:766779488.1 Section 4.04. Notices. Any request, demand, authorization, direction, notice, consent, waiver or other document provided or permitted hereby to be given or furnished to the Issuer or the Bank shall be mailed or delivered to the Issuer or the Bank, respectively, at the addresses shown herein, or such other address as may have been given by one party to the other by 15 days' written notice. Section 4.05. Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 4.06. Successors and Assigns. All covenants and agreements herein by the Issuer and the Bank shall bind their successors and assigns, whether so expressed or not. This Agreement shall not be assigned by the Bank without the prior written consent of the Issuer. Section 4.07. Severability. If any provision of this Agreement shall be invalid or unenforceable, the validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired. Section 4.08. Benefits of Agreement. Nothing herein, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any benefit or any legal or equitable right, remedy or claim hereunder. Section 4.09. Ordinance Governs Conflicts. This Agreement and the Ordinance constitute the entire agreement between the parties hereto relative to the Bank acting as Paying Agent and Registrar and if any conflict exists between this Agreement and the Ordinance, the Ordinance shall govern. The Bank agrees to be bound by the terms of the Ordinance with respect to the Certificates. Section 4.10. Term and Termination. This Agreement shall be effective from and after its date and may be terminated for any reason by the Issuer or the Bank at any time upon 60 days' written notice; provided, however, that no such termination shall be effective until a successor has been appointed and has accepted the duties of the Bank hereunder. In the event of early termination, regardless of circumstances, the Bank shall deliver to the Issuer or its designee all funds, Certificates and all books and records pertaining to the Bank's role as Paying Agent and Registrar with respect to the Certificates, including, but not limited to, the books of registration. C OHSUSA:766779488.1 Section 4.11. Governing Law. This Agreement shall be construed in accordance with and shall be governed by the laws of the State of Texas. OHSUSA:766779488.1 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the and year first above written. ATTEST: City ISKJOt"'y of S'l al��ir s 1lllfilitl3L� ATTEST: By: Title: (SEAL) CITY OF SANGER, TEXAS US 9 Mayor ADDRESS: 502 Elm Street Sanger, Texas 76266 BOKF, NA By;_ Title: ADDRESS: 100 Congress Avenue, Suite 250 Austin, Texas 78701 Attn: Corporate Trust Dept. 8 OHSU5A:766779488.1 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CITY OF SANGER, TEXAS Un Mayor ADDRESS: 502 Elm Street Sanger, Texas 76266 ATTEST: City Secretary (SEAL) BOKF, NA By. Ti e: .ADDRESS: 100 Congress Avenue, Suite 250 Austin, Texas 78701 Attn: Corporate Trust Dept. ATTEST: By: Title: �sJ�/7iLClST� QIx' (SEAL) 8 OHSUSA:766779488.1 EXHIBIT A See Attached Fee Schedule OHSUSA:766779488.1 130K FINANCIAL Services provided by BOKF, OVA $9,240,000 City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017 PAYING AGENT/REGISTRAR Schedule of Fees Acceptance Fee• $n Annual Administration Fee: $500.00 (Billed Semi -Annually @ $250.00 w/Debt Service) For ordinary administration services by Paying Agent /Registrar — includes daily routine account management and processing in accordance with the agreement. Float credit received by the bank for receiving funds that remain uninvested are deemed part of the Paying Agent's compensation. Call or Redemption of Bonds At Cost Cost includes distribution to holders of record, redemption processing and notification through DTC. Any and all publication expenses including Bond Buyer, Regional and Financial Periodicals for the call notice will be billed to the Issuer at cost. Charges for performing extraordinary or other services not contemplated at the time of the execution of the transaction or not specifically covered elsewhere in this schedule will be determined by appraisal in the amounts commensurate with the service provided. Counsel fees, if ever retained as a result of a default, or other extraordinary occurrences on behalf of the bondholders or Bank of Texas, will be billed at cost. Services not included in this Fee Schedule, but deemed necessary or desirable by you, may be subject to additional charges. Our proposal is subject in all aspects to review and acceptance of the final financing documents which sets forth our duties and responsibilities. Jose Gaytan BOK Financial Vice President Corporate Trust Services Tel: 512.813.2002 100 Congress Avenue Fax: 512.813.2020 Suite 250 JGa tan a bok .earn Austin, TX 787ol GENERAL CERTIFICATE STATE OF TEXAS COUNTY OF DENTON CITY OF SANGER We, the undersigned officers of the City of Sanger, Texas (the "City"), do hereby make and execute this certificate for the benefit of the Attorney General of the State of Texas and all other persons interested in the City's $9,240,000 CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2017, dated May 1, 2017 (the "Certificates"), now in the process of issuance, as follows: (1) The City is a duly incorporated Home Rule City, operating and existing under the Constitution and laws of the State of Texas and the City's home rule chatter, which charter has not been changed or amended since the passage of the ordinance authorizing the issuance of the City's last obligations issued by the City and approval by the Attorney General of the State of Texas which were the City of Sanger, Texas General Obligation Refunding Bonds, Series 2016, dated June 1, 2016. According to the U.S. Census, the City's 2010 population was 6,916. The U.S. Census estimates indicate the City's population of 7,747 as of September 30, 2016. (2) The Certificates are being issued to provide funds (1) to pay contractual obligations to be incurred for (i) restoration, replacement, rehabilitation and expansion of the wastewater and water systems including the treatment plant and (ii) street and drainage improvements and (2) for the payment of contractual obligations for professional services pursuant to Subchapter C of Chapter 271, Texas Local Government Code, as amended. (3) The currently effective ad valorem tax appraisal roll of the City (the "Tax Roll") is the Tax Roll prepared and approved during the calendar year 2016, being the most recently approved Tax Roll of the City; the taxable property in the City has been appraised, assessed and valued as required and provided by the Texas Constitution and Property Tax Code (collectively, "Texas law"); the Tax Roll for the year has been submitted to the City Council of the City as required by Texas law, and has been approved and recorded by the City Council; and according to the Tax Roll for the year, the net aggregate taxable value of taxable property in the City (after deducting the amount of all applicable exemptions required or authorized under Texas law), upon which the annual ad valorem tax of the City has been or will be imposed or levied, is $562,285,185. (4) The following individuals were the duly elected and qualified Mayor, and City Council of the City holding the offices opposite their names: Thomas Muir Gary Bilyeu Lee Allison William Boutwell Allen Chick David Clark Mayor Mayor Pro Tem Councilmember Councilmember Councilmember Councilmember (5) Cheryl Price is the duly appointed and qualified City Secretary of the City. (6) The Net Revenues of the waterworks and sewer system have not been pledged in any other manner or for any other purpose, and the pledge of the Net Revenues of the waterworks and sewer OHSUSA:766779490.2 system to the Certificates evidences the only lien, encumbrance, or indebtedness of the waterworks and sewer system or against Net Revenues of the waterworks and sewer system. (7) Attached to this certificate as Exhibit A is a true, frill and correct debt service schedule for the Certificates. Attached as Exhibit B is a true, full and correct debt service schedule for all of the City's outstanding tax supported debt, including the Certificates. The principal amount of the City's total outstanding tax supported debt, including the Certificates, is $26,370,000. (8) The following is a true, full and current schedule of water and sewer system revenues, remaining after the payment of all operation and maintenance expenses thereof ("Net Revenues"), for the last three fiscal years: Fiscal Year Ended September 30 2014 2015 2016 $2,422,898 $3,357,968 $ 2,904,476 (9) The current rates and charges for services provided by the waterworks and sewer system are set forth in Exhibit C. (10) The City is not in default as to any covenant, condition or obligation on any prior bonds or other obligations payable from the Net Revenues of the waterworks and sewer system. (11) The proceeds of the Certificates will not be used for any purpose previously rejected by voters in any bond election held during the preceding three years. (12) With respect to the contracts executed in connection with the authorization and issuance of the Certificates, all disclosure filings and acknowledgments required by Section 2252.908, Texas Government Code, and the rules of the Texas Ethics Commission related to said provisions, have been or will be made. 2 OHSUSA:766779490.2 SIGNED AND SEALED this May 1, 2017. Ci Se re CITY OF SANGER, TEXAS Mayor �Gc.Li' : 111f," l2 OHSUSA:766779490.1 Exhibit A Debt Service Schedule for the Certificates City of Sanger, TX Combination Tax & Revenue Certificates of Obligation, Series 2017 Final Pricing - 511/2017 @ 2,15 prat Central Period Ending Principal Coupon Interest Debt Service 09130/2018 363,545 363,545 09/3012019 366,600 366,600 09/30/2020 366,600 366,600 09/30/2021 366,600 366,600 09/3012022 85,()00 3.000ya 366,600 451,600 09130/2023 100,000 3.00GYa 3640050 464,050 09/30/2024 115,000 3.000YD 361,050 476,050 09/30/2025 115,000 4.0009/6 357,600 472,600 09/30/2026 115,000 4.00GY6 353,000 468,000 09/30/2027 390,000 4.000% 348,400 738,400 09/30/2028 545,000 4.000% 332,800 877,8{)0 09/30/2029 560,000 4.000% 311,000 871,000 09/30/2030 585,000 4.000% 288,600 873,600 05/30/2031 605,000 4.00OVa 265,200 970,200 09130/2032 630,000 4.00GY6 241,000 871,000 09/30/2033 660,000 4.0009/6 215,800 875,800 09/30/2034 1,010,000 4.000% 189,400 1,199,400 09/30/2035 1,050,000 4.00GY6 149,000 1,199,000 09130/2036 1,090,000 4.000% 107,000 1,197,000 09/30/2037 1,585,000 4.0013% 63,400 1,648,4{){) 9,240,000 5,777,24S 1S,017,245 OHSUSA:766779490.2 Exhibit B Debt Service Schedule for All of the City's Outstanding Tax Supported Debt PRO FORK U GENERAL OBLIGATION DEBT SERVICE REQUUMIENTS LULE 11 Fiscal Fear ExistIn-Debt Total Debt 30-Sept senlce Principal Interest selTice 2018 $1,989,435 363,545 $ 2352,980 2019 1:991,970 366,600 2,358,1570 2020 I992,135 366,600 2359,735 2021 1,989,780 366,600 2:356,380 2022 1z198,061 85,000 366,600 1.649,661 2023 1.184,635 100,000 364,1050 1,648fi85 2024 1,175,045 115,000 361,050 1.651,095 2025 1,173,605 115,000 3517,600 11646,205 2026 1z178,309 115,000 353,000 1.646,308 2027 910,945 390,000 348,400 1fi49,345 2028 773,325 545,000 332,800 1=651,125 2029 775,200 1560,000 311,000 1,646,200 2030 774,844 1585,000 288,600 1,648,444 2031 778,000 605,000 265,200 1,648,200 2032 774,938 630,000 241,000 1fi45,939 2033 770,656 660,1000 215,900 1,646,456 2034 450,313 1.010,000 189,400 1.649,713 2035 449,656 1.050,000 149,000 1.648,656 2036 453,344 1.090,000 107,000 1.650,344 2037 - 1:585,000 63,400 1.648,400 TOTAL $20,7 84.194 $ 9,240,000 $5,737,245 $35,01,439 OHSUSA:766779490.2 WATER RATES Exhibit C Waterworks and Sewer System Rates Existing Rates Residential (Effective April 1, 2017) Minimum per unit served for 0 - 1,000 gallons $11.74 Next 4,000 gallons 3.86 per thousand gallons Next 10,000 gallons 4.25 per thousand gallons Next 15,000 gallons 530 per thousand gallons Over 30,000 7,68 per thousand gallons Commercial (Effective April 1, 2017) Minimum per unit served for 0 - 1,000 gallons $28.32 Next 4,000 gallons 4 A9 per thousand gallons Next 10,000 gallons 4.86 per thousand gallons Next 15,000 gallons 5.50 per thousand gallons Over 30,000 6.79 per thousand gallons Si NVER RATES Existing Rates Residential (Effective April 18, 2016) Minimum (first 1,000 gallons) $27.50 Per 1,000 gallons over first 1,000 gallons 3.90 Per 1,000 gallons in excess of 10,000 gallons 4.34 Maximum per month 65.00 Commercial (Effective April 18, 2016) 1/4 inch meter $ 40.48 1 inch meter 44.30 11/2 inch meter 50.40 2 inch meter 61.10 3 inch meter 75.60 4 inch meter 140.32 6 inch meter 186-50 8 inch meter 246.14 Per 1,000 gallons over first 1,000 gallons 3.90 Per 1,000 gallons in excess of 10,000 gallons 4.34 Muld-Fandly Dwellings The amount due for multi -family dwellings shall be the residential rate multiplied by the number of occupied dwelling units. TABLE 5 TABLE 7 OHSUSA:766779490.2 ELECTRIC RATEV Facility Charge (minimum per month) Energy Charge (per MR) ERCOT Pass -through per month Existing Rates (Effective April 18, 2107) Large Residential Commercial Industrial S 10.00 $16.00 535.00 S 0.1175 S 0.12 $0.105 S 4.00 S 4.00 S 4.00 TABLF9 OHSUSA:766779490.2 SIGNATURE IDENTIFICATION AND NO -LITIGATION CERTIFICATE THE STATE OF TEXAS § COUNTY OF DENTON § CITY OF SANGER § We, the undersigned officers of the City of Sanger, Texas (the "City"), certify that we officially signed, by our manual or facsimile signatures, on behalf of the City, the following described certificates of obligation, to wit: CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2017, dated May 1, 2017, and aggregating $9,240,000 (the "Certificates"). That the Certificates have been duly and officially executed by the undersigned with their manual or facsimile signatures in the same manner appearing hereon, and the undersigned hereby adopt and ratify their respective signatures in the manner appearing on each of the Certificates, whether in manual or facsimile form, as the case may be, as their own signatures. That on the date of such signing and on the date hereof, we were and are the duly chosen, qualified and acting officers authorized to execute the Certificates, and holding the official titles set forth below opposite such signatures. We further certify that no litigation is pending or, to our knowledge, threatened in any court in any way affecting the existence or boundaries of the City or the titles of its officers to their respective positions or their authority to act on the City's behalf or to restrain or enjoin the issuance or delivery of the Certificates, or the levy, collection or application of the ad valorem taxes or revenues pledged or to be pledged to pay the principal of and interest on the Certificates, or the pledge thereof, or in any way contesting or affecting the validity of the Certificates, the ordinance adopted on May 1, 2017 authorizing the issuance, sale and delivery of the Certificates (the "Ordinance"), or contesting the powers of the City or the authorization of the Certificates or the Ordinance, or contesting in any way the accuracy, completeness or fairness of the Official Statement. We further certify that the seal that has been impressed, or placed in facsimile, upon each of the Certificates is the legally adopted, proper and only official seal of the City, such official seal being impressed upon this certificate. We further certify that no petition or other request has been filed with or presented to any official of the City requesting that any of the proceedings authorizing the Certificates be submitted to a referendum or other election. We further certify that the information and data contained in the General Certificate dated May 1, 2017 remain true and correct as of this date. OHSUSA:766779494.1 WITNESS OUR HANDS AND THE SEAL OF THE CITY this �a 52017. SIGNATURES (CITY SEAL) TITLE OF OFFICE Mayor, City of Sanger, Texas City Secretary, City of Sanger, Texas Before me, on this day personally appeared the foregoing individuals, known to me to be -i-& persons whose names were subscribed in my presence to the foregoing instrument. Given under my hand and seal of office this May_, 2017. KAY LYNN PRAiHIER No cry Public, State of Texas •y ., ,� COMA Ixplrec 09.23-2020 ' OHSUSA:766779494.1 FEDERAL TAX CERTIFICATE CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATES OF OBLIGATION, SERIES 2017 I, the undersigned officer of the City of Sanger, Texas, a political subdivision of the State of Texas (together with any successor to its duties and functions, the "City") make this certification for the benefit of all persons interested in the exclusion from gross income and certain other treatment for federal income tax purposes of the interest to be paid on the City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017 (the "Certificates") in the aggregate principal amount of $9,240,000, which are being issued and delivered simultaneously with the delivery of this certificate (the "Certificate"). I do hereby certify as follows: 1. General. I am the duly chosen, qualified and acting officer of the City for the office shown below my signature. In such capacity, I am charged, along with others, with responsibility for issuing the Certificates. I am familiar with the facts, estimates and expectations certified herein, and I am duly authorized to execute and deliver this Certificate. I am familiar with the provisions of ordinance, adopted on May 1, 2017, authorizing the issuance of the Certificates (the "Ordinance"), and particularly the provisions thereof relating to the treatment of the Certificates and the interest thereon for federal income tax purposes. I am aware of the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), including Sections 103 and 141 through 150 thereof, and the Treasury Regulations (the "Regulations") promulgated under the Code. This Certificate is being executed and delivered pursuant to the relevant provisions of the Code and Sections 1.141-1 through 1.141-15, 1.148-0 through 1.148-11, 1.149(d), 1.149(g)-1, 1.150-1 and 1.150-2 of the Regulations. Certain terms used herein have the same meanings as given to those terms in the Code and the Regulations. Capitalized terms used in this Certificate (unless otherwise indicated herein) shall have the meanings ascribed to them in the Ordinance. 