NOTE M - COMMITMENTS AND CONTINGENCIES Economically Distressed Areas Program (EDAP)

Kerr County has received funding through the EDAP program which contains prohibitions on the transfer of certain revenues for non-utility purposes. Kerr County is compliant with applicable statutory requirements of the EDAP Program.

East Kerr Centerpoint Wastewater Collection Project

In 2018, the Texas Water Development Board (TWDB) awarded the County financial assistance in the amount of $27,801,400 from the Clean Water State Revolving Fund (CWSRF) and the Economically Distressed Areas Program (EDAP); all identified as TWDB Project 10366. There are two agreements within this project, as follows:

· Commitment No. LF1000748 in the amount of $10,096,400 and corresponding Commitment No. L1000681 in the amount of $4,330,000

· Commitment No. G1000904 in the amount of $11,270,000 and corresponding Commitment No.

L1000884 in the amount of $2,105,000

In 2018, Kerr County was awarded Commitment No. LF1000748 and Commitment No. L1000681, TWDB Project 10366 (Intended Use Plan (IUP) Fiscal Year 2018), by the Texas Water Development Board (TWDB) in the form of a loan from the Clean Water State Revolving Fund (CWSRF) for the planning, design, and/or construction of a new wastewater collection system. TWDB determined the County qualified for principal forgiveness as a Disadvantaged Community and agreed to provide financial assistance in the amount of $14,426,400, consisting of $4,330,000 Kerr County, Texas Combination Tax and Surplus Revenue Certificates, 2018 (L1000681), and a subsidy in the form of loan forgiveness funds of $10,096,400 (LF1000748) without expectation of repayment of the $10,096,400. The loan and loan forgiveness funds were placed in a trust account under the name of Kerr County, but the TWDB holds the rights to those funds and the funds are only disbursed to the County as funds are expensed. In accordance with Exhibit G – Escrow Agreement of Principal Forgiveness Agreement, the proceeds received by the Escrow Agent under this Agreement shall not be considered a banking deposit of the County, and the Escrow Agent shall have no right to title with respect thereto except as Escrow Agent under the terms of this Agreement. The County spent $0 of the loan proceeds in the current year and $160,991 in the prior year and $2,723,776 of the loan forgiveness funds in the current year and $209,869 in the prior year leaving a loan proceeds balance of

$4,169,009 and loan forgiveness balance of $7,162,755 plus all income earned on the funds.

In 2018, Kerr County was awarded Commitment No. G1000904 and Commitment No. L1000884, TWDB Project 10366, by the Texas Water Development Board (TWDB) from the Economically Distressed Areas Program (EDAP) to finance the certain wastewater system improvements. TWDB determined the County qualified for financial assistance not to exceed $13,375,000, consisting of the TWDB’s purchase of

$2,105,000 Kerr County, Texas Combination Tax and Revenue Certificates, 2019 (L1000884) and grant funds of $11,270,000 (G1000904), without expectation of repayment of the $11,270,000. The loan proceeds and grant funds were placed in a trust account under the name of Kerr County, but the TWDB holds the rights to those funds and the funds are only disbursed to the County as funds are expensed. In accordance with Exhibit E – Escrow Agreement of the Grant Agreement, the proceeds received by the Escrow Agent under this Agreement shall not be considered a banking deposit of the County, and the Escrow Agent shall have no right to title with respect thereto except as Escrow Agent under the terms of this Agreement. The

56

KERR COUNTY, TEXAS

NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2020

NOTE M - COMMITMENTS AND CONTINGENCIES (Continued) Economically Distressed Areas Program (EDAP) – (Continued)

East Kerr Centerpoint Wastewater Collection Project (Cont.)

County spent $84,324 of the grant funds and $0 of the loan proceeds in the current year and $21,612 grant funds and $80,256 loan proceeds in the prior year leaving a grant balance of $11,164,064 and loan proceeds balance of $2,024,244 plus all income earned on the funds.

