No.

05-11-00036-CV
3fn 2tbe Court Jt appeato
for Xbe fifth Court f appeato rittitritt
)11 aftao, t1rexat4

JOE PUTNAM,
IRVING TAXPAYERS OPPOSED TO ILLEGAL AND WASTEFUL USE OF TAX MONEY, AND
THE ATTORNEY GENERAL OF TEXAS,
Appellants
V.

CITY OF IRVING, TEXAS,

Appellee

FROM THE 192ND JUDICIAL DISTRICT COURT, DALLAS COUNTY, TEXAS

CAUSE NO. 10-11029, HONORABLE CRAIG SMITH, PRESIDING

BRIEF OF AMICUS CURAIE, CITY OF SAN ANTONIO, TEXAS

FULBRIGHT & JAWORSKI L.L.P.

Robert G. Newman
State Bar No. 14965600
Email: rnewman@fulbright.com
Rosemarie Kanusky
State Bar No. 00790999
Email: rkanusky@fulbright.com
300 Convent, Suite 2100
San Antonio, Texas 78205
Telephone: 210.270.7138
Facsimile: 210.270.7205

Michael D. Bernard Thomas K. Spurgeon

City Attorney
State Bar No. 02211310
E-mail: michael.bernard@sanantonio.gov
P. 0. Box 839966
San Antonio, Texas 78283
Telephone: 210.207.8940
Facsimile: 210.207.4004
State Bar No. 18974100
E-mail: tspurgeon@mphlegal.com
MCCALL, PARKHURST & HORTON L.L.P.
700 N. St. Mary's, Suite 1525
San Antonio, Texas 78205
Telephone: 210.225.2800
Facsimile: 210.225.2984

Counsel for Amicus Curaie, City of San Antonio, Texas

STATEMENT OF THE CASE 1

STATEMENT OF AMICUS CURIAE'S INTEREST 1

STATEMENT OF FACTS 2

I. Tourism Is A Vital Component Of San Antonio's Economic Future. 3

II. San Antonio Developed A Financing Plan For A Convention Center

Hotel. 3

III. The Attorney General Approved San Antonio's Bonds . 5

SUMMARY OF THE ARGUMENT 6

ARGUMENT 8

I. The Tax Refunds Are Exempt From The Appropriations Clause By

Article III, Section 52-a. 8

II. Tax Refunds Are Exempt From The Appropriations Clause By The
Trust Fund Doctrine 12

III. The Tax Refunds Are Exempt From The Appropriations Clause By
The Attorney General's Historical Position. 14

IV. The Consequences Of Reversal Are Significant. 17

CONCLUSION AND PRAYER FOR RELIEF 18

CERTIFICATE OF SERVICE 21
Appendices Tabs

Economic Development Agreement 1

Moody's Investors Service, Inc 2

Official Statement (excerpts only) 3

Texas Attorney General Bond Approval, Series 2005A 4

Texas Attorney General Bond Approval, Series 2005B 5

Comptroller of Public Accounts for the State of Texas

Letter (March 28, 2007) 6

Tex. Att'y Gen. LA-132, 1977 WL 26460 (1977) 7

Tex. Att'y Gen. LO 95-085 (1995) 8

11
 INDEX OF AUTHORITIES

Page(s)
CASES

Brazos County Conservation & Reclamation Dist. v. McCraw,

91 S.W.2d 665 (Tex. 1936) 14

City of Aransas Pass v. Keeling,

247 S.W. 818 (Tex. 1923) 13

City of Galveston v. Mann,

143 S.W.2d 1028 (Tex. 1940) 16

Harris County Flood Control Dist. v. Mann,

140 S.W.2d 1098 (Tex. 1940) 14

Leonard v. Cornyn,
47 S.W.3d 524 (Tex. App.—Austin 1999, pet. denied) 16

Manion v. Lockhart,
114 S.W.2d 216 (Tex. 1938) 13

Shepherd v. San Jacinto Junior College Dist.,

363 S.W.2d 742 (Tex. 1962) 14, 15

CONSTITUTION, STATUTES AND RULES

Act of June 2, 2003, 78th Leg., R.S., ch. 209, § 91,

2003 Tex. Gen. Laws 979, 1004 11

Act of May 11, 1993, 73rd Leg., R.S., ch. 231, §§ 6, 10,
1993 Tex. Gen. Laws 480, 482 9

Act of May 19, 1995, 74th Leg., R.S., ch. 977, § 1,

1995 Tex. Gen. Laws 4867, 4868 9

Act of May 26, 1983, 68th Leg., R.S., ch. 841, §§ 2,

1983 Tex. Gen. Laws 4771, 471-72 9

Act of May 28, 1982, 71st Leg., R.S., ch. 555, § 1,

1989 Tex. Gen. Laws 1856, 1856 9
Act of May 29, 1989, 71st Leg., R.S., ch. 1106, § 15,
1989 Tex. Gen. Laws 4580, 4588 9

Act of May 29, 2009, 81st Leg., R.S., ch. 1424,

2009 Tex. Gen. Laws 4585 8

Act of May 30, 2009, 81st Leg., R.S., ch. 1220, § 4,

2009 Tex. Gen. Laws 3901, 3902 11

Act of May 31, 1987, 70th Leg., R.S., ch. 877, §§ 1-2,
1987 Tex. Gen. Laws 2720, 2731 9

TEX. CIV. STAT. art. 5190.7 (repealed) 9

TEX. CONST.
art. III, § 52-a 7, 8, 9
art. VIII, § 1-e 14
art. VIII, § 6 7, 8, 13

TEX. Gov'T CODE

§ 1202.003 (Vernon 2000) 15
§ 1202.003(a) (Vernon 2000) 5
§ 1202.003(b) (Vernon 2000) 5
§ 1202.006(a) (Vernon 2000) 16
§ 1504.005 (Vernon 2000) 11
§ 2303.5055 (Vernon 2008) 9

TEX. LOCAL GOV'T CODE

§ 380.001 (Vernon 2005) 9, 11

TEX. R. APP. P. 11(c) 2

TEX. TAX CODE

§ 151.429(h) (Vernon 2008) 7, 9
§ 351.001 (Vernon Supp. 2010) 11
§ 351.102 (Vernon Supp. 2010) 4
§ 351.102(b) (Vernon Supp. 2010) 11
§ 351.102(c) (Vernon Supp. 2010) 11
§ 351.1065 (Vernon Supp. 2010) 4

TEX. TRANSP. CODE §§ 431.101-.110 (Vernon 2007 & Supp. 2010) 3

iv
OTHER AUTHORITIES

Tex. Att'y Gen. LO No. 95-085 10, 15, 19

Tex. Att'y Gen. Op. DM-192 (1992) 8

Tex. Att'y Gen. LA-132, 1977 WL 26460 (1977) 9, 12, 13, 15

Tex. Att'y Gen. Op. DM-185 (1992) 9

Tex. Att'y Gen. LO 95-085 (1995) 10

Tex. Att'y Gen. Op. JM-1227 (1990) 12

 STATEMENT OF THE CASE

The Texas Attorney General and other interested parties are appealing a

declaratory judgment that validates bonds to be issued by the City of Irving to fund

construction of an entertainment center and hotel. As security for these bonds, the City of

Irving will pledge various tax revenues, including the State's sales, use, and hotel

occupancy taxes generated at the hotel project. Although the Attorney General has

approved similar municipal bonds in the past and the State Comptroller has paid the taxes

to the issuing municipalities, the Attorney General now contends the Comptroller's

payments are unconstitutional absent biennial appropriations from the Texas Legislature.

STATEMENT OF AMICUS CURIAE'S INTEREST

The City of San Antonio is interested in this appeal's potential to invalidate a

process that the City of San Antonio has successfully used in the past — and may use

again — to finance an economically important hotel adjacent to its convention center.

If the Court reverses the lower court's judgment in favor of the City of Irving, the City of

San Antonio will lose tax revenues (which total over $4 million annually) that have been

pledged to secure bonds, unless the Legislature elects to appropriate them back to the

City each biennium. And, as explained further below, any reversal could inject needless

uncertainty in the bond market, could potentially reduce the rating on the bonds issued to

finance the City's convention center hotel, and could hinder the public financing of future

development projects throughout the state. Consequently, the City of San Antonio has

1
retained the undersigned counsel and will pay the fee for preparation of this brief. See

TEX. R. APP. P. 11(c).