2. Reasonable Expectations. As an officer of the City responsible for issuing the Certificates, the undersigned hereby certifies, in good faith, that the City's expectations, as of the Issue Date (as defined herein), regarding the amount and use of the gross proceeds of the Certificates and other matters relevant to the treatment of interest on the Certificates for federal income tax purposes are accurately and completely stated herein, that all of such expectations are reasonable and are based on the facts and estimates stated in this Certificate, that all of the facts and estimates stated in this Certificate are accurate. The undersigned has relied on certain representations made by Oppenheimer & Co., Inc., the underwriter that purchased the Certificates from the District (the "Underwriters") in the Certificate of Underwriter, attached hereto as Exhibit A and certain representations made by Government Capital Securities Corporation, the financial advisor to the City (the "Financial Advisor") in the Certificate of Financial Advisor, attached hereto as Exhibit B. The undersigned is aware of no other facts, estimates or circumstances which would indicate that any of the expectations stated herein are not reasonable. 3. Description of Governmental Purposes. The City is issuing the Certificates pursuant to the Ordinance to provide funds, which will be used: OHSUSA:766779496.2 (a) to pay contractual obligations to be incurred for (i) restoration, replacement, rehabilitation and expansion of the wastewater and water systems including the treatment plant and (ii) street and drainage improvements (the "Project"); and (b) to pay the costs issuing the Certificates. 4. Proceeds of the Certificates. The sales proceeds from the sale of the Certificates is $9,997,696.65, which represents the aggregate principal amount of the Certificates of $9,240,000 plus original net issue premium of $757,696.65. 5. Use of Proceeds of the Certificates. The sales proceeds from the sale of the Certificates will be expended and applied by the City as follows: (a) Proceeds of the Certificates in the amount of $9,755,407.16 will be used to pay costs of the Project. (b) Proceeds of the Certificates in the amount of $71,015.00 represents the Underwriter's compensation and will be retained by the Underwriter from the sales proceeds as a cost to the City of issuing the Certificates. (c) Proceeds of the Certificates in the amount of $30,034.49 will be disbursed on the date hereof to pay the bond insurance premium for the Certificates. (d) Proceeds of the Certificates in the amount of approximately $141,240.00 will be used by the City to pay costs of issuance of the Certificates. 6. Pre -issuance Accrued Interest. Interest begins to accrue on the Certificates on the date hereof; therefore, the Certificates are being issued without pre -issuance accrued interest. 7. Replacement Proceeds. There are no amounts on hand, and there are no amounts expected to be received, other than amounts identified herein as proceeds of the Certificates and amounts to be held in the Debt Service Fund for the payment of debt service on the Certificates (as discussed in paragraphs 11 and 22) which have or will have at any time a sufficiently direct nexus to the Certificates or to any governmental purpose of the Certificates to conclude that such amounts would have been used for that governmental purpose if the proceeds of the Certificates were not used or to be used for that governmental purpose. More specifically -- (a) Sinking Funds and Pledged Funds. Other than the Debt Service Fund and the amounts and investments on deposit therein from time to time, there are not now and will not be at any time while the Certificates are outstanding -- i. any debt service fund, reserve fund, replacement fund, any similar fund, or any amount or investment reasonably expected to be used, directly or indirectly (such as, by the generation of income to be used), to pay principal or interest on the Certificates; and ii. any fund, amount, or investment that is directly or indirectly pledged to pay principal or interest on the Certificates. A pledge includes, but is not OHSUSA:766779496.2 limited to, any arrangement, regardless of its form, which provides reasonable assurance that the amount will be available to pay principal or interest, even if the City encounters financial difficulty. A pledge to a guarantor or an agreement to maintain an amount at a particular level or balance for the direct or indirect benefit of Certificate holder or a guarantor would constitute a pledge for this purpose. (b) No Other Replacement Proceeds. There will be no other replacement proceeds allocable to the Certificates. Based on the reasonable expectations of the City as of the date hereof, the term of the Certificates is no longer than, and the City will not allow the Certificates to remain outstanding longer than, is reasonably necessary for the governmental purposes for which the Certificates are being issued. The weighted average maturity of the Certificates does not exceed 120 percent of the reasonably expected economic life of the capital projects being financed or refinanced by the Certificates, determined in the same manner as provided under Section 147(b) of the Code. In addition, none of the proceeds of the Certificates will be used to finance working capital expenditures. 8. No Other Issue. There are no other tax-exempt obligations issued by the City or any related party of the City which (a) are sold at the same time as the Certificates (within 15 days), (b) are reasonably expected to be paid from the same source of funds as the Certificates and (c) have been or will be sold pursuant to the same plan of financing as the Certificates. 9. Temporary Period Requirements for the Certificates. (a) Compliance with Yield Restriction on Proceeds. With respect to all amounts constituting proceeds of the Certificates at any time, the City reasonably expects that such amounts will be invested for an allowable temporary period (and, to such extent, may be invested without regard to the yield on the Certificates), will be invested at a yield not materially higher than the yield on the Certificates, or will not be invested pending expenditure or reinvestment at a yield not materially higher than the yield on the Certificates. (b) Proceeds of the Certificates. With respect to the proceeds of the Certificates, the City expects that: i. The sale proceeds described in paragraph 5(a) and all investment proceeds therefrom, will be used to pay costs of the Project and will be invested for an allowable temporary period. ii. The sale proceeds described in paragraph 5(b), which represents the underwriters' compensation will be retained by the Underwriter and will not be received or invested by the City. iii. The sale proceeds described in paragraph 5(c), which represents cost to pay the insurance premium and will not be received or invested by the City. OHSUSA:766779496.2 iv. The sale proceeds described in paragraph 5(d), and all investment proceeds therefrom, will be used to pay costs of issuing the Certificates. To the extent not spent within 30 days from the date hereof, such amounts will be invested at a yield not materially higher than the yield on the Certificates. v. The sale proceeds and investment proceeds referred to above in this paragraph there are no other amounts which are expected to constitute proceeds of the Certificates. 10. Replacement Proceeds of the Certificates. Based on the expectations set forth in this Certificate, all amounts constituting replacement proceeds of the Certificates, if any, are expected to qualify at all times until spent for either the temporary period of 13 months applicable to a bona fide debt service fund or as a reasonably required reserve or replacement fund for the Certificates and, in either case, may be invested, to such extent, without regard to yield restriction. To the extent amounts constitute replacement proceeds of the Certificates that do not qualify for either of such exceptions, such amounts will be invested at a yield not materially higher than the yield on the Certificates. 11. All Amounts in Compliance. Based on the foregoing, the City reasonably expects that all gross proceeds of the Certificates will be invested for an allowable temporary period (and, to such extent, may be invested without regard to the yield on the Certificates), will be invested (or will be treated as invested) at a yield not materially higher than the yield on the Certificates, will not be invested pending expenditure, or will be invested as a reasonably required reserve or replacement fund for the Certificates (and, to such extent, may be invested without regard to the yield on the Certificates). To the extent any amounts constituting gross proceeds of the Certificates are not received, invested, or expended as described herein, the City will restrict the investment and reinvestment of such amounts to a yield, not materially higher than the yield on the Certificates or on the Prior Certificates, as applicable. The City will monitor all receipts, investments, reinvestments, and expenditures while the Certificates are outstanding in to assure that the foregoing expectations are realized. 12. No Overissuance. Based on the expectations set forth in the preceding paragraphs, the amount of the proceeds from the issuance of the Certificates, plus all investment proceeds to be received with respect to the Certificates, does not exceed by any amount, the amount required for the governmental purposes for which the Certificates are being issued, as described in paragraph 3 above. 13. Flow of Funds. Under the Ordinance, the City is obligated to levy, assess and collect an ad valorem tax on all taxable property located in the City in an amount sufficient to pay debt service on the Certificates. All taxes levied, assessed and collected by the City for and on account of the Certificates will be deposited into the Debt Service Fund. 14. Issue Price. The term "Issue Price," with respect to the entire issue of Certificates, means the aggregate of the initial offering prices for all of the Certificates, plus pre - issuance accrued interest as of date of issue on the entire issue of Certificates (unless as otherwise indicated herein). For substantially identical Certificates, the Issue Price is the first price at which a substantial amount (i.e., at least ten percent) was sold to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters and 4 OHSUSA:766779496.2 wholesalers). Based on the foregoing and on the Certificate of Underwriter, attached as Exhibit A and incorporated herein by reference, the Issue Price of the Certificates, without taking into account any costs of issuance or pre -issuance accrued interest, is $9,997,696.65. The Certificates were issued without pre -issuance accrued interest. 15. Yield on the Certificates. For purposes of this Certificate, the term "yield" shall have the meaning ascribed to it in Section 148(h) of the Code and the Regulations in effect thereunder and, when used with respect to the Certificates, shall mean that interest rate which when used as a discount factor to compute the present value as of the Issue Date of all scheduled payments of principal of and interest on the Certificates produces an amount equal to (i) the Issue Price of the Certificates, plus (ii) pre -issuance accrued interest on the Certificates as of the Issue Date. Yield on the Certificates shall not take into account or reflect any underwriters discount or cost of issuance of the Certificates. For purposes hereof, yield is and shall be calculated on the basis of a 360-day year with interest compounded semi-annually. The insurance premium (the "Insurance Premium") paid to insure the Certificates, constitutes a fee for a qualified guarantee; thus the Insurance Premium in the amount of $30,034.49 will be treated as additional interest on the Certificates for the purpose of calculating the yield on the Certificates. With respect to the fee, Insurance Premium, the City represents makes the representations set forth below: (a) Interest Savings. The present value of the interest savings expected to be realized as a result of such guarantee exceeds the present value of the Insurance Premium discounted at a rate equal to the yield on the Certificates which results assuming recovery of the Insurance Premium. (b) Guarantee In Substance. The guarantee imposes secondary liability on Build America Mutual Assurance Company (the "Insurance Provider") that unconditionally shifts substantially all of the credit risk for all or part of the payments on the Certificates. The Insurance Provider is not a co -obligor and does not expect to make any payments other than payments for which it will be reimbursed immediately. The Insurance Provider and related parties thereto will not use more than ten percent of the gross proceeds of the Certificates that are guaranteed by the Insurance Provider. (c) Reasonable Charges. The Insurance Premium does not exceed a reasonable arms -length charge for the transfer of credit risk. The Insurance Premium is separately stated from all other fees and payments payable by the City to the Insurance Provider for any other direct or indirect services other than transfer of the credit risk. The Insurance Premium does not include payment for the cost of underwriting or remarketing the Certificates or for the cost of casualty insurance for property financed or refinanced by the Certificates. The Insurance Premium is not refundable upon redemption of the Certificates prior to maturity. The yield with respect to the Certificates subject to optional redemption is computed by treating each Certificate as retired at the stated redemption price on the final maturity date because (i) the City has no present intention to redeem prior to maturity the Certificates which are subject to optional redemption, (ii) no Certificate is subject to optional redemption at any time for a price less than the retirement price at final maturity plus accrued interest, (iii) no Certificate is subject to optional redemption within five years of the Issue Date, (iv) no 5 OHSUSA:766779496.2 Certificate subject to optional redemption is issued at an Issue Price that exceeds the stated redemption price at maturity of such Certificate by more than one-fourth of one percent multiplied by the product of the stated redemption price at maturity of such Certificate and the number of complete years to the first optional redemption date for such Certificate; and (v) no Certificate subject to optional redemption bears interest at a rate that increases during the term of the Certificate. The yield on the Certificates, calculated by the Financial Advisor in the manner described above and in the Certificate of Financial Advisor, Exhibit B hereto, is 2.961870 percent. 16. Weighted Average Maturity. As calculated by the Financial Advisor in the manner described below and set forth in the Certificate of Financial Advisor, Exhibit B hereto, the weighted average maturity of the Certificates is 15.6228 years, which is the sum of the products of the Issue Price of each group of identical Certificates and the number of'years to maturity (determined separately for each group of identical Certificates and taking into account mandatory redemptions), divided by the aggregate sale proceeds of the Certificates. 17. IRS Form 8038-G. Attached hereto as Exhibit C is a copy of the IRS Form 8038- G required to be filed with the Internal Revenue Service in connection with the issuance of the Certificates. To the best of my knowledge, the information included in the attached IRS Form 8038-G is true, accurate and complete. 18. Qualified Tax -Exempt Bonds. Section 265 of the Code permits designation of governmental bonds such as the Certificates as "qualified -tax-exempt bonds." The Certificates have been, or are hereby, designated by the District as a "qualified tax-exempt bonds" for purposes of Section 265(b)(3) of the Code. The Certificates are not private activity bonds within the meaning of Section 141(a) of the Code. The District (and all entities related to the District) does not reasonably expect to issue, and will not designate, tax-exempt bonds, including the Certificates, in an aggregate amount (based in each case on the higher of the principal amount or the issue price) in excess of $10,000,000 during the calendar year 2017. 19. Debt Service Fund. Pursuant to the Ordinance, the City created the City of Sanger Combination Tax and Revenue Certificates of Obligation Debt Service Fund (the "Debt Service Fund") to be used primarily to achieve a proper matching of revenues and debt service on the Certificates within each Certificate year. The City expects that the taxes levied, assessed and collected each year, and amounts received from investment of moneys held in the Debt Service Fund, will be sufficient to pay debt service each year on the Certificates. The City will adjust the annual tax rates as necessary, taking into account other moneys available or to be available for the payment of debt service on the Certificates. The portion of the Debt Service Fund which will be depleted by the payment of debt service on the Certificates at least once each Certificate year, except for a reasonable carryover amount not to exceed the greater of (a) one year's earnings on the Debt Service Fund for the immediately preceding Certificate year or (b) one -twelfth of the principal and interest payments on the issue for the immediately preceding Certificate year, will constitute a bona fide Debt Service Fund and will be treated as a separate fund (the "Bona Fide Portion") for purposes of this Certificate. Amounts, other than proceeds of the Certificates, remaining in the Debt Service Fund, after the annual payment of all principal of and interest and premium, if any, on the Certificates, other than the reasonable carryover amount described in the 6 OHSUSA:766779496.2 preceding sentence will be treated for purposes of this Certificate as a separate fund (the "Reserve Portion"). The City reasonably expects that the sum of any amounts in the Debt Service Fund which (i) are allocable to such Reserve Portion or (ii) are allocable to the Bona Fide Portion, but are not spent for the payment of debt service on the Certificates within 13 months after the date of receipt of such amount, will not exceed the least of (x) 10 percent of the Issue Price (as defined in paragraph 14), (y) the maximum annual principal and interest requirements on the Certificates, or (z) 125 percent of the average annual principal and interest requirement on the Certificates, at any time so long as the Certificates are outstanding. To the extent any such accumulations exceed such amount, the excess amount will be invested at a yield not in excess of the yield on the Certificates, except as set forth in paragraph 20 below. 