In 2016, Kerr County was awarded Commitment No. G1000435, TWDB Project 10366, by the Texas Water Development Board (TWDB) from the Texas Water Development Board (TWDB) in the form of a grant from the Clean Water State Revolving Fund (CWSRF) for the planning, design, and/or construction of a new wastewater collection system. TWDB determined the County qualified for financial assistance not to exceed

$14,050,618, consisting of the TWDB’s grant funds of $14,050,618 (G1000435), without expectation of repayment of the $14,050,618. The grant funds were placed in a trust account under the name of Kerr County, but the TWDB holds the rights to those funds and the funds are only disbursed to the County as funds are expensed. In accordance with Exhibit E – Escrow Agreement of the Grant Agreement, the proceeds received by the Escrow Agent under this Agreement shall not be considered a banking deposit of the County, and the Escrow Agent shall have no right to title with respect thereto except as Escrow Agent under the terms of ths Agreement. The County spent $13,583 of the grant funds in the current year and

$12,829,794 in prior years leaving a grant balance of $1,207,241.

In 2016, Kerr County was awarded Commitment No. L1000484, TWDB Project 10366, from the Texas Water Development Board (TWDB) in the form of a grant from the Clean Water State Revolving Fund (CWSRF) for the planning, design, and/or construction of a new wastewater collection system. TWDB determined the County qualified for financial assistance not to exceed $5,110,000. The grant funds were placed in a trust account under the name of Kerr County, but the TWDB holds the rights to those funds and the funds are only disbursed to the County as funds are expensed. In accordance with Exhibit E – Escrow Agreement of the Grant Agreement, the proceeds received by the Escrow Agent under this Agreement shall not be considered a banking deposit of the County, and the Escrow Agent shall have no right to title with respect thereto except as Escrow Agent under the terms of this Agreement. The County spent $126,464 of the grant funds in the current year and $270,378 in prior years leaving a grant balance of $4,713,158.

In 2012, Kerr County was awarded Commitment No. G1000036, TWDB Project 10366, by the Texas Water Development Board (TWDB) from the Texas Water Development Board (TWDB) in the form of a grant from the Clean Water State Revolving Fund (CWSRF) for the planning, design, and/or construction of a new wastewater collection system. TWDB determined the County qualified for financial assistance not to exceed

$64,000, consisting of the TWDB’s grant funds of $64,000 (G1000036). The grant funds were placed in a trust account under the name of Kerr County, but the TWDB holds the rights to those funds and the funds are only disbursed to the County as funds are expensed. In accordance with Exhibit E – Escrow Agreement of the Grant Agreement, the proceeds received by the Escrow Agent under this Agreement shall not be considered a banking deposit of the County, and the Escrow Agent shall have no right to title with respect thereto except as Escrow Agent under the terms of this Agreement. The County spent $11,536 of the grant funds in the current year and $21,750 in prior years leaving a grant balance of $30,714.

KERR COUNTY, TEXAS

NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2020

NOTE M - COMMITMENTS AND CONTINGENCIES (Continued) Economically Distressed Areas Program (EDAP) – (Continued)

East Kerr Centerpoint Wastewater Collection Project (Cont.)

In 2015, Kerr County was awarded Commitment No. 7215045, TWDB Project 10366, by the Texas Department of Agriculture (TDA) from the Texas Community Development Block Grant Program (TxCDBG) to finance sewer improvements and provide first time sewer service to households in colonias.

TDA determined the County qualified for financial assistance not to exceed $500,000 consisting of grant funds of $500,000 and a county match of $25,000 without expectation of repayment of the grant funds. The grant funds were placed in a trust account under the name of Kerr County, but the TDA holds the rights to those funds and the funds are only disbursed to the County as funds are expensed. The County spent $1,025 of the grant funds in the current year and $490,320 of the grant funds in previous years leaving a grant balance of $8,655 plus all income earned on the funds. Kerr County’s $25,000 match was spent in full in fiscal year 2019.

In 2017, Kerr County was awarded Commitment No. 7217045, TWDB Project 10366, by the Texas Department of Agriculture (TDA) from the Texas Community Development Block Grant Program (TxCDBG) to finance sewer improvements and provide first time sewer service to households in colonias.

TDA determined the County qualified for financial assistance not to exceed $1,000,000 consisting of grant funds of $1,000,000 without expectation of repayment of the grant. The grant funds were placed in a trust account under the name of Kerr County, but the TDA holds the rights to those funds and the funds are only disbursed to the County as funds are expensed. The County spent $106,603 of the grant funds in the current year and $127,168 of the grant funds in previous years leaving a grant balance of $766,229 plus all income earned on the funds.