The City of San Antonio expresses no opinion regarding whether the City of

Irving is entitled to receive the State's portion of the mixed beverage tax, nor does the

City of San Antonio express any opinion regarding the participation of, or the issues

raised by, the intervenors, Joe Putnam and the Irving Taxpayers Opposed to Illegal and

Wasteful Use of Tax Money.

The City of San Antonio strongly supports that portion of the trial court's

judgment that permits the City of Irving to receive the State's sales, use, and hotel

occupancy taxes to be collected at the proposed hotel project and to further receive those

taxes for a period of ten years without necessity of biennial appropriations by the Texas

Legislature. This Court should affirm that ruling because no law requires biennial

appropriations, and the tax payments will not violate the Texas Constitution.

STATEMENT OF FACTS

The City of San Antonio defers to the parties for a recitation of facts pertinent to

the lower court's proceedings. The City of San Antonio offers this additional background

about its own bonds to clarify certain facts raised in the Attorney General's reply brief, to

highlight the significance of the bonds to economic development, and to illustrate the

harm that would result from the Attorney General's recent attempt to change its historical

position concerning the constitutionality of that financing.

2
I. Tourism Is A Vital Component Of San Antonio's Economic Future.

During the past twenty years, the City of San Antonio has invested over

$200 million to expand convention center facilities and to promote tourism and economic

development. That investment has paid off. Tourism is one of the largest economic

generators in the City of San Antonio, and the City's convention center business has

increased.

Promoting tourism has not always been easy, however. In the 1990s, the City of

San Antonio tried several times to entice a major hotelier to build a large, privately-

owned hotel near or adjacent to the City's convention center. Each time the effort failed,

primarily due to the hotelier's inability to obtain financing. It became apparent that some

form of financial assistance or credit support would need to come from the City of San

Antonio, but at that time, the City lacked the legal means to satisfy these goals. Over the

next decade, the Texas Legislature enacted changes to state law that would enable the

City of San Antonio to finally provide sufficient and appropriate credit support to finance

a convention center hotel.

II. San Antonio Developed A Financing Plan For A Convention Center Hotel.

In 2005, the City of San Antonio created a nonprofit local government corporation

to assist the City with its economic development goals. See TEX. TRANSP. CODE

§§ 431.101-.110. This "San Antonio Corporation" was specifically charged with

developing, constructing, furnishing, and equipping a privately-owned hotel to be located

on City-owned land adjacent to its convention center. To this end, the City of San

3
Antonio proposed to issue bonds, to be secured by a trust estate containing various

contracts and agreements related to the hotel's construction and operation, as well as all

sources of revenues pledged to secure the bonds.

The primary source of revenue to secure the bonds was a pledge of the net

operating revenues from the convention center hotel. To provide additional credit support

and to assure investors that there would be other sources of revenues to pay the debt

service should the net operating revenues be insufficient, the City of San Antonio

committed to provide the San Antonio Corporation with revenues received by the City

from four additional sources:

1. State hotel occupancy tax collected at the convention center hotel for ten
years after it opened;

2. State sales and use tax collected at the convention center hotel for ten
years after it opened;

3. City hotel occupancy tax collected at the convention center hotel as long
as any bonds remained outstanding; and

4. City "expansion" hotel occupancy tax collected at all hotels in the City as
long as any bonds remained outstanding.

See Tab 2 at 5 (Economic Development Agreement); see also TEX. TAX CODE § 351.102;

id. § 351.1065.

Significantly, there is no provision in the financing documents that explicitly

subjects the City's right to receive the State's sales, use, and hotel occupancy tax

revenues to biennial appropriations by the Legislature. See, e.g., Tabs 1 & 3. The only

provision relating to appropriations pertains to the City's payment obligations to the

San Antonio Corporation, not the State's obligations to the City. Compare Reply Brief at

4
11 n.8 with Tab 1 at 17 (114.3(b)). This narrow provision only addresses the City's

obligations to provide payments to the San Antonio Corporation in the unlikely event that

a court determines that the City's commitment to provide such payments would be

considered an unconstitutional debt obligation of the City. Id.

In another provision found in virtually all contract revenue bond financings, the

City of San Antonio promised to "take all steps deemed necessary to enforce [its] rights

under Section 351.102(c)" of the Tax Code. See Tab 1 at 9 (If 3.4(b)). In this provision,

the City of San Antonio was committing to the San Antonio Corporation, and to investors

of the bonds, that the City would collect the state's tax revenues to which it was entitled.

Neither this provision nor any other can be read to implicitly subject the City's right to

receive the State's sales, use, and hotel occupancy tax revenues to biennial appropriations

by the Legislature. Compare Reply Brief at 11 & n.8 with Tab 1 at 9 (II 3.4(b)).

III. The Attorney General Approved San Antonio's Bonds.

An issuer of public securities, like the City of San Antonio, must submit the

security and supporting documentation to the Attorney General via a "transcript." See

TEX. GOV'T CODE § 1202.003(a). If the Attorney General finds that the public security

has been authorized "in conformity with the law," the Attorney General must approve the

security. Id. § 1202.003(b). The public security is then "valid and incontestable." Id.

§ 1202.006(a).

The City of San Antonio duly submitted its transcript to the Attorney General's

Public Finance Division. On June 8, 2005, the Attorney General approved the issuance of

5
the bonds, opining that the bonds were "valid and binding" and "payable from the Trust

Estate." See Tab 4-5. None of the documents submitted to the Attorney General indicated

or suggested in any manner that the City's right to receive the State's sales, use, or hotel

occupancy taxes collected at the convention center hotel would be subject to any

appropriations by the Legislature, nor did the Attorney General raise that issue in his

review of the transcript or in his approving opinion. Consequently, the San Antonio

Corporation issued and delivered bonds in an aggregate principal amount of

$208,145,000 to provide a portion of the funds to construct the convention center hotel.

See id.

During the construction of the convention center hotel, the private owner of the

hotel contacted the Comptroller's office to inquire whether it could receive refunds of the

sales and use taxes paid on the construction materials. See Tab 6. The Comptroller opined

that the private hotel owner could not receive this tax rebate during construction, but the

Comptroller confirmed that the City of San Antonio was entitled to receive the State's

sales, use, and hotel occupancy taxes once the hotel opened. Id. at 4-5. The Comptroller

did not restrict the City's rights based on biennial appropriations, and when the hotel

opened a year later, the Comptroller began remitting to the City of San Antonio monthly

payments of these taxes.

SUMMARY OF THE ARGUMENT

In Sections 151.429(h) and 351.102 of the Tax Code, the Legislature vested

certain municipalities (including the City of San Antonio) with the ten-year right to

6
receive the State's sales, use, and hotel occupancy taxes for particular economic

development projects, such as the convention center hotel in the City of San Antonio. As

the Attorney General concedes, Texas law contemplates that these taxes may be used as

security. Yet the Attorney General now claims that the taxes to be used as security are

subject to the insecure future of biennial appropriations to avoid running afoul of the

Appropriations Clause of the Texas Constitution (Article VIII, Section 6).

This position is completely contrary to the one held by the Attorney General since

at least 1995, when he issued an opinion discussing the history of Section 151.429(h).

Until now, the Attorney General has implicitly recognized that the tax payments at issue

are exempt from the Appropriations Clause by operation of Article III, Section 52-a of

the Texas Constitution.

Additionally, by approving prior bonds, the Attorney General has condoned

application of the trust fund doctrine, which also allows the tax revenues to be paid to the

cities without biennial appropriations. The fact that the Attorney General has approved

the bonds for the City of San Antonio's convention center hotel, coupled with the fact

that the Comptroller has made monthly payments to the City without waiting for further

appropriation by the Legislature, confirms that both state officials were correctly reading

Section 151.429(h) in a manner consistent with the Legislature's intent that those

revenues would not belong to the state until ten years after the opening of the City's

convention center hotel.

7
 ARGUMENT

According to the Attorney General, the Comptroller has made monthly payments

of the State's sales, use, and hotel occupancy taxes to the City of San Antonio and

similarly situated cities pursuant to a general appropriations provision that addresses

"refunds." See Reply Brief at 8 n.4 & 11. Regardless of whether any appropriation

provision actually applies, no such appropriation is required!

I. The Tax Refunds Are Exempt From The Appropriations Clause By

Article III, Section 52-a.

Cities are entitled to receive payments of the State's sales, use, and hotel

occupancy taxes as part of the State's legislation promoting economic development. As

such, they are not subject to biennial appropriations.

The Texas Constitution allows the Legislature to create programs for economic

development that are not subject to biennial appropriations:

Notwithstanding any other provision of this constitution, 2 the

legislature may provide for the creation of programs and the
making of loans and grants of public money ... for the public
purposes of development and diversification of the economy
of the state, the elimination of unemployment or
underemployment ... or the development or expansion of
transportation or commerce... .