20. No Other Sinking Funds. Other than the Debt Service Fund, there are no other funds or accounts comprised of investment property established by and on behalf of the City (a) which are expected to be used, or expected to generate earnings to be used, to pay debt service on the Certificates, or which are reserved or pledged as collateral for payment of debt service on the Certificates and (b) for which there is reasonable assurance that amounts therein will be available to pay debt service on the Certificates if the City encounters financial difficulties. Use of amounts in the Debt Service Fund is described above. There is no other fund established, or to be created or established, which would be treated as a sinking fund with respect to the Certificates. 21. Minor Portion. The City expects that the gross proceeds of the Certificates, including all proceeds received with respect to the Certificates and all investment proceeds received on such amounts, and all other amounts pledged or anticipated to be used to pay principal of and interest on the Certificates, other than amounts representing a portion of the Bona Fide Portion of the Debt Service Fund, will be expended in accordance with paragraphs 5 and 9 above. To the extent that such amounts remain unexpended or are otherwise on hand following the periods set forth in paragraph 9 above exceeds the amount specified in this paragraph, the City will invest such amounts, other than a minor portion in an amount not exceeding the lesser of 5 percent of the sale proceeds of the Certificates or $100,000 in the aggregate, at a yield not materially higher than the yield on the Certificates. 22. Identification of Replacement Proceeds. Notwithstanding the expectations of the City as stated above in paragraph 11 the City will (at all times while the Certificates are outstanding) identify all replacement proceeds with respect to the Certificates, including any sinking fund created for repayment of the principal or interest on the Certificates or any other amounts held in any fund of the City reasonably expected by the City to be used to pay the principal of or interest on the Certificates. If the City identifies any replacement proceeds and determines that a temporary period pursuant to Section 1.148-2(e) of the Regulations is not applicable to such replacement proceeds, the City will limit the yield on the investment of such replacement proceeds to the yield on the Certificates until such proceeds are treated as spent in accordance with the Regulations. The City acknowledges that failure to properly identify replacement proceeds and account for the investment and expenditure thereof as required by the Regulations may result in interest on the Certificates being includable in the gross income of the holders of the Certificates. 23. Compliance with Rebate Requirements. The City has covenanted in the Ordinance that, unless the Certificates meet an exception to the rebate requirement, it will take all necessary steps to comply with the requirement that rebatable arbitrage earnings on the investment 7 OHSUSA:766779496.2 of the gross proceeds of the Certificates, within the meaning of Section 148(f) of the Code, be rebated to the federal government. Specifically, the City will (i) maintain separate records regarding the amount and timing of disbursements of proceeds of the Certificates (ii) maintain records regarding the investment of the gross proceeds of the Certificates as may be required to calculate the amount earned on the investment of the gross proceeds of the Certificates which are part of a reasonably required reserve or replacement fund separately from records of amounts in other funds or accounts maintained for the Certificates amounts on deposit in the funds and accounts of the City allocable to other Bond issues of the City or moneys which do not represent gross proceeds of any Obligation of the City (iii) calculate at such times as required by applicable Regulations, the rebatable amount earned from the investment of the gross proceeds of any Obligation of the City, (iv) calculate at such times as required by applicable Regulations, the rebatable amount earned from the investment of the gross proceeds of the Certificates which are part of a reasonably required reserve or replacement fund, and (v) pay, not less often than every fifth anniversary date of the delivery of the Certificates or on such other dates as permitted or required by applicable Regulations, all amounts required to be rebated and all penalties required to be paid to the federal government. The City acknowledges that the purposes of compliance with Section 148 of the Code, gross proceeds of the Certificates must be accounted for on the basis of a reasonable, consistently applied method of accounting, not employed in whole or in part as an artifice or device. The City will employ accountants or other persons with expertise in performing the rebate calculations as is necessary to insure compliance with the Code. The City will employ legal counsel as is necessary to resolve the interpretive issues involved in complying with the rebate requirements of the Code. Further, the City will not indirectly pay any amount otherwise payable to the federal govermnent pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Certificates. In the event that the City fails to comply with the rebate requirements of the Code, the City agrees to take all steps available under the Code to bring the Certificates into compliance with the Code; such steps include paying any penalty, interest or other amounts which will allow the City to return to compliance with the rebate requirements of the Code. If the City is required to pay rebate or other amounts, such as penalties and interest, to the United States with respect to the Certificates pursuant to Section 148(f) of the Code in order to prevent the Certificates from constituting arbitrage Certificates or being otherwise classified or treated such that interest on the Certificates would not be excludable from the gross income of the holders thereof for federal income tax purposes, the City will timely make such payments from available funds of the City and the City reasonably expects that it will have the ability to make such payments from available funds of the City in the event such payments become necessary. The undersigned reasonably expects that the City will fulfill its covenants and representations in this regard. 24. Not a Refunding. No portion of the proceeds of the Certificates are expected to be used to pay any principal of or interest on any issue of governmental obligations other than the Certificates. 25. Reimbursement. Other than certain preliminary expenditures not to exceed 20 percent of the Issue Price of the Certificates or a de minimis exception in an amount not to exceed the lesser of $100,000 or 5 percent of the proceeds of the Certificates no portion of the proceeds of the Certificates will be allocated to, or otherwise used to reimburse, any expenditure paid by the City, either actually or constructively, prior to the date hererof. 8 OHSUSA:766779496.2 26. No Change in Use. The City does not expect to dispose of any portion of any project related to the Certificates, or to change the use of the proceeds of the Certificates while any of the Certificates are outstanding. 27. Not a Hedge Certificate. The Certificates do not constitute "hedge bonds" within the meaning of Section 1.149(g)-1 of the Regulations. 28. No Abusive Arbitrage Device. The Certificates are not and will not be a part of an issue in which an abusive arbitrage device (as defined in Section 1.148-10(a) of the Regulations) is used. Without limiting the foregoing, the Certificates are not and will not be a part of a transaction or series of transactions that attempts to circumvent the provisions of Section 148 of the Code and the Regulations, by (i) enabling the City to exploit the difference between tax- exempt and taxable interest rates to gain a material financial advantage, and (ii) increasing the burden on the market for tax-exempt obligations. In this regard, the City issued the Certificates for the primary purpose of accomplishing the bona fide governmental purposes set forth in paragraph 3 of this Certificate. Based on all the facts and circumstances, the City has not issued the Certificates in an amount higher than is reasonably necessary to accomplish the governmental purposes of the Certificates, the City has not issued the Certificates earlier than is reasonably necessary to accomplish the governmental purposes of the Certificates and the City is not allowing the Certificates to remain outstanding longer than is reasonably necessary to accomplish the governmental purposes of the Certificates. The City would have issued the Certificates regardless of any arbitrage benefit, which it may realize in connection with the Certificates. In fact, the City reasonably expects that even if the Certificates were not tax-exempt obligations and if market rates of interest on taxable and tax-exempt obligations were equal to each other and to the rates at which the Certificates are in fact now being issued, the City would have issued the Certificates, notwithstanding the loss of any opportunity to borrow at lower tax-exempt rates and invest at higher taxable rates. (a) No Impermissible Sinking Fund. No portion of the Certificates has a maturity determined primarily for the purpose of creating a sinking fund with respect to the Certificates the yield on which will be blended with the yield on the investment of other proceeds of the Certificates to reduce the negative arbitrage related to such investment. (b) No Working Capital. Except for an amount that does not exceed 5 percent of the Sale Proceeds of the Certificates (and that is directly related to capital expenditures financed by the Certificates), the City will only expend proceeds of the Certificates for (i) costs that would be chargeable to the capital accounts of the Project if the City's income were subject to federal income taxation and (ii) interest on the Certificates in an amount that does not cause the aggregate amount of interest paid on all of the Certificates to exceed that amount of interest on the Certificates that is attributable to the period that commences on the date hereof and ends on the later of (A) the date that is three years from the issue date of the Certificates or (B) the date that is one year after the date on which the Project is placed in service. 9 OHSUSA:766779496.2 (c) No Sale of a Conduit Loan. No portion of the gross proceeds of the Certificates has been or will be used to acquire, finance or refinance a conduit loan. 29. No Private Use, Payments or Loan Financing. (a) General. The City reasonably expects, as of the date hereof, that no action or event during the entire stated term of the Certificates will cause either the "private business tests" or the "private loan financing test, " as such terms are defined in the Regulations, to be met. i. No portion of the proceeds of the Certificates, or the facilities refinanced by the Certificates, will be used in a trade or business of a nongovernmental person. For purposes of determining use, the City will apply rules set forth in applicable Regulations and Revenue Procedures promulgated by the Internal Revenue Service, including, among others, the following rules: (A) any activity carried on by a person other than a natural person or a state or local governmental unit will be treated as a trade or business of a nongovernmental person; (B) the use of all or any portion of the proceeds of the Certificates is treated as the direct use of proceeds; (C) a nongovernmental person will be treated as a private business user of proceeds of the Certificates as a result of ownership, actual or beneficial use of the proceeds pursuant to a lease, or a management or incentive payment contract, or certain other arrangements such as a take -or -pay or other output -type contract; and (D) the private business use test is met if a nongovernmental person has special legal entitlements to use directly or indirectly the proceeds of the Certificates. ii. The City has not taken and will not take any deliberate action that would cause or permit the use of any portion of the proceeds of the Certificates, or the facilities refinanced by the Certificates, to change such that such portion will be deemed to be used in the trade or business of a nongovernmental person for so long as any of the Certificates remain outstanding (or until an opinion of nationally recognized Bond counsel is received to the effect that such change in use will not adversely affect the excludability from gross income for federal income tax purposes of interest payable on the Certificates). For this purpose any action within the control of the City is treated as a deliberate action. A deliberate action occurs on the date the City enters into a binding contract with a nongovernmental person for use of the proceeds of the Certificates that is not subject to any material contingencies. iii. No portion of the proceeds of the Certificates will be directly or indirectly used to make or finance a loan to any person other than a state or local governmental unit. (b) Dispositions of Personal Property in the Ordinary Course. Dispositions of personal property financed or refinanced with any portion of the proceeds of 10 OHSUSA:766779496.2 the Certificates will occur in the ordinary course of an established governmental program and will satisfy the following requirements: i. The weighted average maturity of the portion of the Certificates financing personal property is not greater than 120 percent of the reasonably expected actual use of such personal property for governmental purposes; ii. The reasonably expected fair market value of such personal property on the date of disposition will be not greater than 25 percent of its cost; iii. Such personal property will no longer be suitable for its governmental purposes on the date of disposition; and iv. The City is required to deposit amounts received from such disposition in a commingled fund with substantial tax or other governmental revenues and the City reasonably expects to spend such amounts on governmental programs within 6 months from the date of commingling. 30. No Arbitrage. On the basis of the foregoing facts, estimates and circumstances, it is expected that the proceeds of the Certificates will not be used in a manner that would cause any of the Certificates to be an "arbitrage Bond" within the meaning of Section 148 of the Code and the Regulations. To the best of the knowledge and belief of the undersigned, there are no other facts, estimates or circumstances that would materially change such expectations. 31. Record Retention. The City will take steps to ensure that all materials, records, and information necessary to confirm the exclusion of the interest on the Certificates under Section 103 of the Code are retained for a period beginning on the issue date of the Certificates and ending three years after the date the Certificates are retired. [SIGNATURE PAGE FOLLOWS] 11 OHSUSA:766779496.2 WITNESS MY BAND, this 18th day of May, 2017. CITY OF SANGER, TEXAS By Mayor EXHIBIT A — Certificate of Underwriter EXHIBIT B Certificate of Financial Advisor EXHIBIT C -- IRS Form 8038-G EXHIBIT D Declaration of Intent to Reimburse Prior Expenditures EXHIBIT E Post -Issuance Compliance Procedures City of Sanger, Texas Combination Tax and Revenue Certilzeates of Obligation, Series 2017 12 OHSUSA:766779496.1 The undersigned hereby certifies with respect to the sale of the City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017 (the "Certificates"), as follows: The undersigned is a duly authorized representative of Oppenheimer & Co., Inc. ("the Underwriter"), that purchased the Certificates from the City of Sanger, Texas (the "City"), pursuant to a negotiated sale. In this capacity, the undersigned is familiar with the facts stated herein. Capitalized terms not defined herein have the same meaning set forth in the Federal Tax Certificate to which this Certificate is attached (the "Federal Tax Certificate"). 1. The respective initial offering prices (exclusive of accrued interest) for each maturity (stated in term of dollars) of the Certificates are set forth on the cover of the Official Statement, issued in connection with the sale of the Certificates and dated May 1, 2017. 2. The Underwriter made a bona fide public offering to the Public of all of the Certificates of each maturity at the initial offering prices set forth on the cover of the Official Statement (the "Initial Offering Prices"). The Initial Offering Prices were determined by the Underwriters on the Sale Date based on their reasonable expectations regarding the Initial Offering Prices on such date. The first price at which at least 10 percent of each maturity of the Certificates was sold to the Public pursuant to the bona fide public offering on the Sale Date, was the respective Initial Offering Price for such maturity of the Certificates. Based on prevailing market conditions on the Sale Date, the Underwriter believes that the respective Initial Offering Prices, described herein, do not exceed the fair market value for the Certificates on the Sale Date. Based on the foregoing, the aggregate of the Initial Offering Prices for each maturity of the Certificates (without taking into account costs of issuance or pre -issuance accrued interest), is $9,997,696.65. Interest on the Certificates will accrue from the date of delivery, and therefore, the Certificates will be issued with no pre -issuance accrued interest. 3. The term "Public" shall not include bond houses, brokers or similar persons or organizations acting in the capacity of wholesalers or underwriters. The term "Sale Date" means the first day on which there was a binding contract in writing for the issuance of the Certificates by the City to the Underwriter of the Certificates on specific terms that were not later modified or adjusted in any material respect. In the case of the Certificates, the Sale Date is May 1, 2017. The term "Issue Date" means the first day on which there is physical delivery of the written evidence of the Certificates in exchange for the purchase price (but not earlier than the day interest on the Certificates begins to accrue for federal income tax purposes). In the case of the Certificates, the Issue Date is May 18, 2017. 