In 2018, Kerr County was awarded Commitment No. 7218045, TWDB Project 10366, by the Texas Department of Agriculture (TDA) from the Texas Community Development Block Grant Program (TxCDBG) to finance sewer improvements and provide first time sewer service to households in colonias.

TDA determined the County qualified for financial assistance not to exceed $500,000 consisting of grant funds of $500,000 without expectation of repayment of the grant. The grant funds were placed in a trust account under the name of Kerr County, but the TDA holds the rights to those funds and the funds are only disbursed to the County as funds are expensed. The County spent $0 of the grant funds in the current year and $0 of the grant funds in previous years leaving a grant balance of $500,000 plus all income earned on the funds.

In 2018, Kerr County was awarded Commitment No. 7218055, TWDB Project 10366, by the Texas Department of Agriculture (TDA) from the Texas Community Development Block Grant Program (TxCDBG) to finance sewer improvements and provide first time sewer service to households in colonias.

TDA determined the County qualified for financial assistance not to exceed $500,000 consisting of grant funds of $500,000 and a county match of $25,000 without expectation of repayment of the grant. The grant funds were placed in a trust account under the name of Kerr County, but the TDA holds the rights to those funds and the funds are only disbursed to the County as funds are expensed. The County spent $0 of the grant funds in the current year and matching funds of $1,116 and $0 of the grant funds and $0 of the matching funds in previous years leaving a grant balance of $500,000 and matching funds of $23,884 plus all income earned on the funds.

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KERR COUNTY, TEXAS

NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2020

NOTE M - COMMITMENTS AND CONTINGENCIES (Continued) Investment in Joint Venture

Kerr County and the City of Kerrville are jointly liable for any losses produced by the Airport.

The following is a summary from the Airport Annual financial statements for the year ended September 30, 2020:

ASSETS

Cash and Cash Equivalents $ 809,395

Receivables (net of allowance for uncollectibles) 9,466

Prepaid Items 9,762

Property, Plant and Equipment (Net) 16,304,148

Total Assets $ 17,132,771

LIABILITIES

Current Liabilities $ 196,305

Total Liabilities 196,305

NET POSITION

Net Investment in Capital Assets 16,304,148

Restricted for Capital Acquisitions 39,771

Unrestricted Net Position 592,547

Total Net Position $ 16,936,466

REVENUES

Charges for Services $ 469,921

Grants & Contributions 222,988

Total Revenues 692,909

EXPENSES

Airport Operations 1,087,933

Total Expenses 1,087,933

OPERATING INCOME (395,024)

GENERAL REVENUES

Miscellaneous Revenue/Investment 5,599

Total General Revenues 5,599

Changes in Net Position (389,425)

Net position - Beginning 17,325,891

Net Position - Ending $ 16,936,466

KERR COUNTY, TEXAS

NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2020

NOTE M - COMMITMENTS AND CONTINGENCIES (Continued) Construction Commitments

Estimated

Total Incurred Through Future

Commitment September 30, 2020 Commitment

East Kerr Centerpoint

Waste Water Project 66,825,474 31,453,774 35,371,700

66,825,474

$ $ 31,453,774 $ 35,371,700

The Centerpoint Wastewater Project will be donated to the Kendall County Water Control & Improvement District #1 (KSCWID #1) once the Wastewater Plant is completed and all corresponding debt has been paid.

The KCWCID #1 will be responsible for maintenance and operations once construction is complete and will lease the Wastewater Plant for $10 per year from the County until the debt is paid. KSCWID #1 will remit to the county on a monthly basis the value of the County’s monthly payment of the reimbursed Wastewater System Debt. Annually, the County will calculate the debt service require to make the debt payment based upon the debt amortization schedules related the Texas Water Development Debt.

Litigation

The County is the subject of various claims and litigation that have arisen in the course of its operations.

Management is of the opinion that the County’s liability in these cases, if decided adversely to the County, will not have a material effect on the County’s financial position.

Risk Management

The County is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets;

errors and omissions; and natural disasters. The County carries commercial insurance for all such risks.

During the year ended September 30, 2020, settled claims resulting from these risks did not exceed commercial insurance coverage.