I The last appropriations bill contains two catch-all provisions for refunds. See generally Act of May 29, 2009, 81st
Leg., R.S., ch. 1424, 2009 Tex. Gen. Laws 4585. Neither addresses the type of donative payments at issue here. Id.
at 4524 (R 12) & 5342 (If 8.03); see also id. at 4524 (113) (identifying the source of the tax refunds). Since similar
catch-all provisions were enacted long before the Attorney General approved the City of San Antonio's bonds, it is
doubtful the catch-all provisions apply here. See, e.g., Tex. Att'y Gen. Op. DM-192 (1992).
2The Appropriations Clause provides that "[n]o money shall be drawn from the Treasury but in pursuance of
specific appropriations made by law; nor shall any appropriation of money be made for a longer term than two
years." TEX. CONST. art. VIII, § 6.

8
TEX. CONST. art. III, § 52-a; see also Tex. Att'y Gen. LA-132, 1977 WL 26460, *1-2

(1977) (discussing significance of "notwithstanding" clause).

When the Legislature first enacted the Texas Enterprise Zone Act and related

provisions in the Tax Code, it recognized that local government plays a vital role in

nurturing private development by removing unnecessary barriers and offering economic

incentives such as tax rebates and bond financing. 3 The Legislature specifically

empowered municipalities to establish economic development programs, 4 and the

Attorney General has not doubted that those municipal programs are constitutional under

Section 52-a. See, e.g., Tex. Att'y Gen. Op. DM-185 (1992).

In 1987, the Legislature expressly permitted limited grants of the State's sales and

use taxes as part of its ongoing efforts to induce private investment. 5 In 1993, the

Legislature expanded the tax incentives by granting 100% of the State's sales, use, and

hotel occupancy taxes to the owners of "a qualified hotel project" for a term of seven

years. 6 The term was extended to ten years in the next legislative session. 7 These

3 Act of May 26, 1983, 68th Leg., R.S., ch. 841, §§ 2, 1983 Tex. Gen. Laws 4771, 471-72 (fmdings), 4781-83
(incentives enacted as TEX. CIV. STAT. art. 5190.7, current version at Chapter 2303, TEX. GOV'T CODE). The City of
Irving's hotel project is subject to TEX. GOV'T CODE § 2303.5055, while the hotel project in the City of San Antonio
is not. Given the interwoven history of Sections 151.429 and 351.102 of the Tax Code, the difference bolsters the
position of the City of Irving without diluting that of the City of San Antonio.
Act of May 28, 1982, 71st Leg., R.S., ch. 555, § 1, 1989 Tex. Gen. Laws 1856, 1856 (current version at TEX.
LOCAL Gov' T CODE § 380.001).
5
Act of May 31, 1987, 70th Leg., R.S., ch. 877, §§ 1-2, 1987 Tex. Gen. Laws 2720, 2731 (incorporating
Section 151.429 of the Tax Code as subsection (17) of the Texas Enterprise Zone Act), 2735-36 (amending
Section 151.429 of the Tax Code), amended by Act of May 29, 1989, 71st Leg., R.S., ch. 1106, § 15, 1989 Tex.
Gen. Laws 4580, 4588.
6 Act of May 11, 1993, 73rd Leg., R.S., ch. 231, §§ 6, 10, 1993 Tex. Gen. Laws 480, 482 (adding definition of
"qualified hotel project" to the Enterprise Zone Act), 483 (amending Section 151.429 of the Tax Code to add
subsection (h)).
7 Act of May 19, 1995, 74th Leg., R.S., ch. 977, § 1, 1995 Tex. Gen. Laws 4867, 4868 (enacting current version of
TEX. TAX CODE § 151.429(h)).
enactments did not contain an appropriations requirement, no doubt because they were

considered necessary and permissible for economic development and therefore not

subject to appropriations by operation of Section 52-a. See Tab 6 at 3 (citing floor debate

and bill analysis).

Indeed, the Attorney General was silent about the need for legislative

appropriations when he unequivocally stated that the owner of a qualified hotel project is

entitled to receive the State's sales, use, and hotel occupancy taxes collected at the

qualified hotel project:

Sections 9 and 10 of House Bill 2282 amend section 151.429

of the Tax Code, which had provided only limited refunds of
State sales and use taxes paid by enterprise projects, to
provide that "the owner of a qualified hotel project" shall
receive a rebate of 100 percent of the State sales and use taxes
and State hotel occupancy taxes paid or collected by the
qualified hotel project for a specified period. Thus, unlike
other qualified businesses in an enterprise zone, a qualified
hotel project is eligible to enter into agreements for tax
rebates with any and all local taxing authorities and is
entitled to receive a 100 percent rebate of site-generated
State sales and use taxes and State hotel occupancy taxes.

Tex. Att'y Gen. LO 95-085 at 4 (1995).

In Section 351.102(c) of the Tax Code, the Legislature once again extended the

payment of the State's sales, use, and hotel occupancy taxes to certain municipalities

promoting economic development by expanding their convention centers:

10
 A municipality to which Subsection (b) applies is entitled to
receive all funds that an owner of a project may receive under
Section 151.429(h). 8

By reference to "Subsection (b)," the provision implicates an "eligible central

municipality," which is a city of a certain size "that has adopted a capital improvement

plan for the expansion of an existing convention center facility." TEX. TAX CODE

§ 351.102(b); id. § 351.001. (The City of San Antonio is an "eligible central

municipality.")

By using the term "entitled" when referring to an eligible central municipality's

tax refund, the Legislature evidenced its intent to avoid future appropriations. This

presumptively constitutional decision is strengthened by other provisions that allow the

refunded taxes to be pledged as security, particularly when coupled with the municipal

power to develop economic programs. See, e.g., TEX. LOCAL GOV'T CODE § 380.001;

TEX. GOV'T CODE § 1504.005. In effect, the tax code makes the state's portion a local

tax. TEX. TAX CODE § 351.102(b-c).

If the refunded taxes were subject to biennial appropriations, their pledge would

be an empty promise. For this reason, the Legislature could not have been relying on any

catchall provision in an appropriations bill (that might or might not be enacted every two

years) to ensure the cities' entitlement to the taxes. See supra n.1 . The Legislature would

8 Act of June 2, 2003, 78th Leg., R.S., ch. 209, § 91, 2003 Tex. Gen. Laws 979, 1004, amended by Act of May 30,
2009, 81st Leg., R.S., ch. 1220, § 4, 2009 Tex. Gen. Laws 3901, 3902 (current version at TEX. TAX CODE
§ 351.102(c)).

11
not encourage economic investment and then subject the investment to the cost, effort,

and uncertainty inherent in biennial appropriations.

The Attorney General discounts this legislative history because the enactment of

Sections 151.149 and 351.102 do not expressly invoke Section 52-a. See Brief of

Attorney General at 13-15. Express invocation is a requirement created by the Attorney

General, not by Section 52-a or any other constitutional provision. See Tex. Att'y Gen.

Op. JM-1227 at 3-4 (1990) (suggesting that a statute's substance and derivation could

support implicit invocation of Section 52-a). The non-discretionary language of

Sections 151.149 and 351.102, and their intertwined history with other economic

development statutes, empower certain municipalities to engage in economic

development programs and to extend credit for those programs in the form of bonds that

may be secured with state tax revenue not subject to biennial appropriations. That is

enough to satisfy Section 52-a.

II. Tax Refunds Are Exempt From The Appropriations Clause By The Trust
Fund Doctrine.

The tax payments at issue here are held in trust, regardless of whether they are part

of the State's general fund. Accordingly, the tax payments are not subject to biennial

appropriations.

"A long line of Attorney General Opinions has obscured the meaning of article 8,

section 6." Tex. Att'y Gen. LA-132, 1977 WL 26460, *3 (1977). It is clear, however, that

"over the course of one hundred years under the present Constitution, Texas courts have

created a major exception" to the Appropriations Clause in the form of the trust fund

12
doctrine. Id. at *2. This doctrine "holds that certain money in the possession of the State

is not State property, but rather money for which the State Treasurer acts as trustee." Id.

While the Attorney General has tried to limit the doctrine to a single formula, the

Supreme Court cases have not. Id. at *2-5 (summarizing opinions).