4. With respect to the issuance of the Certificates, the representations set forth in paragraph 28 of the Federal Tax Certificate are, to the best of our knowledge, true, correct and complete. A-1 OHSUSA:766779496.2 The City may rely on the statements made herein in connection with making certain representations set forth in the Federal Tax Certificate to which this Certificate is attached and with the provisions of the Code regarding the exclusion from gross income of interest on the Certificates. Further, Orrick, Herrington & Sutcliffe LLP, Houston, Texas, Bond Counsel, may also rely on this Certificate for purposes of its opinion that interest on the Certificates is excludable from gross income for federal income tax purposes and the preparation of Internal Revenue Service Form 803&G. EXECUTED this 18th day of May, 2017. OPPENHEIMER & CO., INC. Dan Roseveare Managing Director City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017 I:da OHSUSA:766779496.2 14 1D.. I I : CERTIFICATE OF FINANCIAL ADVISOR Government Capital Securities Corporation (the "Financial Advisor") has acted as the financial advisor to the City of Sanger, Texas (the "City"), in connection with the sale and delivery of its Combination Tax and Revenue Certificates of Obligation, Series 2017 (the "Certificates"). I, the undersigned, on behalf of the Financial Advisor, hereby certify as follows: 1. The undersigned is a duly authorized representative of Government Capital Securities Corporation, the Financial Advisor, in connection with the sale and delivery of the Certificates by the City. In this capacity, the undersigned is knowledgeable with the facts stated herein. 2. The Financial Advisor calculated the weighted average maturity of the Certificates to be 15.6228 years, which is the sum of the products of the Issue Price of each group of identical maturities of the Certificates and the number of years to maturity (determined separately for each group of identical maturities of the Certificates and taking into account mandatory redemptions), divided by the aggregate sale proceeds of the Certificates. 3. For purposes of this Certificate, the term "yield" shall have the meaning ascribed to it in Section 148(h) of the Code and the Regulations in effect thereunder and, when used with respect to the Certificates, shall mean that interest rate which when used as a discount factor to compute the present value as of the Issue Date of all scheduled payments of principal of and interest on the Certificates produces an amount equal to (i) the Issue Price of the Certificates, plus (ii) pre -issuance accrued interest on the Certificates as of the Issue Date. Yield on the Certificates shall not take into account or reflect any underwriters' discount or cost of issuance of the Certificates. For purposes hereof, yield is and shall be calculated on the basis of a 360-day year with interest compounded semi-annually. The insurance premium (the "Insurance Premium") paid to insure the Certificates, constitutes a fee for a qualified guarantee; thus, the Insurance Premium in the amount of $30,034.49 will be treated as additional interest on the Certificates for the purpose of calculating the yield on the Certificates. The Insurance Premium represents a fee for a qualified guarantee based on the representations set forth below and included in the Federal Tax Certificate to which this Certificate is attached. (a) The present value of the interest savings expected to be realized as a result of such guarantee exceeds the present value of the Insurance Premium discounted at a rate equal to the yield on the Certificates which results assuming recovery of the Insurance Premium. (b) The guarantee imposes secondary liability on Build America Mutual Assurance Company (the "Insurance Provider") that unconditionally shifts substantially all of the credit risk for all or part of the payments on the Certificates. The Insurance Provider is not a co -obligor and does not expect to make any payments other than payments for which it will be reimbursed immediately. The Insurance Provider and B-1 OHSUSA:766779496.2 related parties thereto will not use more than ten percent of the gross proceeds of the Certificates that are guaranteed by the Insurance Provider. (c) The Insurance Premium does not exceed a reasonable arms -length charge for the transfer of credit risk. The Insurance Premium is separately stated from all other fees and payments payable by the City to the Insurance Provider for any other direct or indirect services other than transfer of the credit risk. The Insurance Premium does not include payment for the cost of underwriting or remarketing the Certificates or for the cost of casualty insurance for property financed or refinanced by the Certificates. The Insurance Premium is not refundable upon redemption of the Certificates prior to maturity. The yield with respect to the Certificates subject to optional redemption is computed by treating each Certificate as retired at the stated redemption price on the final maturity date because (i) the City has no present intention to redeem prior to maturity the Certificates which are subject to optional redemption, (ii) no Certificate is subject to optional redemption at any time for a price less than the retirement price at final maturity plus accrued interest, (iii) no Certificate is subject to optional redemption within five years of the Issue Date, (iv) no Certificate subject to optional redemption is issued at an Issue Price that exceeds the stated redemption price at maturity of such Certificate by more than one-fourth of one percent multiplied by the product of the stated redemption price at maturity of such Certificate and the number of complete years to the first optional redemption date for such Certificate; and (v) no Certificate subject to optional redemption bears interest at a rate that increases during the term of the Certificate. The yield on the Certificates, calculated in the manner described above, is 2.961870 percent. 4. With respect to the issuance of the Certificates, the representations set forth in paragraph 28 of the Federal Tax Certificate are, to the best of our knowledge, true, correct and complete. [SIGNATURE PAGE FOLLOWS] B-2 OHSUSA:766779496.2 The City may rely on the statements made herein in connection with making certain representations set forth in the Federal Tax Certificate to which this Certificate is attached and in its efforts to comply with the conditions imposed by the Code regarding the exclusion from gross income interest on the Certificates. Further, Orrick, Herrington & Sutcliffe LLP, Houston, Texas, Bond Counsel, may also rely on this Certificate of Financial Advisor for purposes of its opinion that interest on the Certificates is excludable from gross income for federal income tax purposes and the preparation of the Internal Revenue Service Form 8038-G. EXECUTED this 18"' day of May, 2017. GQVERNME CAPITAL SECURITIES CQRPQ T By: Ted Christensen President B-3 oHSUSA:766779496.2 I D1:f:11: IRS FORM 8038-G C-1 OHSUSA:766779496.2 EXHIBIT D DECLARATION OF INTENT TO REIMBURSE PRIOR EXPENDITURES N/A D-1 OHSUSA:766779496.2 EXHIBIT E POST -ISSUANCE COMPLIANCE PROCEDURES May 18, 2017 The purpose of these Post -Issuance Tax Compliance Procedures is to establish policies and procedures in connection with tax-exempt bonds, certificates or obligations (whether in the form of bonds, certificates of participation, installment sale contracts, leases or other financing structures) and other tax -advantaged bonds or obligations, if any (e.g. build America bonds" or direct pay subsidy bonds) (collectively, the "Bonds") by or for the benefit of City of Sanger, Texas ("City") so as to ensure that City complies with all applicable post -issuance requirements of federal income tax law needed to preserve the tax-exempt or special tax status of the Bonds. General Ultimate responsibility for all matters relating to City financings and re -financings rests with the Mayor, or other appointed official, of City (the "Responsible Officer") or such other person or persons as the Responsible Officer shall designate. Tax Compliance Requirements External Advisors / Documentation The Responsible Officer and other appropriate City personnel shall consult with bond counsel and other legal counsel and advisors, as needed, throughout the Bond issuance process to identify requirements and to establish procedures necessary or appropriate so that the Bonds will continue to qualify for the appropriate tax status. Those requirements and procedures shall be documented in a City resolution(s), Tax Certificate(s) and/or other documents finalized at or before issuance of the Bonds. Those requirements and procedures shall include future compliance with applicable arbitrage rebate and yield restriction requirements and all other applicable post -issuance requirements of federal tax law throughout (and in some cases beyond) the term of the Bonds. The Responsible Officer and other appropriate City personnel also shall consult with bond counsel and other legal counsel and advisors, as needed, following issuance of the Bonds to ensure that all applicable post -issuance requirements, in fact, are met. This shall include, without limitation, consultation in connection with future contracts with respect to the use or management of Bond -financed assets. Whenever necessary or appropriate, City shall engage expert advisors (each a "Rebate Service Provider") to assist in the calculation of arbitrage rebate which may be payable in respect of the investment of Bond proceeds. E-1 OHSUSA:766779496.2 Role of City Unless otherwise provided by City resolutions, unexpended Bond proceeds shall be held by the City, and the investment of Bond proceeds shall be managed by the Responsible Officer. The Responsible Officer shall maintain records and shall prepare regular, periodic statements to City regarding the investments and transactions involving Bond proceeds. If an City resolution or bond documents provide for Bond proceeds to be administered by a trustee, the trustee shall provide regular, periodic (monthly) statements regarding the investments and transactions involving Bond proceeds. Arbitrage Rebate and Yield Unless a Tax Certificate or other document contains advice from bond counsel that arbitrage rebate will not be applicable to an issue of Bonds, provided, however, the Responsible Office may conclude that City has the ability to so the following using its own personnel: • City shall engage the services of a Rebate Service Provider, and City or the Bond trustee shall deliver periodic statements concerning the investment of Bond proceeds to the Rebate Service Provider on a prompt basis; • upon request, the Responsible Officer and other appropriate City personnel shall provide to the Rebate Service Provider additional documents and information reasonably requested by the Rebate Service Provider; • the Responsible Officer and other appropriate City personnel shall monitor efforts of the Rebate Service Provider and assure payment of required rebate amounts, if any, no later than 60 days after each 5-year anniversary of the issue date of the Bonds, and no later than 60 days after the last Bond of each issue is redeemed; and • during the construction/acquisition period of each capital project financed in whole or in part by Bonds, the Responsible Officer and other appropriate City personnel shall monitor the investment and expenditure of Bond proceeds and shall consult with the Rebate Service Provider to determine compliance with any applicable exceptions from the arbitrage rebate requirements during each 6-month spending period up to 6 months, 18 months or 24 months, as applicable, following the issue date of the Bonds. City shall retain copies of all arbitrage reports and trustee statements as described below under "Record Keeping Requirements". Use of Bond Proceeds The Responsible Officer and other appropriate City personnel shall: • monitor the use of Bond proceeds and the use of Bond -financed assets (e.g., facilities, furnishings or equipment) throughout the term of the Bonds (and in some cases beyond the term of the Bonds) to ensure compliance with covenants and restrictions set forth in applicable City resolutions and Tax Certificates; E-2 OHSUSA:766779496.2 • maintain records identifying the assets or portion of assets that are financed or refinanced with proceeds of each issue of Bonds; • consult with Bond Counsel and other professional expert advisers in the review of any contracts or arrangements involving use of Bond -financed facilities to ensure compliance with all covenants and restrictions set forth in applicable City resolutions and Tax Certificates; • maintain records for any contracts or arrangements involving the use of Bond - financed facilities as might be necessary or appropriate to document compliance with all covenants and restrictions set forth in applicable City resolutions and Tax Certificates; and • meet at least annually with personnel responsible for Bond -financed assets to identify and discuss any existing or planned use of Bond -financed assets and to ensure that those uses are consistent with all covenants and restrictions set forth in applicable City resolutions and Tax Certificates. All relevant records and contracts shall be maintained as described below. Record Keeping Requirements Unless otherwise specified in applicable City resolutions or Tax Certificates, City shall maintain the following documents for the term of each issue of Bonds (including refunding Bonds, if any) plus at least three years: • a copy of the Bond closing transcript(s) and other relevant documentation delivered to City at or in connection with closing of the issue of Bonds; • a copy of all material documents relating to capital expenditures financed or refinanced by Bond proceeds, including (without limitation) construction contracts, purchase orders, invoices, trustee requisitions and payment records, as well as documents relating to costs reimbursed with Bond proceeds and records identifying the assets or portion of assets that are financed or refinanced with Bond proceeds; • a copy of all contracts and arrangements involving private business use of Bond - financed assets; and • copies of all records of investments, investment agreements, arbitrage reports and underlying documents, including trustee statements. E-3 OHSUSA:766779496.2 Form 8038-G Information Return for Tax -Exempt Governmental Obligations (Rev. September 2011) ► Under Internal Revenue Code section 149(e) OMB No. 1545-0720 ►See separate instructions. Department of the Treasury Internal Revenue Service Caution: If the issue price is under$100,000, use Form 8038-GC. ■MNM Reportina Authoritv If Amended Return. check here ► I-1 1 Issuer's name 2 Issuer's employer identification number (EIN) City of Sanger, Texas 3a Name of person (other than issuer) with whom the IRS may communicate about this return (see instructions) 3b Telephone number of other person shown on 3a 4 Number and street (or P.O. box if mail is not delivered to street address) Room/suite 5 Report number (For IRS Use Only) 502 Elm Street 3 6 City, town, or post office, state, and ZIP code 7 Date of issue Sanger, Texas 76266 05/18/2017 8 Name of issue 9 CUSIP number Combination Tax and Revenue Certificates of Obligation, Series 2017 10a Name and title of officer or other employee of the issuer whom the IRS may call for more information (see 10b Telephone number of officer or other instructions) employee shown on 10a Mike Brice, City Manager 940.458.7930 i ype of issue (enter the Issue price). See the instructions and attach schedule. 11 Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Health and hospital . . . . . . . . . . . . . . . . . . . . . . . . . 13 Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Public safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Environment (including sewage bonds) . . . . . . . . . . . . . . . . . . . . 16 Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Other. Describe ► 11 $0 00 12 $0 00 13 $0 00 14 $0 00 15 $0 00 16 $0 00 17 $9,997,696 65 18 $0 00 19 If obligations are TANS or RANs, check only box 19a . . . . . . . . . . . . . ► ❑ If obligations are BANS, check only box 19b . . . . . . . . . . . . . . . . ► ❑ 20 If obligations are in the form of a lease or installment sale, check box . . . . . . . . ► ❑ Lim il Description of Obligations. Complete for the entire issue for which this form is being filed. (a) Final maturity date (b) Issue price (c) Stated redemption price at maturity (d) Weighted average maturity (e) Yield 21 5/15/2037 $ 9,997,696.65 9,240,000.00 15.6223 Vears 2.961870 % Uses of Proceeds of Bond Issue (including underwriters' discount) 22 23 24 25 26 27 28 29 30 Proceeds used for accrued interest . . . . . . . . . . . . . . . . . . . . . Issue price of entire issue (enter amount from line 21, column (b)) . . . . . Proceeds used for bond issuance costs (including underwriters' discount) . 24 $212,255 00 Proceeds used for credit enhancement . . . . . . . . . . . . 25 $30,034 49 Proceeds allocated to reasonably required reserve or replacement fund 26 0 00 Proceeds used to currently refund prior issues . . . . . . . . . 27 0 00 Proceeds used to advance refund prior issues . . . . . . . . . 28 0 00 Total (add lines 24 through 28) . . . . . . . . . . . . . . . . . . . . . . . Nonrefunding proceeds of the issue (subtract line 29 from line 23 and enter amount here) . . 22 $0 00 23 $9,997,696 65 $242,289 49 29 30 9,755,407 16 Description of Refunded Bonds. Complete this part only for refunding bonds. 31 32 33 34 Enter the remaining weighted average maturity of the bonds to be currently refunded . . . . ► Enter the remaining weighted average maturity of the bonds to be advance refunded . . . . ► Enter the last date on which the refunded bonds will be called (MM/DD/YYYY) . . . . . . ► Enter the date(s) the refunded bonds were issued ► (MM/DD/YYYY) N/A NIA years N/A years N/A For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 63773S Form 8038-G (Rev. 9-2011) Form 8038-G (Rev. 9-2011) Page 2 Miscellaneous 35 Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) . . . . 35 0 36a Enter the amount of gross proceeds invested arto he invested in a guaranteed investment contract (G[q (see instructions) 36a 0 . . . . . . . . . . . . . . . . . . . . . . . b Enter the final maturity date of the SIC ■ c Enter the name of the GIC provider ■ 37 Pooled financings: Enter the amount of the proceeds of this issue that are to be used to make loans to other governmental units . . . . . . . . . . . . . . . . . . . . . . . . 