Likewise, the Attorney General misconstrues Manion v. Lockhart, 114 S.W.2d

216 (Tex. 1938), as holding that "even a mistaken deposit of trust funds into the

Treasury's General Revenue fund invariably renders those dollars subject to the

appropriations requirements." Brief of the Attorney General at 10. Money on deposit with

the treasury may still be subject to the trust fund doctrine, as a series of early Supreme

Court opinions illustrate. See Tex. Att'y Gen. LA-132, 1977 WL 26460, *2 (1977)

(collecting cases).

These cases demonstrate that the trust fund doctrine is particularly appropriate

when other constitutional provisions permit the Legislature to act for the public welfare.

Id. For example, in City of Aransas Pass v. Keeling, 247 S.W. 818 (Tex. 1923), the

Legislature vested San Patricio County with a portion of the State's taxes to be collected

over 20 years for the purpose of redeeming bonds issued for the construction of a

seawall. The Attorney General argued in favor of biennial appropriations, despite the

constitutional provision authorizing the Legislature to grant aid to counties for the

construction of sea walls. The Supreme Court rejected the Attorney General's argument,

holding that "in the exercise of this power [to aid counties,] the Legislature was not

limited by the terms of Section 6, of Article 8." Similar long-term grants of state taxes to

13
pay bonds were upheld in Brazos County Conservation & Reclamation District v.

McCraw, 91 S.W.2d 665, 673-74 (Tex. 1936), and Harris County Flood Control District

v. Mann, 140 S.W.2d 1098, 1102 (Tex. 1940). 9

Here, the Legislature is empowered to develop economic programs outside the

scope of the Appropriations Clause by virtue of Section 52-a. If the legislative

enactments entitling the municipalities to receive the State's sales, use, and hotel

occupancy taxes fall short of satisfying Section 52-a, then the trust fund doctrine salvages

the enactments. Legislation must be construed as constitutional whenever possible, and

the trust fund doctrine provides an additional basis for doing so.

III. The Tax Refunds Are Exempt From The Appropriations Clause By The
Attorney General's Historical Position.

Ironically, the Attorney General cites prior opinions from his office on side issues

while utterly ignoring the prior opinions of his office approving bonds like those

proposed by the City of Irving — all without necessity of biennial appropriations.

Likewise, the Comptroller has monthly remitted the tax payments to the City of San

Antonio and other municipalities, without any hesitation. These past practices are not

mere mistakes, but substantive decisions entitled to preclusive effect.

"Constitutional questions are not decided in a vacuum wholly unaffected by the

practicabilities of a situation." Shepherd v. San Jacinto Junior College Dist., 363 S.W.2d

742, 751 (Tex. 1962). "Administrative interpretations made under statutory authority

9It is immaterial that these cases involved state ad valorem taxes, which were abolished in 2001 with the adoption of
TEX. CONST. art. VIII, § 1-e.

14
which have been relied upon over the years have their proper place and weight in

determining constitutional questions." Id. Where a construction of the Constitution has

been acquiesced in for a long period of time, particularly when, as here, there have been

numerous occasions where it could have been challenged, the historical construction is

given precedence. Tex. Att'y Gen. LA-132, 1977 WL 26460, *5 (1977).

At least three times, the Attorney General had the opportunity to raise the

constitutional concern he has now about municipal bonds secured with revenues from the

State's sales, use, and hotel occupancy taxes:

• In 2001, the Attorney General approved bonds in aggregate principal

amount of $626,539,593 to finance a convention center hotel in the City of
Houston.

• In 2005, the Attorney General approved bonds in aggregate principal

amount of $208,145,000 to finance a convention center hotel in the City of
San Antonio.

• In 2009, the Attorney General approved bonds in aggregate principal

amount of $479,821,197 to finance a convention center hotel in Dallas.

At no time did the Attorney General complain that the Comptroller could not remit the

tax revenues without legislative appropriations. See also Tex. Att'y Gen. LO 95-085 at 4

(1995) (opining, without limitation, that owners of qualified hotels are entitled to the tax

refimds).

During these bond reviews, the Attorney General was charged with the legal

obligation to approve the bonds, but only if they were issued "in conformity with law."

TEX. GOV'T CODE § 1202.003. The word "law" necessarily includes the Texas

Constitution, the foundation on which all other laws are established. Consequently, the

15
Attorney General's approval of prior bonds signified his belief that they are

constitutional.

The City of San Antonio knows of no other occasion where the Attorney General

has reversed his legal opinion regarding the conditions under which a source of revenues

pledged to secure outstanding public securities would be available. As an entity that

frequently issues public securities, the City of San Antonio is well familiar with, and

greatly respects, the work of the Attorney General's Public Finance Division. The

attorneys in the Public Finance Division are unquestionably thorough in their review of

each transcript the City sends for review. The Texas Supreme Court has likewise

observed that the Attorney General's review of the bonds "is in no sense perfimctory."

City of Galveston v. Mann, 143 S.W.2d 1028, 1035 (Tex. 1940); see also Leonard v.

Cornyn, 47 S.W.3d 524, 528 (Tex. App.—Austin 1999, pet. denied).

Indeed, the Attorney General's review and approval of public securities is a very

valuable asset for Texas issuers and for the purchasers of public securities, for it provides

assurance to all interested parties that the securities have been legally issued by the

issuer, are valid obligations of the issuer, and are "incontestable." See City of Galveston,

143 S.W.2d at 1035; TEX. GOV'T CODE § 1202.006(a). Additionally, the approval process

protects the particular locality and its inhabitants against the imposition of unauthorized

or illegal obligations. Id. Given these invaluable benefits arising from the Attorney

General's exercise of his legal duty, the Attorney General should not be allowed to

change his position now.

16
 Not only has the Attorney General already construed the various provisions at

issue here as constitutional, the Comptroller has as well. The Comptroller has

consistently read Sections 151.429 and 351.102 to permit the owner of a qualified hotel

project to receive all of the State's sales, use, and hotel occupancy taxes collected at the

qualified hotel project during the specified period without the need for biennial

appropriations by the Legislature. Not only has the Comptroller actually rebated the taxes

to the City of San Antonio, the Comptroller has relied on legislative history in taking this

action. See Tab 6. The Comptroller's position and the Attorney General's former position

are determinative, and this Court should affirm the lower court's judgment.

IV. The Consequences Of Reversal Are Significant.

As noted earlier, the bonds issued by the City of San Antonio are secured, in part,

with a pledge of the State's sales, use, and hotel occupancy taxes generated by the

convention center hotel. Until now, there was no hint or suggestion in any legal document

or in the official statement provided to the investors that the City's right to receive the

revenues was subject to legislative appropriations. See Tabs 3-5. Indeed, the investors of

the bonds were, and still are, relying on those revenues to be available in the event the net

operating revenues of the convention center hotel are insufficient to pay debt service

when due. See Tab 2 (rating service repeatedly identifies city-pledged funds).

Requiring legislative appropriation at this juncture will diminish the security

originally pledged to secure the bonds. That result would be materially adverse to the

interests of bondholders, which include not only institutional investors but also individual

17
citizens of Texas. Requiring legislative appropriation could result in a downgrade of the

ratings on the bonds and could diminish the value of the bonds in the secondary market.

While it may be remote that the Attorney General will choose to reverse course on

other bond transactions in the future, doing so in this case could call into question

whether the holders of public securities will be able to rely upon the certainty of any

Attorney General opinion. With uncertainty and doubt in the public finance sector,

investors may become reluctant to invest in the economic development projects of Texas

political subdivisions. That is not the result the Legislature envisioned when it entitled

certain municipalities to receive the State's sales, use, and hotel occupancy taxes and to

pledge those tax revenues for projects that benefit the citizens of Texas.

CONCLUSION AND PRAYER FOR RELIEF

The bonds proposed by the City of Irving are similar to the bonds that have

already been issued by the City of San Antonio and other municipalities. Those bonds are

secured, in part, with the State's sales, use, and hotel occupancy taxes collected by the

Comptroller from convention center hotels and remitted to the cities pursuant to statute.

Shackling this funding source with a biennial appropriations requirement, as the Attorney

General proposes, would have a direct, negative, and material impact on those bonds and

related projects.

The City of San Antonio does not believe that the Attorney General "missed" a

constitutional provision when it reviewed and subsequently approved the issuance of

bonds for the City of Houston in 2001, the City of San Antonio in 2005, or the City of

18
Dallas in 2009; nor does the City believe that the Attorney General "missed' that same

constitutional provision when it rendered Letter Opinion No. 95-085 without any

expression of the need for biennial appropriations by the Texas Legislature.

The plain meaning of Sections 151.429 and 351.102 of the Tax Code, coupled

with the expressions of intent in the legislative history, point to the only logical

conclusion: the Legislature never intended the State's sales, use, and hotel occupancy

taxes collected at the convention center hotels to become revenues of the State (and thus

subject to further legislative appropriation) until ten years after the opening of the

convention center hotels.

While the City of San Antonio cannot speak to all issues raised in this appeal, it

asks the Court to carefully consider the repercussions of the Attorney General's newly

minted position regarding the constitutionality of the Comptroller's payments and to hold

the Attorney General to his first, correct opinion that no law, including the State

Constitution, have been — or will be — violated by the Comptroller's payment of certain

taxes to municipalities without necessity of biennial appropriation.

19
Respectfully submitted,

By: hia,U1.91‘MM4 t^'

FULBRIGHT & JAWORSKI L.L.
Robert G. Newman
State Bar No. 14965600
Rosemarie Kanusky
State Bar No. 00790999
300 Convent, Suite 2100
San Antonio, Texas 78205
Telephone: 210.224.5575
Telecopier: 210.270.7205

MCCALL, PARKHURST & HORTON L.L.P.

Thomas K. Spurgeon
State Bar No. 18974100
700 N. St. Mary's, Suite 1525
San Antonio, Texas 78205
Telephone: 210.225.2800
Facsimile: 210.225.2984

CITY OF SAN ANTONIO

Michael D. Bernard
City Attorney
State Bar No. 02211310
P. 0. Box 839966
San Antonio, Texas 78283
Telephone: 210.207.8994
Facsimile: 210.207.4004

Counsel for Amicus Curaie,

City of San Antonio, Texas

20
 CERTIFICATE OF SERVICE

I certify that on April 27, 2011, a copy of the above brief was sent by certified
mail, return receipt requested, to the following:

James B. Harris Ray Hutchison

Scott P. Stolley Thomas D. Leatherbury
Richard B. Phillips, Jr. Robert R. Collins, III
THOMPSON & KNIGHT LLP Julie M. Partain
1722 Routh Street, Suite 1500 Marc A. Fuller
Dallas, Texas 75201-2533 VINSON & ELKINS LLP
Counsel for Joe Putnam & 2001 Ross Avenue, Suite 3700
Irving Taxpayers Opposed to Illegal and Wasteful Dallas, Texas 75201-2975
Use of Tax Money Counsel for City of Irving

David J. Schenck Robert G. Martinez

Deputy Attorney General COTTEN SCHMIDT, LLP
P. 0. Box 12548 550 Bailey Avenue, Suite 600
Austin, Texas 78711 Fort Worth, Texas 76107
Counsel for the Attorney General Counsel for Greater Irving-
of the State of Texas Las Colinas Chamber of Commerce

Charles R. Anderson Mikel J. Bowers

OFFICE OF THE CITY ATTORNEY BELL NUNNALLY & MARTIN LLP
825 West Irving Boulevard 3232 McKinney Avenue, Suite 1400
Irving, Texas 75060 Dallas, Texas 75204
Counsel for City of Irving Counsel for B Concessionaire-
Las Colinas, LLC

Michael L. Raiff Clay Jenkins

GIBSON, DUNN & CRUTCHER LLP JENKINS & JENKINS, PC
2100 McKinney Avenue 516 W. Main St.
Dallas, Texas 75201-6912 Waxahachie, Texas 75165
Counsel for City of Irving Counsel for B Concessionaire-
Las Colinas, LLC

Frank L. Branson John F. Boyle, Jr.

Eric T. Stahl BOYLE & LOWRY, L.L.P.
LAW OFFICES OF FRANK L. BRANSON, P.C. 4201 Wingren, Suite 108
4514 Cole Avenue, Suite 1800 Irving, Texas 75062
Dallas, Texas 75205 Counsel for Dallas County Utility and
Counsel for Las Colinas Group, LP Reclamation District

Ro'iext G. Newman / Rosemarie us

77033245

21
 ECONOMIC DEVELOPMENT AGREEMENT
BY AND BETWEEN

THE CITY OF SAN ANTONIO, TEXAS

AND

THE CITY OF SAN ANTONIO, TEXAS

CONVENTION CENTER HOTEL FINANCE CORPORATION

Entered into in Connection with the Issuance of the

$129,930,000
CITY OF SAN ANTONIO, TEXAS
CONVENTION CENTER HOTEL FINANCE CORPORATION
CONTRACT REVENUE EMPOWERMENT ZONE BONDS, SERIES 2005A

and

$78,215,000
CITY OF SAN ANTONIO, TEXAS
CONVENTION CENTER HOTEL FINANCE CORPORATION
CONTRACT REVENUE BONDS, TAXABLE SERIES 2005B

DATED: MAY 15, 2005

 TABLE OF CONTENTS

RECITALS 1

ARTICLE I DEFINITIONS 6
Section 1.1. Additional Definitions 6
Section 1.2. Other Definitions Set Forth in Master Glossary 7

ARTICLE II AGREEMENT TO ISSUE SERIES 2005 BONDS

AND REFUNDING BONDS 8

ARTICLE III REPRESENTATIONS AND COVENANTS OF THE CITY 8

Section 3.1. City Economic Development Program 8
Section 3.2. Qualification of Hotel Project Under City Economic Development Program 8
Section 3.3. Fulfillment of Certain City Obligations Under Project Agreement
and Ground Lease 8
Section 3.4. Covenants of the City 8
a. Levy and Collection of Hotel Occupancy Tax 9
b. Enforcement of Receipt of State Tax Revenues 9
c. Affirmation of Covenant Not to Issue Additional Bonds on Parity
with Prior Lien Convention Center Bonds 9
d. Covenant Not to Issue Additional Subordinate Lien Convention
Center Bonds Under Certain Circumstances Without Consent of
Bond Insurer 9
e. Covenant No to Issue Additional Obligations Secured with a Pledge of
the 2% Expansion HOT, Convention Center Hotel State HOT Revenues
or Convention Center Hotel State Sales Tax Revenues Without
Consent of Bond Insurer 10
f. Covenant Not to Amend Priority Pledge of the 2% Expansion HOT
Without Consent of the Bond Insurer 10
g. Further Assurances 10
Section 3.5. Tax Covenants 10
Section 3.6. Continuing Disclosure; Other Financial Information to Bond Insurer 10

ARTICLE IV PAYMENT OF CITY TAX REVENUES BY THE CITY TO PROVIDE

ADDITIONAL SECURITY FOR SERIES 2005 BONDS AND
REFUNDING BONDS 11
Section 4.1. Payments to Fund Insufficiency in Debt Service Fund 11
a. Transfer of City Tax Revenues into Holding Account 11
b. Transfer of City Tax Revenues on Deposit in Holding Account
to Trustee 12
c. Transfer of Excess City Tax Revenues 12
Section 4.2. Source of City Payments; Revenue Transfers 12
a. Source and Priority of City Payments 12
b. Convention Center Hotel State HOT Revenues 13
c. Convention Center Hotel State Sales Tax Revenues 13
d. Convention Center Hotel 7% Local HOT Revenues 14
e. Available 2% Expansion HOT Revenues 15
Section 4.3. Unconditional Payments by the City to the Issuer; Certain Payments
Subject to Non-Appropriation Upon Occurrence of Certain Events 17
a. Unconditional Payment by the City to the Insurer 17
b. Certain Payments Subject to Non-Appropriation Upon Occurrence
of Certain Events 17
Section 4.4. Grant of Security Interest in City Tax Revenues and Various Accounts 17
Section 4.5. Investment of Funds on Deposit in Various Accounts 18

ARTICLE V AUDITS, ACCOUNTS, RECORDS AND REPORTS 18

Section 5.1. Accounts, Records and Accounting Reports 18
Section 5.2. Annual Audits 18

ARTICLE VI TERM OF AGREEMENT 18

ARTICLE VII REMEDIES UPON DEFAULT 19

Section 7.1. No Waiver 19
Section 1.2. Payment Default 19

ARTICLE VIII ASSIGNMENT 19

ARTICLE IX AMENDMENTS 19

ARTICLE X ADDRESSES AND NOTICES 20

Section 10.1. City's Notice Information 20
Section 10.2. Issuer's Notice Information 20
Section 10.3. Trustee's Notice Information 21
Section 10.4. Timing of Notices 21
Section 10.5. Trustee's Wire Transfer Instructions 21