37 0 38a If this issue is a loan made from the proceeds of another tax-exempt issue, check box ■ ❑ and enter the following information: b Enter the date of the master pool obligation ■ c Enter the El of the issuer of the master pool obligation ■ d Enter the name of the issuer of the master pool obligation ■ 39 If the issuer has designated the issue under section 265(b)(3)(B)Cf)(111) (small issuer exception), check box . . . . ■ 0 40 If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box . . . . . . . . . . . . . ■ ❑ 41a If the issuer has identified a hedge, check here ■ ❑ and enter the following information: b Name of hedge provider ■ c Type of hedge No- d Term of hedge ■ 42 If the issuer has superintegrated the hedge, check box . . . . . . . . . . . . . . . . . . . . . ■ ❑ 43 if the issuer has established written procedures to ensure that all nonqualified bonds of this issue are remediated according to the requirements under the Cade and Regulations (see instructions), check box . . . . . . . , ■ 44 If the issuer has established written procedures to monitor the requirements of section 148, check box . . . , , ■ 0 45a If same portion of the proceeds was used to reimburse expenditures, check here ■ ❑ and enter the amount of reimbursement . . . . . . . . . lo- b Enter the date the official intent was adopted ■ under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge ILjS'Eature3 and belief, they are true, correct, and complete. I further declare that I consent to the IRS's disclosure of the issuer's return information, as necessary to and process this return, to the person that I have authorized above. C+rtStanidal/7 Thomas Muir, Mayor `Signature of issuer's authorized representative Gate— Type or print name and title Paid PrintrFype preparer's name Preparer's signature Date Check ❑ if PTIN Preparer Kathryn V. Garner self-employed Use Only Firm's name ■ Orrick, Herrington & Sutcliffe LLP Firm's EIN JP, Firm's address t• 1301 McKinney Street, Suite 4100, Houston, Texas 77010 Phone no. 713.353.6400 Farm 8038-G (Rev. 9-2011) CLOSING CERTIFICATE THE STATE OF TEXAS COUNTY OF DENTON In accordance with Section 6(i)(7) of the Purchase Agreement entered into by the Underwriter referred to therein and the City of Sanger, Texas (the "Issuer") in connection with the sale of the Issuer's Combination Tax and Revenue Certificates of Obligation, Series 2017 (the "Certificates"), I, the undersigned, Mayor of the Issuer, acting in my official capacity, hereby certify as follows: Capitalized terms herein are used as defined in the Purchase Agreement. All official action of the Issuer relating to the Certificates, the Issuer Documents and the Official Statement have been duly adopted by the Issuer, are in full force and effect, and have not been amended, modified, supplemented or repealed; 2. The representations and warranties of the Issuer contained in the Purchase Agreement are true and correct in all material respects on and as of the date of Closing as if made on the date of Closing. 3. Except as disclosed in the Official Statement, no litigation or proceeding against the Issuer is pending or, to my knowledge, threatened in any court or administrative body, nor is there a basis for litigation, which would (a) contest the right of the officials of the Issuer to hold and exercise their respective positions, (b) contest the due organization and valid existence of the Issuer, (c) contest the validity, due authorization and execution of the Certificates or the Issuer Documents or (d) attempt to limit, enjoin or otherwise prevent the Issuer from functioning and collecting taxes and other income or the levy or collection of the taxes or revenues pledged or to be pledged to pay the principal of and interest on the Certificates, or the pledge thereof. 4. All official action of the Issuer relating to the Official Statement, the Certificates and the Issuer Documents have been duly taken by the Issuer, are in full force and effect and have not been modified, amended, supplemented or repealed. To the best of my 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 snake 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. 6. There has not been any material adverse change in the financial condition of the Issuer since September 30, 2016, the latest date as of which audited financial information is available OHSUSA:766779500.1 EXECUTED as of 1l ( , 2017. CITY OF SANGER, TEXAS Mayor OHSUSA:766779500.1 c Orrick Orrick, Herrington & Sutcliffe LLP 1301 McKinney Street Suite 4100 Houston, TX 77010-3096 May 18, 2017 +1 713 658 6400 orrick.com City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017 (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel to the City of Sanger, Texas (the "City") in connection with the issuance of $9,240,000 aggregate principal amount of Obligations designated as "City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017" (the "Obligations"). The Obligations are authorized by an ordinance adopted by the City Council of the City (the "City Council") on May 1, 2017 (the "Ordinance"). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Ordinance. In such connection, we have reviewed the Ordinance, the tax certificate of the City dated the date hereof (the "Tax Certificate"), certificates of the City, and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein, The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Obligations has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the City. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Ordinance and the 'Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Obligations to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Obligations, the Ordinance and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against issuers in the State of Texas. We express no opinion with respect to any indemnification, contribution, liquidated OHSLJSA;766779502.1 Orrick May 18, 2017 Page 2 damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, choice of law, choice of forum, choice of venue, non -exclusivity of remedies, waiver or severability provisions contained in the foregoing documents. Our services did not include financial or other non- legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Obligations and express no opinion with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: The Obligations constitute the valid and binding obligations of the City. 2. The City Council has power and is obligated to levy an annual ad valorem tax, within the limits prescribed by law, upon taxable property located within the City, which taxes have been pledged irrevocably to pay the principal of and interest on the Obligations. 3. The Obligations are also secured by a pledge of subordinate revenues of the water and sewer system of the City not to exceed $10,000, 4, Interest on the Obligations is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986. Interest on the Obligations is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted current earnings when calculating corporate alternative minimum taxable income. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on; the Obligations. Faithfully yours, OR -RICK, IIERRINGTON & SUTCLIFFE LLP OHSUSA:766779502.1 May 18, 2017 Oppenheimer & Co., Inc. William Blair & Company c Orrick Orrick, Herrington & Sutcliffe LLP 1301 McKinney Street Suite 4100 Houston, Tx 77010-3096 +1 713 658 6400 orrick.com City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017 ( Supplemental Opinion) Ladies and Gentlemen: This letter is addressed to you, as the underwriter (the "Underwriter"), pursuant to Section 6(i)(5) of the Purchase Agreement, dated May 1, 2017 (the "Purchase Agreement"), between you and the City of Sanger, Texas (the `=Issuer"), providing for the purchase of $9,240,000 principal amount of the City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017 (the "Certificates"). The Certificates are being issued pursuant to an ordinance adopted by the City Council of the Issuer on May 1, 2017 (the "Ordinance"). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Ordinance or, if not defined in the Ordinance, in the Purchase Agreement. We have delivered our final legal opinion (the "Bond Opinion") as bond counsel to the Issuer concerning the validity of the Certificates and certain other matters, dated the date hereof and addressed to the Issuer. You may rely on such opinion as though the same was addressed to you. In connection with our role as bond counsel, we have reviewed the Purchase Agreement, the Ordinance, a Tax Certificate (the "Tax Certificate") dated the date hereof, certificates of the Issuer and others, and such other documents, opinions and matters to the extent we deemed necessary to provide the opinions set forth herein. The opinions expressed herein are based oil an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Issuer. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the third paragraph hereof. We have further assumed compliance with all covenants and agreements contained in such documents. In addition, we call attention to the fact that the rights and obligations under the Certificates, the Ordinance, the Tax Certificate and the Purchase Agreement and their enforceability may be subject to bankruptcy, insolvency, reorganization, receivership, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies in the State of Texas. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty) right of set-off, QH13USA:766779504.1 Oppenheimer & Co., Inc. William Blair & Company May I 8, 2017 Page 2 0 Orrick arbitration; choice of law, choice of forum, choice of venue, non -exclusivity of remedies, waiver or severability provisions contained in the foregoing documents. Finally, we undertake no responsibility For the accuracy, except as expressly set forth in numbered paragraph 3 below, completeness or fairness of the Official Statement dated May 1, 2017 (the "Official Statement") or other offering material relating to the Certificates and express no opinion relating thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof we are of the following opinions: 1. the Ordinance has been duly adopted, and such instrument constitutes a legal, valid and binding obligation of the Issuer; 2. the Certificates 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 Certificates, to register the Certificates under the 1933 Act or to qualify the Ordinance under the Trust Indenture Act; and 3. except to the extent noted therein, we have not verified and are not passing upon, and do not assume any responsibility for, the accuracy, completeness or Fairness of the statements contained in the Official Statement, but that said firm has reviewed the statements and information contained under the captions and sub -captions, "THE CERTIFICATES" (except under the subcaption, "Sources and Uses of Funds," as to which no opinion is expressed), "GENERAL INFORMATION REGARDING THE CERTIFICATES," "REGISTRATION TRANSFER AND EXCHANGE," "TAX RATE LIMITATIONS," "TAX MATTERS," "CONTINUING DISCLOSURE OF INFORMATION" (except under the subheading "Compliance with Prior Undertakings" as to which no opinion is expressed), "LEGAL MATTERS," "LEGAL INVESTMENTS IN TEXAS," and "REGISTRATION AND QUALIFICATION OF ISSUANCE FOR SALE," excluding any material that may be treated as included under such captions by cross-reference or reference to other documents or sources and we are of the opinion that the statements and information contained therein are an accurate and fair description of the laws and legal issues addressed therein and, with respect to the Certificates, such information conforms to the Ordinance, This letter is furnished by us as bond counsel to the Issuer. No attorney -client relationship has existed or exists between our firm and you in connection with the Certificates or by virtue of this letter. Our engagement with respect to the Certificates has concluded with their issuance. We disclaim any obligation to update this letter. This letter is delivered to you as Underwriter of the Certificates, is solely for your benefit as such Underwriter and is not to be used, circulated, quoted or otherwise referred to or relied upon for any other purpose or by any other person. This letter is not intended to, and may not, be relied upon by owners of Certificates or by any other party to whom it is not specifically addressed. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP f- f,;Cl,. t LLf 0IISUSA:766779504A i �- �e n KEN PAXTON ATTORNEY GENERAL OF TEXAS May 16, 2017 THIS IS TO CERTIFY that the City of Sanger, Texas (the "Issuer"), has submitted the Citv of Sanaer. Texas Combination Tax and Revenue Certificate of Obligation. Series 2017 (the "Certificate") in the principal amount of $9,240,000 for approval. The Certificate is dated May 1, 2017, numbered T-1. and was authorized by an Ordinance of the Issuer passed on May 1, 2017 (the "Ordinance"). The Office of the Attorney General has examined the law and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the Issuer contained in the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation. We express no opinion relating to the official statement or any other offering material relating to the Certificate. Based on our examination, we are of the opinion, as of the date hereof and under existing law, as follows (capitalized terms, except as herein defined. have the meanings given to them in the Ordinance): (1) The Certificate has been issued in accordance with law and is a valid and binding obligation of the Issuer. (2) The Certificate is payable from the proceeds of an annual ad valorem tax levied, within the limits prescribed by law, against all taxable property in the Issuer and is further payable from a 1 pledge of the Net Revenues, not to exceed $10.000. of the Issuer's water and sewer system, as provided in the Ordinance. Therefore. the Certificate is approved. Nu'fa798 B(W* No 201 -11 MA 'Sce attached Si. itatu4Y�1 urination Attorney General of the State of Texas Post Office Box 12548, Austin, Tcxas 78711-2548 + (512) 463-2100 9 www.tcxasattorncygencral.gov OFFICE OF THE ATTORNEY GENERAL OF THE STATE OF TEXAS § 1, KEN PAXTON, Attorney General for the State of Texas, do hereby authorize the employees of the Public Finance Division of the Office of the Attomey General to affix a digital image of my signature, in my capacity as Attorney General. to the opinions issued by this office approving the issuance of public securities by the various public agencies, non-profit corporations. district, entities, bodies politic or corporate, or political subdivisions of this State as required by law, the opinions approving those contracts designated by the Legislature as requiring the approval of the Attorney General, and the obligations, proceedings and credit agreements required by law to be approved by the Attorney General. The authorized digital image of my signature is attached as Exhibit A and is hereby adopted as my own for the purposes set forth herein. This supersedes uny prior signature authorizations for the same purpose. The authority granted herein is to be exercised on those occasions when l am unavailable to personally sign said opinions. and upon the condition that the opinions to which the digital image signature is affixed have been approved by an authorized Assistant Attorney General following the completion of the Public Finance Divisions review of the transcripts of proceedings to which the opinions relate. Given under my hand and seal of ogee at Austin. Texas. this the i!rj� day of January, 2015. KEN PAX ON Attorney General of the State of Texas. OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, Melissa Pookoff, ❑ Bond Clerk ❑X Assistant Bond Clerk in the office of the Comptroller of the State of Texas, do hereby certify that, acting under the direction and authority of the Comptroller on the 16th day of May 2017, 1 signed the name of the Comptroller to the certificate of registration endorsed upon the: City of Sanger, Texas Combination Tax and Revenue Certificate of Obligation. Series 2017, numbered T-1. dated May 1, 2017, and that in signing the certificate of registration I used the following signature: IN WITNESS WHER.EW I have executed this certificate this the 16th day of May 2017. I, Glenn Hegar, Comptroller of Public Accounts of the State of Texas, certify that the person who has signed the above certificate was duly designated and appointed by me under authority vested in me by Chapter 403, Subchapter H, Government Code, with authority to sign my name to all certificates of registration, and/or cancellation of bonds required by law to be registered and/or cancelled by me, and was acting as such on the date first mentioned in this certificate, and that the bonds/certificates described in this certificate have been duly registered in the office of the Comptroller, under Registration Number 88917. GIVEN under my hand and seal of office at Austin, Texas, this the 16th day of May 2017. GLENN HEGAR Comptroller of Public Accounts of the State of Texas OFFICE OF COMPTROLLER OF THE STATE OF TEXAS 1, GLENN HEGAR, Comptroller of Public Accounts of the State of Texas, do hereby certify that the attachment is a true and correct copy of the opinion of the Attorney General approving the: City_. of Sanger, Texas Combination Tax and Revenue Certificate of Obligation, Series 2017 numbered T-1, of the denomination of $ 9,240,000, dated May 1, 2017, as authorized by issuer, interest various percent, under and by authority of which said bonds/certificates were registered electronically in the office of the Comptroller, on the 16th day of May 2017, under Registration Number 88917. Given under my hand and seal of office, at Austin, Texas, the 16th day of May 2017. GLENN HEGAR Comptroller of Public Accounts of the State of Texas AN D REWS ATTORNEYS K U RT H LLP May 18, 2017 OPPENHEIMER & CO., INC. WILLIAM BLAIR & CO. c/o Oppenheimer & Co., Inc. 13455 Noel Road, Ste 1200 2 Galleria Tower Dallas, Texas 75240 600 Travis, Suite 4200 Houston, Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com Re: $9,240,000 City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017 Ladies and Gentlemen: We have served as counsel to you, as the Underwriters, in your purchase of the captioned certificates (the "Certificates") issued by the City of Sanger, Texas (the "City"). In that connection, we have reviewed (1) the ordinance adopted by the City Council of the City on May 1, 2017 (the "Ordinance"), (2) the Preliminary Official Statement for the Certificates, dated April 26, 2017, and (3) the Official Statement for the Certificates, dated May 1, 2017. Based on (1) our review of the documents described above, (2) our discussions with bond counsel and with you, (3) our review of the documents, certificates, opinions and other instruments delivered at the closing of the sale of the Certificates on the date hereof and (4) such other matters as we deem relevant, we