ARTICLE XI MISCELLANEOUS PROVISIONS 21

Section 11.1. Successors and Assigns 21
Section 11.2. Benefit of Agreement 21
Section 11.3. Compliance with Laws 21
Section 11.4. S everability 22
Section 11.5. Entire Agreement 22
Section 11.6. Incorporation of Recitals 22
Section 11.7. Legal Authority 22
Section 11.8. Counterparts 22
Section 11.9. Approvals 22

Exhibit A - Master Glossary of Terms

 ECONOMIC DEVELOPMENT AGREEMENT

THE STATE OF TEXAS §

COUNTY OF BEXAR §

THIS ECONOMIC DEVELOPMENT AGREEMENT (this "Agreement") is made and

entered into by and between the CITY OF SAN ANTONIO, TEXAS, a home-rule municipality located
primarily within Bexar County, Texas (hereinafter called the "City"), and the CITY OF SAN
ANTONIO, TEXAS CONVENTION CENTER HOTEL FINANCE CORPORATION, a Texas nonprofit local
government corporation created by the City pursuant to Section 431.101, Texas Transportation
Code, and any successors and assigns (the "Issuer"), acting by and through their respective
authorized officers and representatives:

RECITALS:

WHEREAS, all capitalized terms used in the recitals below and elsewhere in this Agreement
which are not otherwise defined herein shall have the meanings assigned to such terms in the Master
Glossary of Terms for Financing Documents Relating to the City of San Antonio, Texas Convention
Center Hotel Finance Corporation Contract Revenue Bond Transaction, dated as of May 15, 2005
(the "Master Glossary"), which is attached hereto as Exhibit A; and

WHEREAS, the City owns and operates a convention center known as the Henry B.
Gonzales Convention Center (the "Convention Center"); and

WHEREAS, the City initially adopted a "Plan for the Expansion of the Henry B. Gonzalez
Convention Center" pursuant to an ordinance adopted on September 30, 1993, together with the
Architectural Program and Master Plandeveloped by Kell Mulioz Wigodsky, Inc., Thompson,
Ventulett, Stainback & Associates, Inc., Haywood Jordan McGowan SAT, Inc., originally dated
February 17, 1995, as revised on March 15, 1995, and as subsequently amended by an ordinance
adopted on September 4, 1997 (collectively, the "Original Plan") to set forth eligible projects
designated as the "Expansion Project"; and

WHEREAS, pursuant to Ordinance No. 99285, adopted by the City Council on June 3, 2004,
the City amended the Original Plan for the purpose of describing additional proposed improvements
to, and expansion of, the Convention Center, including the " construction of a hotel (within 1,000 feet
of the Convention Center) primarily to serve the Convention Center facilities" (the "Amended
Plan"); and

WHEREAS, pursuant to Ordinance No. 83735 adopted by the City Council on March 14,
1996, as amended by Ordinance No. 99284 adopted by the City Council on June 3, 2004
(collectively, the "Prior Lien Convention Center Bonds Ordinance"), the City issued and
delivered its "City of San Antonio, Texas Hotel Occupancy Tax Revenue Bonds, Series 1996,"
originally issued in the aggregate principal amount of $182,012,481 (the "Prior Lien Convention
Center Bonds") for the purpose of financing improvements to the Convention Center in accordance
with the Original Plan; and
 WHEREAS, pursuant to Ordinance No. 99286 and Ordinance No. 99287, each adopted on
June 3, 2004 (collectively, the "Subordinate Lien Convention Center Bonds Ordinances"), the
City issued its "City of San Antonio, Texas Hotel Occupancy Tax Subordinate Lien Revenue
Refunding Bonds, Series 2004A," currently outstanding in the aggregate principal amount of
$10,390,000, and its "City of San Antonio, Texas Hotel Occupancy Tax Subordinate Lien Revenue
and Refunding Bonds, Series 2004B," currently outstanding in the aggregate principal amount of
$111,425,000 (collectively, the "Subordinate Lien Convention Center Bonds"), for the purpose
of refunding a portion of the Prior Lien Convention Center Bonds and to finance certain additional
improvements to the Convention Center described in the Amended Plan; and

WHEREAS, the Prior Lien Convention Center Bonds Ordinance and the Subordinate Lien
Convention Center Bonds Ordinances are referred to collectively herein as the "Convention Center
Bonds Ordinances"; and

WHEREAS, pursuant to Section 351.003(b), Texas Tax Code, as amended, the City, as an
eligible central municipality, imposes a hotel occupancy tax at a rate not to exceed nine percent (9%)
of the price paid for a room, of which a rate equal to seven percent (7%) that is levied and collected
by the City is herein referred to as the "7% Local HOT", and the remaining rate of two percent that
is levied and collected by the City is herein referred to as the "2% Expansion HOT"; and

WHEREAS, the Prior Lien Convention Center Bonds are secured with a first lien on and
pledge of the revenues derived from the 7% Local HOT and the 2% Expansion HOT collected at
all hotels within the City, and the Subordinate Lien Convention Center Bonds are secured with a
subordinate lien on and pledge of the 7% Local HOT collected at all hotels within the City; and

WHEREAS, the City is an "eligible central municipality" within the meaning of Section
351.001(7), Texas Tax Code, as amended, for it has a population (according to the most recent
federal census) of more than 440,000 but less than 1,500,000, is located in a county with a
population of 1,000,000 or more, and has adopted a capital improvement plan for the expansion of
its existing convention center facility; and

WHEREAS , Section 351.001, Texas Tax Code, defines the term "convention center
facilities" or "convention center complex" to include "a hotel owned by or located on land that is
owned by an eligible central municipality and that is locatedwithin 1,000 feet of a convention center
facility owned by the municipality"; and

WHEREAS, the City has entered into a Project Agreement, dated as of the Closing Date (the
"Project Agreement") with HOTEL INVESTMENTS, L.P, a Delaware limited partnership (the
"Developer") for the purpose of the Developer's development and construction of a full-service
headquarters hotel and related parking (the "Hotel Project") that will be owned by the Developer
and located adjacent to the Convention Center on land owned by, and leased or licensed from, the
City, and has also entered into a Ground Lease and License Agreement with the Developer, dated
as of the Closing Date (the "Ground Lease") pursuant to which the property owned by the City on

2
which the Hotel Project will be built has been leased or licensed to the Developer for an initial term
of approximately 75 years; and

WHEREAS, the City has determined that the construction and operation of the Hotel Project
will promote economic development and will stimulate business and commercial activity in the City;
and

WHEREAS, in order to satisfy certain of the City's obligations set forth in the Project
Agreement and the Ground Lease, the Issuer was created by the City pursuant to the provisions of
Subchapter D of Chapter 431, Texas Transportation Code, as amended, 'for the purpose offinancing
a portion of the costs required to construct, furnish and equip a privately-owned hotel to be located
on land owned by the City that is adjacent to the City's Convention Center in order to promote
economic development and to stimulate business and commercial activity in the City, all at the
request of the City Council of the City"; and

WHEREAS, the Hotel Project is to be financed with a combination of funds provided by

various entities including (i) $129,930,000 in principal amount of City of San Antonio, Texas
Convention Center Hotel Finance Corporation Contract Revenue Empowerment Zone Bonds, Series
2005A to be issued by the Issuer (the "Tax-Exempt Bonds"), (ii) $78,215,000 in principal amount
of City of San Antonio, Texas Convention Center Hotel Finance Corporation Contract Revenue
Bonds, Taxable Series 2005B (the "Taxable Bonds"), and (iii) $77,331,200 of cash or other capital
asset contributions (i.e. earn-out of development fees) provided by the Developer and various equity
investors identified and arranged by the Developer; and

WHEREAS, the Tax-Exempt Bonds and the Taxable Bonds are herein referred to
collectively as the "Series 2005 Bonds" and will be issued pursuant to the terms of an Indenture
of Trust between the Issuer and WELLS FARGO BANK, N.A., as Trustee, dated as of May 15, 2005,
together with any amendments and supplements thereto (the "Indenture"); and

WHEREAS, proceeds of the Series 2005 Bonds will be loaned to the Developer pursuant
to the terms of a Loan Agreement between the Issuer and the Developer (the "Loan Agreement"),
and the Developer will be obligated, pursuant to the Loan Agreement and the Ground Lease, to pay
all operation and maintenance expenses of the Hotel Project and debt service related to the Series
2005 Bonds and fund certain other funds and accounts established under the Indenture with certain
operating revenues generated from the Hotel Project (more specifically defined in the Loan
Agreement and referred to herein as the "Net Operating Revenues"); and