are of the opinion that the Certificates are exempt securities under 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 Certificates, to register the Certificates under the 1933 Act and the Ordinance is not required to be qualified under the Trust Indenture Act. In addition, based upon our participation in the preparation of the Official Statement and our participation at conferences at which the Official Statement was discussed, which does not include our independent inquiry or investigation into the accuracy, completeness or fairness of the statements contained therein, no facts have come to our attention to lead us to believe that the Official Statement (except for any financial, forecast, technical and statistical statements and data included in the Official Statement and the information regarding the Bond Insurer and The Depository Trust Company and its book -entry system, in each case as to which no view need be expressed), as of its date or as of the date hereof, contained or contains any untrue statement of a material fact, or omitted or omits to state any 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. This opinion may be relied upon only by you. Very truly yours, 7866110833 vrvzL ANDREWS KURTH KENYON LLP Austin Beijing Dallas Dubai Houston London New York Research Triangle Park Silicon Valley The Woodlands Washington. DC HOU.3788212 I MUNICIPAL BOND INSURANCE POLICY ISSUER: City of Sanger, Texas Policy No: 2017B0271 MEMBER: City of Sanger, Texas Effective Date: May 18, 2017 BONDS: $9,240,000 in aggregate principal amount of Combination Tax and Revenue Certificates of Obligation, Series 2017 Risk Premium: $9,240.00 Member Surplus Contribution: $20,794.49 Total Insurance Payment: $30,034.49 BUILD AMERICA MUTUAL ASSURANCE COMPANY (“BAM”), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the “Trustee”) or paying agent (the “Paying Agent”) for the Bonds named above (as set forth in the documentation providing for the issuance and securing of the Bonds), for the benefit of the Owners or, at the election of BAM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the first Business Day following the Business Day on which BAM shall have received Notice of Nonpayment, BAM will disburse (but without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of the Bonds, the face amount of principal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner’s right to receive payment of such principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner’s rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any of whom may submit an amended Notice of Nonpayment. Upon disbursement under this Policy in respect of a Bond and to the extent of such payment, BAM shall become the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or interest on such Bond and shall be fully subrogated to the rights of the Owner, including the Owner’s right to receive payments under such Bond. Payment by BAM either to the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpayment shall discharge the obligation of BAM under this Policy with respect to said Nonpayment. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. “Business Day” means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer’s Fiscal Agent (as defined herein) are authorized or required by law or executive order to remain closed. “Due for Payment” means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. “Nonpayment” means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. “Nonpayment” shall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction. “Notice” means delivery to BAM of a notice of claim and certificate, by certified mail, email or telecopy as set forth on the attached Schedule or other acceptable electronic delivery, in a form satisfactory to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, (d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. “Owner” means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that “Owner” shall not include the Issuer, the Member or any other person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds. BAM may appoint a fiscal agent (the “Insurer’s Fiscal Agent”) for purposes of this Policy by giving written notice to the Trustee, the Paying Agent, the Member and the Issuer specifying the name and notice address of the Insurer’s Fiscal Agent. From and after the date of receipt of such notice by the Trustee, the Paying Agent, the Member or the Issuer (a) copies of all notices required to be delivered to BAM pursuant to this Policy shall be simultaneously delivered to the Insurer’s Fiscal Agent and to BAM and shall not be deemed received until received by both and (b) all payments required to be made by BAM under this Policy may be made directly by BAM or by the Insurer’s Fiscal Agent on behalf of BAM. The Insurer’s Fiscal Agent is the agent of BAM only, and the Insurer’s Fiscal Agent shall in no event be liable to the Trustee, Paying Agent or any Owner for any act of the Insurer’s Fiscal Agent or any failure of BAM to deposit or cause to be deposited sufficient funds to make payments due under this Policy. To the fullest extent permitted by applicable law, BAM agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignment or otherwise, to the extent that such rights and defenses may be available to BAM to avoid payment of its obligations under this Policy in accordance with the express provisions of this Policy. This Policy may not be canceled or revoked. This Policy sets forth in full the undertaking of BAM and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto, any premium paid in respect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds prior to maturity. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. THIS POLICY IS ISSUED WITHOUT CONTINGENT MUTUAL LIABILITY FOR ASSESSMENT. IN WITNESS WHEREOF, BUILD AMERICA MUTUAL ASSURANCE COMPANY has caused this Policy to be executed on its behalf by its Authorized Officer. BUILD AMERICA MUTUAL ASSURANCE COMPANY By: _______________________________________ Authorized Officer Schedule A Notices (Unless Otherwise Specified by BAM) Email: claims@buildamerica.com Address: 200 Liberty Street, 27th floor New York, New York 10281 Telecopy: 212-962-1524 (attention: Claims) DISCLOSURE, NO DEFAULT AND TAX CERTIFICATE OF BUILD AMERICA MUTUAL ASSURANCE COMPANY SAM Policy No.: 201760271 BONDS: $9,240,000 in aggregate principal amount of City of Sanger, Texas Combination Tax and Revenue Certificates of Obligation, Series 2017 Date of the 0fficial Statement: May 1, 2017 The undersigned hereby certifies on behalf of BUILD AMFRICA MUTUAL ASSURANCE COMPANY ("BAM"), in connection with the issuance by SAM of its Policy referenced above (the "Policy") in respect of the Bands referenced above (the "Bonds") that: W The information set forth under the caption "BOND INSURANCE -BUILD AMERICA MUTUAL ASSURANCE COMPANY" in the official statement referenced above, relating to the Bonds (Lhe "0ffc1aI Statement") is true and correct; 00 SAM is not currently in default nor has SAM ever been in default under any policy or obligation guaranteeing the payment of principal of or interest an an obligation; (iii) The Policy is an unconditional and recourse obligation of SAM (enforceable by or on behalf of the holders of the Bonds) to pay the scheduled principal of and interest on the Bonds when due in the event of Nonpayment by the issuer (as set forth in the Policy); (iv) The insurance payment (inclusive of the sum of the Risk Premium and the Member Surplus Contribution) [the "Insurance Payment") is solely a charge for the transfer of credit risk and was determined in arm's Iength negotiations and is required to be paid to SAM as a condition to the issuance of the Policy; M BAM will, for federal income tax purposes, treat the Insurance Payment as solely in consideration for the insurance risk it assumes in the Policy and not as consideration for an investment in SAM or its assets; (vi) No portion of such Insurance Payment represents an indirect payment of casts of issuance, including rating agency fees, other than fees paid by BA to maintain its rating, which, together with all ather overhead expenses of SAM, are taken into account in the formulation of its rate structure, or for the provision of additional services by BAM, or represents a direct or indirect payment for any goods or services provided to the Issuer (including the right to receive a dividend), or the direct or indirect payment For a cost, risk or other element that is not customarily borne by insurers of tax-exempt bands (in transactions in which the guarantor has no involvement other than as a guarantor); (vi0 SAM is not providing any services in connection with the Bonds other than providing the Policy, and except for the Insurance Payment, SAM will not use any portion of the Bond proceeds; (viii) Except for payments under the Policy in the case of ]Nonpayment by the Issuer, there is no obligation to pay any amount of principal or interest on the Bonds by SAM; (ix) (a) SAM has not paid any dividends to date, (b) BAM's Board of Directors has resolved that RAM's priorities for surplus, as it accumulates, will be to preserve capital strength and claims paying resources far the benefit of its members and secondarily to return value by reducing premiums charged for its insurance, and (c) SAM has no current expectation that any dividends will be paid; (x) SAM does not expect that a claim or any other payment will be made on or with respect to the Policy or by BAM to the Issuer; and (xi) Neither the Issuer nor any other Obligor is entitled to a refund of the Insurance Payment for the Policy in the event a Bond is retired before the final maturity date, BAM makes no representation as to the nature of the interest to be paid on the Bonds or the treatment of the Policy under Section 1.148-4(f) of the Income Tax Regulations. BUILD AMERICA MUTUAL ASSURANCE COMPANY By: Dated: May 18, 2017 Authorized Officer May 18, 2017 City of Sanger 502 ELM ST Sanger, TX 76266 Oppenheimer & Co. Inc. 13455 Noel Road, Suite 1200, 2 Galleria Tower Dallas, TX 75240 Bank of Texas, N.A. 100 Congress, Suite 250 Austin, TX 78701 RE: Policy: 2017B0271 Member: City of Sanger, Texas Bonds: Combination Tax and Revenue Certificates of Obligation, Series 2017 Date of the Official Statement: May 1, 2017 Ladies and Gentlemen: I am Counsel of Build America Mutual Assurance Company, a New York mutual insurance company (“BAM”). You have requested my opinion in such capacity as to the matters set forth below in connection with the issuance by BAM of its above-referenced policy (the “Policy”). In that regard, and for purposes of this opinion, I have examined such corporate records, documents and proceedings as I have deemed necessary and appropriate. Based upon the foregoing, I am of the opinion that: 1. BAM is a mutual insurance company duly organized and validly existing under the laws of the State of New York and authorized to transact financial guaranty insurance business therein and in the State of Texas. 2. The Policy has been duly authorized, executed and delivered by BAM. 3. The Policy constitutes the valid and binding obligation of BAM, enforceable in accordance with its terms, subject, as to the enforcement of remedies, to bankruptcy, insolvency, reorganization, rehabilitation, moratorium and other similar laws affecting the enforceability of creditors' rights generally applicable in the event of the bankruptcy or insolvency of BAM and to the application of general principles of equity. 4. The issuance of the Policy qualifies the Member as a member of BAM until the Bonds are no longer outstanding. As a member of BAM, the Member is entitled to certain rights and privileges as provided in BAM’s charter and by-laws and as may otherwise be provided under New York law. The Policy is non-assessable and creates no contingent mutual liability. In addition, please be advised that I have reviewed the description of the Policy under the caption “BOND INSURANCE” in the official statement related to the above-referenced Bonds (the "Official Statement"). There has not come to my attention any information which would cause me to believe that the description of the Policy, as of the date of the Official Statement or as of the date of this opinion, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Please be advised that except as described above, I express no opinion with respect to any information contained in, or omitted from, the Official Statement. I am a member of the Bar of the State of New York, and do not express any opinion as to any law other than the laws of the State of New York. This letter and the legal opinions herein are intended for the information solely of the addressees hereof and solely for the purposes of the transactions described in the Official Statement and are not to be relied upon by any other person or entity (including, without limitation, any person or entity that acquires bonds from an addressee of this letter.) I do not undertake to advise you of matters that may come to my attention subsequent to the date hereof that may affect the conclusions expressed herein. Very truly yours, CITY OF SANGER, TEXAS $9,240,000 Combination Tax and Revenue Certificates of Obligation Series 2017 PF Ratings U.S. (4/28/16) May 1, 2017 Build America Mutual Assurance Company 1 World Financial Center- 27th FL. 200 Liberty Street New York, NY 10281 Attention: Ms. Laura Levenstein, Chief Risk Officer Re: $9,240,000 City of Sanger, Texas, Combination Tax and Revenue Certificates of Obligation, Series 2017, dated: Date of Delivery, due: May 15, 2022-2037, (POLICY #2017B0271) Dear Ms. Levenstein: S&P Global Ratings has assigned an insured rating of "AA" on the above obligations, based on the policy provided by your company. We may adjust the underlying rating and the capital charge as a result of changes in the financial position of the issuer or performance of the collateral, or of amendments to the documents governing the issue, as applicable. With respect to the letter, please notify us of any changes or amendments over the term of the debt. The credit ratings and other views of S&P Global Ratings are statements of opinion and not statements of fact. Credit ratings and other views of S&P Global Ratings are not recommendations to purchase, hold, or sell any securities and do not comment on market price, marketability, investor preference or suitability of any security. While S&P Global Ratings bases its credit ratings and other views on information provided by issuers and their agents and advisors, and other information from sources it believes to be reliable, S&P Global Ratings does not perform an audit, and undertakes no duty of due diligence or independent verification, of any information it receives. Such information and S&P Global Ratings’ opinions should not be relied upon in making any investment decision. S&P Global Ratings does not act as a “fiduciary” or an investment advisor. S&P Global Ratings neither recommends nor will recommend how an issuer can or should achieve a particular credit rating outcome nor provides or will provide consulting, advisory, financial or structuring advice. S&P Global Ratings must receive complete documentation relating to this issue no later than 90 days after the date of this letter. S&P Global Ratings 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. 55 Water Street, 38th Floor New York, NY 10041-0003 tel 212 438-2074 reference no.: 1482518 Page | 2 PF Ratings U.S. (4/28/16) S&P Global Ratings is pleased to have the opportunity to provide its rating opinion. For more information please visit our website at www.standardandpoors.com. If you have any questions, please contact us. Thank you for choosing S&P Global Ratings. Sincerely yours, S&P Global Ratings a division of Standard & Poor’s Financial Services LLC sp enclosure PF Ratings U.S. (4/28/16) S&P Global Ratings Terms and Conditions Applicable To Public Finance Credit Ratings General. The credit ratings and other views of S&P Global Ratings are statements of opinion and not statements of fact. Credit ratings and other views of S&P Global Ratings are not recommendations to purchase, hold, or sell any securities and do not comment on market price, marketability, investor preference or suitability of any security. While S&P Global Ratings bases its credit ratings and other views on information provided by issuers and their agents and advisors, and other information from sources it believes to be reliable, S&P Global Ratings does not perform an audit, and undertakes no duty of due diligence or independent verification, of any information it receives. 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No person is intended as a third party beneficiary of any credit rating engagement or of a credit rating when issued. 600 North Pearl Street Suite 2165 Dallas, TX 75201 www.moodys.com April 19, 2017 Mike Brice Sanger (City Of) TX PO Box 1729 Sanger, TX 76266 Dear Mike Brice : We wish to inform you that on April 11, 2017, Moody’s Investors Service reviewed and assigned a rating of A1 to Sanger (City Of) TX, Combination Tax and Revenue Certificates of Obligation, Series 2017. Credit ratings issued by Moody’s Investors Service, Inc. and its affiliates (“Moody’s”) are Moody’s current opinions of the relative future credit risk of entities, credit commitments, or debt or debt-like securities and are not statements of current or historical fact. Moody’s credit ratings address credit risk only and do not address any other risk, including but not limited to: liquidity risk, market value risk, or price volatility. This letter uses capitalized terms and rating symbols that are defined or referenced either in Moody’s Definitions and Symbols Guide or MIS Code of Professional Conduct as of the date of this letter, both published on www.moodys.com. The Credit Ratings will be publicly disseminated by Moody’s through normal print and electronic media as well as in response to verbal requests to Moody’s Rating Desk. Moody’s related research and analyses will also be published on www.moodys.com and may be further distributed as otherwise agreed in writing with us. Moody's Credit Ratings or any corresponding outlook, if assigned, will be subject to revision, suspension or withdrawal, or may be placed on review, by Moody's at any time, without notice, in the sole discretion of Moody’s. For the most current Credit Rating, please visit www.moodys.com. Moody’s has not consented and will not consent to being named as an expert under applicable securities laws, such as section 7 of the Securities Act of 1933. The assignment of a rating does not create a fiduciary relationship between Moody’s and you or between Moody’s and other recipients of a Credit Rating . Moody’s Credit Ratings are not and do not provide investment advice or recommendations to purchase, sell or hold particular securities. Moody’s issues Credit Ratings with the expectation and understanding that each investor will make its own evaluation of each security that is under consideration for purchase, sale or holding. Moody’s adopts all necessary measures so that the information it uses in assigning a Credit Rating is of sufficient quality and from sources Moody’s considers to be reliable including, wh en appropriate, independent third-party sources. However, Moody’s is not an auditor and cannot in every instance independently validate or verify information received in the rating process. Moody’s expects and is relying upon you possessing all legal rights and required consents to disclose the information to Moody's, and that such information is not subject to any restrictions that would prevent use by Moody's for its ratings process. In assigning the Credit Ratings, Moody’s has relied upon the truth, accuracy, and completeness of the information supplied by you or on your behalf to Moody’s. Moody’s expects that you will, and is relying upon you to, on an ongoing basis, promptly provide Moody’s with all information necessary in order for Moody’s to accurately and timely monitor the Credit Ratings, including current financial and statistical information. April 19, 2017 Mike Brice Sanger (City Of) TX PO Box 1729 Sanger, TX 76266 Under no circumstances shall Moody’s have any liability (whether in contract, tort or otherwise) to any person or entity for any loss, injury or damage or cost caused by, resulting from, or relating to, in whole or in part, directly or indirectly, any action or error (negligent or otherwise) on the part of, or other circumstance or contingency within or outside the control of, Moody’s or any of its or its affiliates’ directors, officers, employees or agents in connection with the Credit Ratings. ALL INFORMATION, INCLUDING THE CREDIT RATING, ANY FEEDBACK OR OTHER COMMUNICATION RELATING THERETO IS PROVIDED "AS IS" WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND. MOODY’S MAKES NO REPRESENTATION O R WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH INFORMATION. Any non-public information discussed with or revealed to you m ust be kept confidential and only disclosed either (i) to your legal counsel acting in their capacity as such; (ii) to your other authorized agents acting in their capacity as such with a need to know that have entered into non-disclosure agreements with Moody’s in the form provided by Moody’s and (iii) as required by applicable law or regulation. You agree to cause your employees, affiliates, agents and advisors to keep non-public information confidential. If there is a conflict between the terms of this rating letter and any related Moody’s rating application, the terms of the executed rating application will govern and supercede this rating letter . Should you have any questions regarding the above, please do not hesitate to contact Alexander Rawlings at 214-979-6841. Sincerely, Moody’s Investors Service Inc Moody’s Investors Service Inc Southlake, TX 76092 cc: Mr. Ted Christensen Government Capital Securities 559 Silicon Drive Suite 102 U.S. PUBLIC FINANCE CREDIT OPINION 11 April 2017 New Issue Contacts Alex Rawlings +1 (214) 979-6841 Analyst alex.rawlings@moodys.com John Nichols 214-979-6851 AVP - Analyst john.nichols@moodys.com Sanger (City of) TX New Issue: Moody's Assigns A1 to City of Sanger's, TX Certificates of Obligation, Series 2017 Summary Rating Rationale Moody's Investors Service has assigned a A1 rating to the City of Sanger's, TX $9.32 million Combination Tax and Revenue Certificates of Obligation, Series 2017. At the same time, Moody's maintains the A1 on outstanding rated parity debt. The A1 rating is based on the city's growing yet modestly sized tax base and strong financial position. The rating also incorporates the city's average wealth indices and manageable debt burden. Credit Strengths »Trend of growing reserve levels »Continued tax base growth »Favorable location 40 miles north of Dallas Credit Challenges »Modestly sized tax base »Tax base and employment concentration Rating Outlook Moody's generally does not assign outlooks to local government credits with this amount of debt outstanding. Factors that Could Lead to an Upgrade »Substantial growth and diversification of the tax base »Substantive improvement in wealth indicators »Declines in debt burden Factors that Could Lead to a Downgrade »Tax base declines »Declines in reserves or liquidity »Substantial increases in debt burden MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE Key Indicators Exhibit 1 Source: Sanger Audited Financial Statements, Moodys Investors Service Recent Developments Since the May 2016 rating report, Moody's has received the city's fiscal 2016 audited financial report and fiscal 2017 assessed valuation data. That information has been incorporated, along with information related to the Series 2017 issuance, below. Detailed Rating Considerations Economy and Tax Base: Modestly Sized Tax Base; Further Growth Expected The city's tax base will continue to grow moderately over the near term given expected commercial and residential development. Located in Denton County (Aaa stable), 40 miles north of Dallas (A1 negative) on Interstate 35, the city is primarily a residential community. Active development within the city as well as strong valuation growth of existing properties has boosted assessed valuation by 13% to $526 million for fiscal 2017. Although the city's tax base remains small in comparison to peer cities, annual growth has averaged 8% over the past five years and is expected to continue going forward. City officials report six residential subdivisions in various stages of development. The city's tax base is somewhat concentrated, primarily due to the presence of a Wal-Mart (Aa2 stable) distribution facility. Wal- Mart accounts for 22% of the city's tax base for fiscal 2017 and the top 10 taxpayers comprise 31%. City officials estimate that the facility employs 1,200 people, which is substantial given the city's estimated population of 7,747 as of 2016. Wealth metrics among city residents are average, with an estimated median family income at 100% of the national level as of 2015. Financial Operations and Reserves: Strong Finances Expected to be Maintained Financially, the city is expected to remain strong due to conservative fiscal management as well as continued revenue growth. Following a slight General Fund deficit in 2012, the city as posted General Fund surpluses in each of the past four years. Available General Fund reserves are now $2.4 million or 37% of revenues. Operating funds (inclusive of the General and Debt Service Funds) are also healthy, with a total available fund balance of $2.8 million or 44% of revenue. The general fund received $755,066 of net transfers from the city's utility funds in fiscal 2016, although exclusive of transfers and other special items general fund revenues did exceed expenditures by $293,122. The enterprise funds (water, sewer, electric) have historically reported surplus operations and city officials expect no deterioration going forward. This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. 2 11 April 2017 Sanger (City of) TX: New Issue: Moody's Assigns A1 to City of Sanger's, TX Certificates of Obligation, Series 2017 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE Year-to-date financial information provided by the city suggests that another surplus will be achieved in fiscal 2017. Overall, city officials do not anticipate any significant draws on reserves aside from funds held in the Capital Projects Fund that are devoted to various capital items. The city maintains substantial revenue raising flexibility with ad valorem tax rates, which currently total $6.80/ $100. This levy is well below the maximum of $25/$1000. Management does not expect to increase tax rates for the foreseeable future. LIQUIDITY Liquidity maintained in the city's operating funds at fiscal year-end 2016 is a healthy $2.9 million or 45% of operating revenue. No deterioration of liquidity is expected in future. Debt and Pensions: Manageable Debt Burden; No Additional Debt Plans Sanger's debt is expected to remain manageable given a growing tax base and conservative capital planning. The city's net direct debt burden is equal to 1.1% of fiscal 2017 assessed value, which is in line with national medians but low in comparison to similar Texas cities. Inclusive of debt issued by overlapping entities, the city's overall debt burden is 3.7% of assessed valuation. The debt burdens are net of $21.6 million of obligations supported by the city's water and sewer funds, including the Series 2017 issuance. Water and sewer operations provided 1.72x coverage of utility fund debt service in fiscal 2016 and coverage has been sufficient in each of the past three years. Without adjustments to exclude self-supported GO debt, the city's direct debt burden would be an elevated 5.2% of assessed value. The city does not expect to issue additional debt within the next two years. DEBT STRUCTURE 56% of the city's general obligation debt is scheduled to be retired within the next 10 years. The final maturity is scheduled to occur in 2036. DEBT-RELATED DERIVATIVES All of the city's debt is fixed rate and the city is not party to any interest rate swaps or other derivative agreements. PENSIONS AND OPEB The city has a manageable employee pension burden, based on unfunded liabilities for its share of the Texas Municipal Retirement System (TMRS), an agent multiple-employer plan administered by the state. Moody's fiscal 2016 adjusted net pension liability (ANPL) for the city, under our methodology for adjusting reported pension data, is $4.9 million or .76 times operating revenues. The three year average of the city's ANPL to operating revenues is 0.69 times and the three year average of ANPL to assessed valuation is a manageable 0.96%. Moody's ANPL reflects certain adjustments we make to improve comparability of reported pension liabilities. The adjustments are not intended to replace the city's reported liability information, but to improve comparability with other rated entities. For more information on Moody's insights on employee pensions and the related credit impact on companies, government, and other entities across the globe, please visit Moody's on Pensions at www.moodys.com/pensions. Management and Governance The city's management is strong, implementing and maintaining fund balance policies to help maintain the city's strong financial position. Texas cities have an institutional framework score of “Aa,” or strong. Cities rely on stable property taxes for 30% -40% of their operating revenues, while 25%-35% comes from economically sensitive sales taxes, resulting in moderate predictability overall. Cities maintain moderate flexibility under the state-mandated cap ($25 per $1,000 of AV, with no more than $15 for debt) to raise property taxes as most cities are well below the cap. Expenditures primarily consist of personnel costs, which are highly predictable. Cities have high flexibility to reduce expenditures given no union presence. Legal Security The certificates are payable from ad valorem taxes to be levied, within the limits prescribed by law, on all taxable property within the city. The certificates are additionally secured by a limited subordinate pledge of surplus net revenues derived from the city's water and sewer system, not to exceed $10,000. 3 11 April 2017 Sanger (City of) TX: New Issue: Moody's Assigns A1 to City of Sanger's, TX Certificates of Obligation, Series 2017 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE Use of Proceeds Bond proceeds will be used to expand the city's wastewater treatment plant. Obligor Profile The City of Sanger is a primarily residential community located on Interstate 35 in Denton County. The city is located approximately 40 miles north of Dallas and has an estimated population of 7,747. Methodology The principal methodology used in this rating was US Local Government General Obligation Debt published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology. Ratings Exhibit 2 Sanger (City of) TX Issue Rating Combination Tax and Revenue Certificates of Obligation, Series 2017 A1 Rating Type Underlying LT Sale Amount $9,320,000 Expected Sale Date 04/28/2017 Rating Description General Obligation Limited Tax Source: Moody's Investors Service 4 11 April 2017 Sanger (City of) TX: New Issue: Moody's Assigns A1 to City of Sanger's, TX Certificates of Obligation, Series 2017 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE © 2017 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. 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REPORT NUMBER 1068318 5 11 April 2017 Sanger (City of) TX: New Issue: Moody's Assigns A1 to City of Sanger's, TX Certificates of Obligation, Series 2017 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE Contacts Alex Rawlings +1 (214) 979-6841 Analyst alex.rawlings@moodys.com John Nichols 214-979-6851 AVP - Analyst john.nichols@moodys.com CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 EMEA 44-20-7772-5454 6 11 April 2017 Sanger (City of) TX: New Issue: Moody's Assigns A1 to City of Sanger's, TX Certificates of Obligation, Series 2017 SP E C I M E N Page 1 of 7 OHSUSA:766868970.1 UNITED STATES OF AMERICA STATE OF TEXAS NUMBER DENOMINATION R-1 $85,000 REGISTERED REGISTERED CITY OF SANGER, TEXAS COMBINATION TAX AND REVENUE CERTIFICATE OF OBLIGATION SERIES 2017 INTEREST RATE DELIVERY DATE MATURITY DATE CUSIP 3.000% May 18, 2017 May 15, 2022 800876 FT6 DATED DATE: May 1, 2017 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: EIGHTY-FIVE THOUSAND AND NO/100 DOLLARS THE CITY OF SANGER, TEXAS, a municipal corporation of the State of Texas (the “City”), for value received, hereby promises to pay to the Registered Owner identified above or its registered assigns, on the maturity date specified above (or on earlier redemption as herein provided), upon presentation and surrender of this Certificate at the principal corporate trust office of BOKF, NA, Austin, Texas, or its successor (the “Paying Agent/Registrar”), the principal amount identified above (or so much thereof as shall not have been paid or deemed to have been paid upon prior redemption) payable in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due to the United States of America, and to pay interest thereon at the rate shown above, calculated on a basis of a 360-day year composed of twelve 30-day months, from the date of delivery. Interest on this Certificate is payable on May 15, 2018, and each November 15 and May 15 thereafter until maturity or earlier redemption of this Certificate, by check sent by United States mail, first class, postage prepaid, by the Paying Agent/Registrar to the Registered Owner of record as of the close of business on the last business day of the calendar month immediately preceding the applicable interest payment date, as shown on the registration books kept by the Paying Agent/Registrar. Any accrued interest payable at maturity or earlier redemption shall be paid upon presentation and surrender of this Certificate at the principal corporate trust office of the Paying Agent/Registrar. THIS CERTIFICATE IS ONE OF A DULY AUTHORIZED SERIES OF CERTIFICATES (the “Certificates”) in the aggregate principal amount of $9,240,000 issued pursuant to an ordinance adopted by the City Council of the City on May 1, 2017 (the SP E C I M E N Page 2 of 7 OHSUSA:766868970.1 “Ordinance”) for the purpose of providing all or part of the funds (1) to pay contractual obligations to be incurred for (i) restoration, replacement, rehabilitation and expansion of the wastewater and water systems including the treatment plant and (ii) street and drainage improvements and (2) for the payment of contractual obligations for professional services pursuant to Subchapter C of Chapter 271, Texas Local Government Code, as amended. THIS CERTIFICATE shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Certificate either (i) is registered by the Comptroller of Public Accounts of the State of Texas by due execution of the registration certificate endorsed hereon or (ii) is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. THE CITY RESERVES THE RIGHT, at its option, to redeem, prior to their maturity, Certificates maturing on and after May 15, 2027, in whole or in part, on May 15, 2026, or any date thereafter, at par plus accrued interest to the date fixed for redemption. CERTIFICATES MAY BE REDEEMED IN PART only in integral multiples of $5,000. If a Certificate subject to redemption is in a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of $5,000. In selecting portions of Certificates for redemption, each Certificate shall be treated as representing that number of Certificates of $5,000 denomination which is obtained by dividing the principal amount of such Certificate by $5,000. Upon surrender of any Certificate for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of the Ordinance, shall authenticate and deliver in exchange therefor a Certificate or Certificates of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered. NOTICE OF ANY SUCH REDEMPTION, identifying the Certificates or portions thereof to be redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shown on the books of registration kept by the Paying Agent/Registrar, not less than thirty (30) days before the date fixed for such redemption. By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the redemption price of the Certificates called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Certificates which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the purpose of being paid with the funds so provided for such payment. THIS CERTIFICATE IS TRANSFERABLE only upon presentation and surrender at the principal corporate trust office of the Paying Agent/Registrar, accompanied by an assignment duly executed by the Registered Owner or its authorized representative, subject to the terms and conditions of the Ordinance. THIS CERTIFICATE IS EXCHANGEABLE at the principal corporate trust office of the Paying Agent/Registrar for a Certificate or Certificates of the same maturity and interest rate and in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Ordinance. SP E C I M E N Page 3 of 7 OHSUSA:766868970.1 THE PAYING AGENT/REGISTRAR is not required to accept for transfer or exchange any Certificate