WHEREAS, the Series 2005 Bonds will be secured by and payable from a pledge of the Net
Operating Revenues, and, in order to make the Series 2005 Bonds more marketable and to be able
to accomplish the City's need and desire for the construction of the Hotel Project, the City deems
it necessary to provide additional security for the Series 2005 Bonds by pledging or granting
available revenues derived from certain local hotel occupancy taxes and from certain state hotel
occupancy taxes and sales taxes, as further described below (collectively, the "City Tax
Revenues"); and

3
 WHEREAS, Section 351.102(b), Texas Tax Code, authorizes the City, as an eligible central
municipality, to pledge the revenue derived from the 7% Local HOT collected at the Hotel Project
'for the payment of bonds or other obligations issued or incurred to acquire, lease, construct, and
equip the hotel and any facilities ancillary to the hotel, including shops and parking facilities"; and

WHEREAS, Section 351.1065, Texas Tax Code, provides that the City, as an eligible central
municipality, may use the 2% Expansion HOT, and any interest income derived from the application
of such tax, "only for the construction of an expansion of an existing convention facility;
and..pledging payment of revenue bonds and revenue refunding bonds issued under Subchapter A,
Chapter 1504, Government Code, for the construction of the expansion"; and

WHEREAS, in lieu of the City issuing revenue bonds to finance the Hotel Project as
permitted by Chapter 1504, Texas Government Code, particularly Section 1504.002 thereof, the City
has requested the Issuer to issue the Series 2005 Bonds on behalf of the City and in so doing will
aid and act on behalf of the City to accomplish the governmental purpose of issuing revenue bonds
to finance the Hotel Project as permitted by Section 431.101(a), Texas Transportation Code; and

WHEREAS, pursuant to Chapter 156, Texas Tax Code, the State of Texas currently imposes
a tax for the use or possession or for the right to the use or possession of a room or space in a hotel
costing $15 or more each day at a rate equal to six percent (6%) of the price paid for a room at such
hotel (hereinafter referred to, together with any higher rate that may be imposed in the future, as the
"6% State HOT"); and

WHEREAS, pursuant to Chapter 151, Texas Tax Code, the State of Texas currently imposes
a sales and use tax on taxable items at a rate equal to six and one quarter percent (6.25%) of the sale
of such taxable items (hereinafter referred to, together with any higher rate that may be imposed in
the future, as the "6.25% State Sales Tax"); and

WHEREAS, Section 151.429(h), Texas Tax Code, as amended, provides that the owner of
a "qualified hotel project" (as defined in Section 2303.003(8), Texas Government Code) shall
receive a rebate, refund, or payment of (i) 100% of the sales and use taxes paid or collected by the
qualified hotel project or businesses located in the qualified hotel project during the first 10 years
after such qualified hotel project is open for initial occupancy, and (ii) 100% of the state hotel
occupancy taxes levied pursuant to Chapter 156, Texas Tax Code, and paid by persons for the use
or possession of or for the right to the use or possession of a room or space at the qualified hotel
project during the first 10 years after such qualified hotel project is open for initial occupancy; and

WHEREAS, Section 351.102(c), Texas Tax Code, as amended, provides that an eligible
central municipality is entitled to receive all funds that the owner of a project would otherwise be
entitled to receive pursuant to Section 151.429(h), Texas Tax Code, as amended; and

WHEREAS, in accordance with the rules of code construction set forth in the Code
Construction Act (Chapter 311, Texas Government Code, particularly Sections 311.025 and 311.026
thereof), the Hotel Project is a "qualified hotel project" within the meaning of Section 151.429(h),
Texas Tax Code; consequently, the City, as an eligible central municipality, is entitled to receive

4
all revenues derived from the 6% State HOT collected at the Hotel Project during the first ten years
after the Hotel Project is open for initial occupancy and all revenues derived from the 6.25% State
Sales Tax collected at the Hotel Project, including from all businesses located in the Hotel Project,
during the first ten years after the Hotel Project is open for initial occupancy; and

WHEREAS, based on the legal authority described above, the City has determined that the
following four sources of revenues will constitute the City Tax Revenues that will be pledged or
granted to the Issuer pursuant to this Agreement in order to provide security for the payment of debt
service on the Series 2005 Bonds in the event Net Operating Revenues are insufficient to pay all
debt service on the Series 2005 Bonds when due:

pursuant to Section 351.102(c) Texas Tax Code, all revenues derived from the 6%
State HOT collected at the Hotel Project during the first ten years after the Hotel
Project is open for initial occupancy (herein referred to as the "Convention Center
Hotel State HOT Revenues");

(ii) pursuant to Section 351.102(c), Texas Tax Code, all revenues derived from the
6.25% State Sales Tax collected at the Hotel Project, including from all businesses
located in the Hotel Project, during the first ten years after the Hotel Project is open
for initial occupancy (herein referred to as the "Convention Center Hotel State
Sales Tax Revenues");

(iii) pursuant to Section 351.102(b), Texas Tax Code, all revenues derived from the 7%
Local HOT collected at the Hotel Project as long as any Series 2005 Bonds (or
Refunding Bonds) are outstanding (herein referred to as the "Convention Center
Hotel 7% Local HOT Revenues"), subject to such Convention Center Hotel 7%
Local HOT Revenues not being required to pay debt service or other requirements
related to the Prior Lien Convention Center Bonds or the Subordinate Lien
Convention Center Bonds (as further described in Section 4.2(d) hereof); and

(iv) pursuant to Section 351.1065, Texas Tax Code, all revenues derived from the 2%
Expansion HOT collected at all hotels in the City as long as any Series 2005 Bonds
(or Refunding Bonds) are outstanding, subject to Section 4.2(e) hereof (herein
referred to as the "Available 2% Expansion HOT Revenues"); and

WHEREAS, under authority of Section 52-a of Article III of the Texas Constitution, the
Texas Legislature enacted Chapter 380, Texas Local Government Code ("Chapter 380"), which
provides that the governing body of a municipality may establish and provide for the administration
of one or more programs, including programs for making loans and grants of public money and
providing personnel and services of the municipality, to promote state or local economic
development and to stimulate business and commercial activity in the municipality; and

WHEREAS, the City has taken all necessary legal action to adopt an economic development
program in satisfaction of Chapter 380; and

5
 WHEREAS, the Hotel Project qualifies under the City's economic development program
established under Chapter 380, and this Agreement is authorized pursuant to Section 380.001(a),
Texas Local Government Code, as amended, and the Convention Center Hotel State HOT Revenues
and the Convention Center Hotel State Sales Tax granted to the Issuer herein satisfy and comply in
all respects with Section 380.001(b), Texas Local Government Code, as amended; and

WHEREAS, the Convention Center Hotel 7% Local HOT Revenues are being pledged by
the City to the Issuer in accordance with the terms of this Agreement (and by the Issuer as security
for the Series 2005 Bonds pursuant to the Indenture) for the purpose ofproviding additional security
for the payment of the debt service on the Series 2005 Bonds pursuant to authority granted in
Section 351.102(b), Texas Tax Code, and the Available 2% Expansion HOT Revenues are being
pledged by the City to the Issuer in accordance with the terms of this Agreement (and by the Issuer
as security for the Series 2005 Bonds pursuant to the Indenture) for the purpose of providing
additional security for the payment of the debt service on the Series 2005 Bonds pursuant to
authority granted in Section 351.1065(a)(2), Texas Tax Code, and Chapter 1504, Texas Government
Code; and

WHEREAS, the scheduled payments of the principal of and interest on the Series 2005
Bonds when due will be guaranteed under a financial guaranty insurance policy (the "Financial
Guaranty Insurance Policy") to be issued by Ambac Assurance Corporation (the "Bond Insurer")
in accordance with the terms set forth in the Financial Guaranty Insurance Policy; and

WHEREAS, the City desires to enter into this Agreement with the Issuer to set forth the
respective obligations of the City and the Issuer to carry out the aforesaid agreements and
obligations undertaken by the City under the Project Agreement and the Ground Lease;

AGREEMENT

NOW THEREFORE, in consideration of the mutual covenants and agreements contained

herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS

SECTION 1.1. ADDITIONAL DEFINITIONS. Capitalized terms defined in the recitals hereto
have the meanings set forth therein. In addition to such capitalized terms, the following terms shall
be construed to mean as follows:

"Board of Directors" shall mean the Board of Directors of the Issuer which is the governing
body of the Issuer.

"City Council" shall mean the City Council of the City which is the governing body thereof.

"Convention Center Hotel 7% Local HOT Revenues Account" shall mean the account
established by the City in accordance with Section 4.2(d)(i) of this Agreement.

6
 "Convention Center Hotel State HOT Revenues Account" shall mean the account
established by the City in accordance with Section 4.2(b)(i) of this Agreement.