called for redemption, in whole or in part, during the forty-five (45) day period immediately prior to the date fixed for redemption; provided, however, that such limitation shall not apply to the transfer or exchange by the Registered Owner of an unredeemed portion of a Certificate called for redemption in part. THE CITY OR PAYING AGENT/REGISTRAR may require the Registered Owner of any Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of a Certificate. Any fee or charge of the Paying Agent/Registrar for a transfer or exchange shall be paid by the City. THE REGISTERED OWNER of this Certificate by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Ordinance. IT IS HEREBY DECLARED AND REPRESENTED that this Certificate has been duly and validly issued and delivered; that all acts, conditions and things required or proper to be performed, exist and to be done precedent to or in the issuance and delivery of this Certificate have been performed, exist and have been done in accordance with law; that the Certificates do not exceed any constitutional or statutory limitation; and that annual ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Certificate, as such interest comes due and such principal matures, have been levied and ordered to be levied, within the limits prescribed by law, against all taxable property in the City and have been irrevocably pledged for such payment. IT IS FURTHER DECLARED AND REPRESENTED that the surplus revenues to be derived from the City’s water and sewer system, after the payment of all operation and maintenance expenses thereof (the “Net Revenues”), in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. The City also reserves the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind, secured in whole or in part by a pledge of Net Revenues, that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. REFERENCE IS HEREBY MADE TO THE ORDINANCE, a copy of which is filed with the Paying Agent/Registrar, for the full provisions thereof, to all of which the Registered Owners of the Certificates assent by acceptance of the Certificates. SP E C I M E N Page 4 of 7 OHSUSA:766868970.1 IN WITNESS WHEREOF, the City has caused its corporate seal to be impressed or placed in facsimile hereon and this Certificate to be signed by the Mayor, countersigned by the City Secretary by their manual, lithographed or printed facsimile signatures. * * * SP E C I M E N Page 5 of 7 OHSUSA:766868970.1 AUTHENTICATION CERTIFICATE This Certificate is one of the Certificates described in and delivered pursuant to the within-mentioned Ordinance; and, except for the Certificates initially delivered, this Certificate has been issued in exchange for or replacement of a Certificate, Certificates, or a portion of a Certificate or Certificates of an issue 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. BOKF, NA By: Authorized Signature Date of Authentication: * * * SP E C I M E N Page 6 of 7 OHSUSA:766868970.1 STATEMENT OF INSURANCE Build America Mutual Assurance Company (“BAM”), New York, New York, has delivered its municipal bond insurance policy (the “Policy”) with respect to the schedule payments due of principal and interest of this Certificate to BOKF, N.A., Austin, Texas, or its successor (the “Paying Agent/Registrar”). Said Policy is on file and available for inspection at the principal office of the Paying Agent/Registrar and a copy thereof may be obtained from BAM or the Paying Agent/Registrar. All payments required to be made under the Policy shall be made in accordance with the provision thereof. By its purchase of the Certificates, the owner acknowledges and consents to the subrogation and all other rights of BAM as more fully set forth in the Policy. SP E C I M E N Page 7 of 7 OHSUSA:766868970.1 ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto ______________________________________________________________________________ (Please print or type name, address, and zip code of Transferee) ______________________________________________________________________________ (Please insert Social Security or Taxpayer Identification Number of Transferee) the within bond and all rights thereunder, and hereby irrevocably constitutes and appoints _______________________________________ attorney to transfer such bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature Guaranteed: Registered Owner NOTICE: The signature above must correspond to the name of the Registered Owner as shown on the face of this bond in NOTICE: Signature must be guaranteed by a every particular, without any alteration, member firm of the New York Stock Exchange enlargement or change whatsoever. or a commercial bank or trust company. * * * * OFFICE OF THE ATTORNEY GENERAL PUBLIC FINANCE DIVISION Additional Transcript Requirements Pursuant to Texas Government Code §1202.008 Please submit excel copy of this form to brblgs@brb.state.tx.us The following information is to be included in the transcript submitted to the Office of the Attorney General to obtain Attorney General approval of the issuance of bonds or other obligations. This information has been designated by the Bond Review Board as that to be collected pursuant to Texas Government Code §1202.008. If space is limited, please provide a specific cross-reference to the page in the Final Official Statement. A. Please provide the following information as well as an additional copy of the Final Official Statement. (Provide the requested information on this workshect. The Bond Review Board does not receive the frill transcript): 1. a. Name of the Governmental Entity: City of Sanger, Texas b. Name of Bond Issue: Combination Tax and Revenue Certificates of Obligation, Series 2017 C. Type of Issuer: Governmental Entity List Component/Related Entity/Other 2. a. Total Par Amount: S9,240,000.00 b. New Money Par: $9,240,000.00 c. Refunding Par: N/A d. Dollar Amount of Bond Premium, if any: S757,696.65 e. Cash Premium (Competitive Sales, usually found in the Initial Purchasers Section), if ,my: N/A f. Dollar Amount of Bond Original Issue Discount, if any: N/A >. If available, please email the DF2 file to brblgs @'brb.state.tx.us. N/A 3. Dated Date: 5/1/2017 4. Date Interest Accrues from: 5/18/2017 5. Closing Date (expected delivery date, on or about): 5/18/2017 6. First Interest Payment Date: 5/15/2018 7. Maturity Dates, Maturity Amounts, Coupon Rates, Prices or Yields (If no reoffering yield i iR0 indicated, please provide yield separately.): See attached Exhibit A 8. Call Provisions, including Premiums, if any: See attached Exhibit B 9. Mandatory Sinking Fund Redemption Dates: See attached Exhibit B 10. Debt -Service Schedule (Principal and Interest, and Annual Totals, with the Fiscal Year identified): See attached Exhibit A 11. Do the bonds have a specific designation as qualified tax-exempt obligations? Yes 12. Derivative Products (Swaps, Interest Rate Management Agreements, etc.) - List any derivatives associated with financing: N/A 13. Pledge: tax ad valorem, sales, other), revenue, combination: Combination Tax/Rev 14. Credit Enhancement (including PSF guarantee): Bond Insurance - Build America Mutual Assurance Company Updated June 2014 15. Ratings: Assigned to the issue/ Underlying: Assigacd to this issue Undedvin Mood 's A-1 S&P AA Fitch Other Not Rated B. Additional Information 116. Type of Sale: (Competitive, Negotiated, Private Placement, Other) Negotiated If other please explain 17. Date of Sale: 5/1/2017 18. Net effective interest rate pursuant to Government Code Chapter 1204.005: 2.96% 19. Governmental Purchaser - please name purchaser i.e. Texas Water Development Board): N/A 20. Refunded Obligations - If applicable, include a schedule of obligations refunded by year, rinci al amount, and coupon. N/A 21. Gross Cash and Present Value Savings/Loss - If a refunding bond issue, please provide final schedule of gross cash and present value savings or loss. N/A N/A 22. Cash Defeasances - List all issues and maturities that have been cash defeased since the last issue of public securities approved by the Attorney General. N/A 23. If voter approved - Provide bond election date(s), original amount(s) authorized and current amounts of principal and premium char ged a gainst voted authority. N/A 24. Authorized but Unissued - For issues that require the use of voted bond authorization, list all authorized but unissued voted authorityavailable, if any. N/A 25. Upcoming Called Bond Election: Please provide an attached schedule which shows date of election, purpose and amount by proposition. N/A 26. CABs and CIBs — If not provided in the OS, please provide the per annum bond interest rates by maturity as shown in the bond order document. If provided in the OS, list the a e s : See attached Exhibit A 27. Commercial Paper Authorized - List all commercial paper programs, the amounts authorized and the amounts currently outstanding. N/A 28. Population - Provide the most current available population data: 6,916 Source: 2010 Census 29. Federal Program - If the debt is being issued under any direct special government program; name the program and the amount ofauthority being used: N/A 30. If the issuer is an ISD, is any portion of the debt exempt from Texas Education Agency Code 45.0031 50-cent Debt test)? N/A Updated June 2014 31. Costs of Issuance - Provide the information below: (If final costs are materially different, please submit changes directly to the Texas Bond Review Board, 512-463-1741 or fax 512-475-4802 Service Bond Rating: Firm One -Time Fee Annual Fees (t) Mood 's $14,000 Standard & Poor's Fitch Other: Other Costs of Issuance: ('-) Financial advisor Government Capital Securities Corporation 597,000 Bond Counsel Orrick, Herrington & Sutcliffe LLP 520,000 Co Bond Counsel Issuer Counsel Bank Counsel Disclosure Counsel Paying Agent BOKF, NA 5500 Trustee Remarketing Fees Liquidity Fees Accountant/CPA Printing Attorney General's Fee S9,240 Issuer Fees Escrow Agent Escrow Verification Fees Vlisc. Costs of Issuance: (3) S500 Total Costs of Issuance: $141,240 - Credit Facility Bond Insurance Underwriting Spread: Takedown 45,825.00 Management Fee 9,240.00 Underwriter Counsel Andrews Kurth Kenyon LLC / Houston 10,000.00 Spread Expenses tarC, Cusrr, intro, N1 AC, Day Loan, Nr5�, os 5,950 5,950.00 Total Undenvritin Spread: (4) 71,015.00 - Did Undcrwriter Pay Rating Fee? es or No No Did Undenriter Pay Bond Insurance Fee? es or No No Did Undewriter Pay Underwriter Counsel's Fee? es or No No (1) Refers to any recurring costs of an issuance including fees for paying agent, remarketing agent, credit provider and other similar services (may be expressed as a formula as appropriate). (2) Include all fees and expenses paid or reimbursed by the issuer. (3) Provide all other costs of issuance and identify the service provider and associated fees. (4) Include all marketing and selling costs including structuring (management) fee, takedown, underwriting risk fee and expenses. Updated June 2014 UW Participants Firm Senior Mana in Underwriter Oppenheimer & Co., Inc. Other Underwriters William Blair & Company Person Completing Form: Name: Hoan r Vu Firm: Orrick, Herrington & Sutcliffe LLP Telephone: 713.658.6430 I3-mail: hvu@orrick.com The information presented on this form is used by the T exas Bond Review Board for compiling outstanding debt information and related costs of issuance for governmental issuers in Texas. For more information please see http://w\v-,v.brb.state.tx.us/Igs/Igs.aspx Updated June 2014 EXHIBIT A S9,240,000 Combination Tax and Revenue Certificates of Obligation, Series 2017 Maturity Principal Interest Initial Ckfav 15) Amount Rate YieldfPrice(b) CUSIPW 2022 $ 85,000 3.000% 1.950% 800876FT6 2023 100,000 3-000 2-050 800876FU3 2024 115,000 3.000 2.200 800876FV1 2025 115,000 4.000 2.350 800876FW9 2026 115,000 4.000 2.450 800876FX7 2027,1) 390,000 4.000 2A60 800276FY5 2028,> 545,000 4.000 2,500 800876FZ2 20291") 560,000 4-000 1600 800876G-A6 2 0 3 0,") 585,000 4-000 2-660 800876GB4 2031(l) 605,000 4.000 2.770 800876GC2 2032,1) 630,000 4-000 2.850 800876GDO 2033,1) 660,000 4-000 2.920 800876GEB 20300 1,0 10,000 4.000 3-050 800876GF5 203:51) 1,050,000 4.000 3.130 8008760G3 2036(l) 1090,000 4.000 3.180 800876GH1 2037,1) 1,585,000 4-000 1280 800876GJ7 (a) The Certificates maturing on and after May 15, 2027, are subject to optional redemption, in whole or in part on NIki, 15, 2026, or any date thereafter, at a price equal to the par value thereof, plus accrued interest from the most recent interest payment date to the date or redemption. (See "THE CEIRTIFICATES — Optional Redemption"). (b) The initial yields and prices are establ:shed by, and are the sole responsibility of the UndenNtriters and may subsequently be chanced. (c) CUSIP numbers have been assigned to this issue by the CUSIP Global Services managed by Standard and Poor's Financial Services LLC on behalf of the -American Bankers Association and are included solely for the convenience of the purchasers of the Certificates. Neither the Ciq.-, the Financial Advisor, nor the Underwriters shall be responsible for the selection or correctness of the CUSIP numbers set forthherein. Exhibit B THE CITY RESERVES TEE RIGHT, at its option, to redeem, prior to their maturity. Certificates maturing on and after May 15, 2027: in thole or in part on May 15, 2026. or any date thereafter, at par plus accrued interest to the date fixed for redemption - CERTIFICATES MAY BE REDEEMED IN PART only in integral multiples of S5=000- If a Certificate subject to redemption is in a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of S5-000- In selecting portions of Certificates for redemption, each Certificate shall be treated as representing that number of Certificates of $5,000 denomination which is obtained by dividing the principal amount of such Certificate by $5,000- Upon surrender of any Certificate for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of the Ordinance, shall authenticate and deliver in exchange therefor a Certificate or Certificates of like maturity and interest rate in an aggregate - i al amount equal to the unredeemed portion of the Certificate so surrendered - NOTICE NOTICE OF ANY SUCH REDEMPTION, identifying the Certificates or portions thereof to be redeemed, shall be sent by United. States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shov.,n on the books of registration kept by the Paying Agent,'Regl%trar, not less than thirty (3 0) days before- the date fixed for such redemption. By the date fixed for redemption, due provision shall be. made with the Paying AgenRegistrar for the payment of the redemption price of the Certificates called for redemption- If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Certificates which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the. date fixed for redemption and they shall not be regarded as being outstanding except for the purpose of being paid with the funds so provided for such payment- 1 May 16, 2017 ISSUER City of Sanger Mike Brice – City Manager Clayton Gray – Finance Director 502 Elm St Sanger, TX 76266 Phone: (940) 458-7930 mbrice@sangertexas.org BOND UNDERWRITER Oppenheimer & Co., Inc. Daniel Roseveare / Misty Brightwell 13455 Noel Rd., Suite 1200 2 Galleria Tower Dallas, Texas 75240 Phone: (972) 450-3829 misty.brightwell@opco.com FINANCIAL ADVISOR Government Capital Securities Corporation Ted Christensen / Wendy Dolan 559 Silicon Drive, Suite 102 Southlake, TX 76092 Phone: (817) 722-0239 tchristensen@govcapsecurities.com UNDERWRITER’S COUNSEL Andrews Kurth LLP 600 Travis, Suite 4200 Houston, Texas 77002 Mike Swartz Phone: (713) 220-4702 mswartz@andrewskurth.com BOND COUNSEL Orrick, Herrington & Sutcliff LLP Hoang Vu / Amanda Stephens 1301 McKinney Street, Suite 4100 Houston, Texas 77010 Phone: (713) 658-6430 hvu@orrick.com PAYING AGENT BOK Financial Jose A. Gaytan, Jr. 100 Congress Avenue, Ste.250 Austin, Texas 78701 Phone: (512) 813-2002 jgaytan@bankoftexas.com Re: Closing Instructions with respect to the City of Sanger, Texas, $9,240,000 Combination Tax and Revenue Certificates of Obligation, Series 2017 (the “Certificates”). Payment for the above referenced Certificates is scheduled to occur at 10:00 A.M. CST on Thursday, May 18, 2017 (the "Closing Date"), and payment therefore is to occur at the offices of BOK Financial, the paying agent/registrar (“BOKF”). SOURCES OF FUNDS Principal Amount of Certificates $9,240,000.00 PLUS: Premium 757,696.65 TOTAL SOURCES $9,997,696.65 USES OF FUNDS Deposit to Construction Fund $9,755,407.16 PLUS: Costs of Issuance 141,240.00 PLUS: Bond Insurance 30,034.49 PLUS: Underwriter's Discount 71,015.00 TOTAL USES $ 9,997,696.65 CONFIRMATION OF PURCHASE PRICE Principal Amount of Certificates $9,240,000.00 PLUS: Premium 757,696.65 LESS: Underwriter's Discount 71,015.00 PURCHASE PRICE OF THE CERTIFICATES $9,926,681.65 FINAL 2 (A) Prior to 10:00 A.M. on the Closing Date, Oppenheimer & Co. (the “Underwriter”) shall wire in immediately available funds $9,926,681.65 (consisting of the par amount of the Certificates of $9,240,000.00 plus original issue premium of $757,696.65 and less underwriter’s discount of $71,015.00). Instructions for wiring funds to BOKF are as follows: BOKF, NA ABA: 103900036 Acct. No. 600024642 Acct Name: Wealth Management Account Re: City of Sanger Series 2017 Attn. Jose Gaytan 512-813-2002 (B) BOKF is instructed to disburse the funds, no later than 1:00 P.M., described above as follows: (1) Deposit to Construction Fund: To: City of Sanger Account Name: First United Bank Address: PO Box 1250, Sanger, TX 76266-1250 Routing Number: Account No.: Attn: Tamala Walls 580-634-6374 $9,755,407.16 (2) Wire transfer costs of issuance funds to: To: Wells Fargo Bank Texas, NA ABA: Account Name: Government Capital Securities Corporation Account No.: 140,740.00 (3) Wire transfer costs of Bond Insurance To: First Republic Bank ABA: Account Name: Build America Mutual Assurance Company Account No.: OBI: Policy# City of Sanger, TX, Series 2017 30,034.49 (4) Paying Agent Fees Retained by Paying Agent 500.00 TOTAL $9,926,681.65 Government Capital Securities Corporation is instructed and requested to make a full and complete accounting to the District of all costs and expenses paid with such amount and remit the balance, if any, to the City after payment of such issuance costs and expenses. Your cooperation regarding the wiring, receipt and disbursement of funds in accordance with this letter is greatly appreciated. Should you have any further questions, please advise me at (972) 450-3829. Very truly yours, Daniel C. Roseveare Misty Brightwell Managing Director Associate Oppenheimer & Co. Oppenheimer & Co.