"Convention Center Hotel State Sales Tax Revenues Account" shall mean the account
established by the City in accordance with Section 4.2(c)(i) of this Agreement.

"Debt Service Fund" shall mean the "Debt Service Fund" established in the Indenture and
held by the Trustee from which funds on deposit therein will be used to make Debt Service
Payments on the Series 2005 Bonds and any Refunding Bonds.

"Debt Service Reserve Fund" shall mean the Debt Service Reserve Fund for the Series
2005 Bonds established in the Indenture.

"Excess 7% Local HOT Revenues" shall have the meaning set forth in Section 4.2(d)(ii)
of this Agreement.

"Holding Account" shall mean the account established by the City in accordance with
Section 4.1(a) of this Agreement.

"Monthly Transfer Date" shall have the meaning set forth in Section 4.1 of this
Agreement.
"Rating Agency" means one or more nationally recognized credit rating agency then
maintaining a rating on the Series 2005 Bonds or any Refunding Bonds at the request of the Issuer
or the City.
"Refunding Bonds" shall mean any bonds or other obligations issued by the Issuer as
permitted by the Indenture for the purpose of refunding any outstanding Series 2005 Bonds (or
previously issued Refunding Bonds) which are secured in whole or in part with revenues derived
from any City Tax Revenues on a parity with the Series 2005 Bonds.

"Reserve Fund Requirement" shall have the meaning set forth in the Indenture.

"Revenue Fund" shall mean the Revenue Fund established in the Indenture.

"Term" shall have the meaning set forth in Article VI of this Agreement.

"Trustee" shall mean Wells Fargo Bank, N.A., a national banking association, together with
its successors and assigns.

SECTION 1.2. OTHER DEFINITIONS SET FORTH IN MASTER GLOSSARY. All other
capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in the
Master Glossary of Terms for Financing Documents Relating to City of San Antonio, Texas
Convention Center Hotel Finance Corporation Contract Revenue Bond Transaction, dated as of
May 15, 2005, attached to the Indenture as Exhibit A.

7
 ARTICLE II
AGREEMENT TO ISSUE SERIES 2005 BONDS
AND REFUNDING BONDS

In order to assist the City with accomplishing its economic development objectives, the
Issuer agrees to issue the Series 2005 Bonds on behalf of the City, and in the aggregate principal
amounts approved by the City, for the purpose of financing the portion of the costs of the Hotel
Project which the City agreed to provide in accordance with the Project Agreement or the Ground
Lease, as applicable. The Issuer further agrees, but solely at the request of the City, and if then
permitted by law, to cooperate with the City to issue Refunding Bonds for the purpose of refunding
any outstanding Series 2005 Bonds (or previously issued Refunding Bonds) to achieve a debt service
savings.

ARTICLE III
REPRESENTATIONS AND COVENANTS OF THE CITY

SECTION 3.1. CITY ECONOMIC DEVELOPMENT PROGRAM. The City represents that it
has taken all necessary legal action to adopt an economic development program in satisfaction of
Section 380.001, Texas Local Government Code.

SECTION 3.2. QUALIFICATION OF HOTEL PROJECT UNDER CITY ECONOMIC

DEVELOPMENT PROGRAM. The City represents that the Hotel Project qualifies under the City's
economic development program established under Chapter 380, Texas Local Government Code, and
this Agreement is authorized pursuant to Section 380.001(b)(2), Texas Local Government Code, and
the City's grant of the Convention Center Hotel State HOT Revenues and the Convention Center
Hotel State Sales •Tax Revenues as set forth herein satisfy and comply in all respects with
Section 380.001(a), Texas Local Government Code, as amended.

SECTION 3.3. FULFILLMENT OF CERTAIN CITY OBLIGATIONS UNDER PROJECT

AGREEMENT AND GROUND LEASE. The City is entering into this Agreement in order to fulfill
certain of its obligations contained in the Project Agreement and the Ground Lease.

• SECTION 3.4. COVENANTS OF THE CITY. The Issuer and the City agree that the covenants
of the City contained in this Section shall only be enforced by the Issuer, the Trustee or the Bond
Insurer, and their permitted assigns, to the extent necessary to enforce the payment provisions
contained herein or ensure compliance with any covenant of the City made in connection with the
issuance, payment and security of the Series 2005 Bonds.

8
 (a) Levy and Collection of Hotel Occupancy Tax. Similar to the covenant made
by the City in the Convention Center Bonds Ordinances relating to the levy and collection
of a hotel occupancy tax, the City hereby represents that it currently levies, and while any
Series 2005 Bonds or Refunding Bonds remain outstanding the City hereby covenants that
it shall continue to levy, a hotel occupancy tax on the cost of occupancy of any sleeping
room furnished by any hotel within the corporate limits of the City, in which the cost of
occupancy is $2.00 or more a day, at a rate of at least 9% of the consideration paid by the
occupant of the sleeping room to the hotel, all as authorized by Chapter 351, Texas Tax
Code. The City further covenants that, while any Series 2005 Bonds or Refunding Bonds
remain outstanding, it shall enforce the provisions of any ordinance levying a hotel
occupancy tax concerning the collection, remittance and payment of such tax.

(b) Enforcement of Receipt of State Tax Revenues. The City hereby covenants
that while any Series 2005 Bonds remain outstanding the City shall take all steps deemed
necessary to enforce the City's rights under Section 351.102(c), Texas Tax Code, to receive
the Convention Center Hotel State HOT Revenues and the Convention Center Hotel State
Sales Tax Revenues.

(c) Affirmation of Covenant Not to Issue Additional Bonds on Parity with Prior
Lien Convention Center Bonds. The City hereby acknowledges and affirms the covenant
contained in Section 4.01(f) of the Prior Lien Convention Center Bonds Ordinance that it
shall not issue additional bonds on a parity with the Prior Lien Convention Center Bonds
except for the purpose of refunding all or any part of the outstanding Prior Lien Convention
Center Bonds which will result in a savings to the City. The City acknowledges that the
effect of such covenant prohibits the City from issuing any additional obligations which
could be secured, in whole or in part, with a pledge of the 2% Expansion HOT that would
have a lien on the revenues derived from the 2% Expansion HOT superior to the lien on such
revenues which is being granted by the City pursuant to Section 4.2(e) hereof to support the
Series 2005 Bonds and any Refunding Bonds.

(d) Covenant Not to Issue Additional Subordinate Lien Convention Center

Bonds Under Certain Circumstances Without Consent of Bond Insurer. The City
hereby covenants for the benefit of the Issuer, the holders of the Series 2005 Bonds and any
Refunding Bonds, and the Developer that while any Series 2005 Bonds or Refunding Bonds
remain outstanding it will not amend the Subordinate Lien Convention Center Bonds
Ordinances, or any similar ordinances which authorize the issuance of any "Bonds Similarly
Secured" (as defined in the Subordinate Lien Convention Center Bonds Ordinances) without
the prior written consent of the Bond Insurer, which would permit the issuance of
"Additional Bonds" under circumstances where the "Pledged Revenues" (as such terms are
defined in the Subordinate Lien Convention Center Bonds Ordinances) during the most
recent complete fiscal year or for any consecutive 12-month period out of the most recent
18 months are less than 110% of the maximum annual debt service requirements on all
Bonds Similarly Secured scheduled to occur in the then current fiscal year or any future
fiscal year after taking into account the issuance of the Additional Bonds proposed to be
issued.

9
 (e) Covenant Not to Issue Additional Obligations Secured with a Pledge of the
2% Expansion HOT, Convention Center Hotel State HOT Revenues or Convention
Center Hotel State Sales Tax Revenues Without Consent of Bond Insurer. The City
hereby covenants for the benefit of the Bond Insurer that while any Series 2005 Bonds or
Refunding Bonds remain outstanding it will not issue any obligations, including Refunding
Bonds, which are secured in whole or in part with a lien on the 2% Expansion HOT, the
Convention Center Hotel State HOT Revenues or the Convention Center Hotel State Sales
Tax Revenues without the prior written consent of the Bond Insurer.

(f) Covenant Not to Amend Priority Pledge of the 2% Expansion HOT Without
Consent of the Bond Insurer. The City hereby covenants for the benefit of the Bond
Insurer that while any Series 2005 Bonds or Refunding Bonds remain outstanding, it will not
amend (i) Section 3.04(a) of the Prior Lien Convention Center Bonds Ordinance, (ii) Section
4.04(a) of the Subordinate Lien Convention Center Bonds Ordinance authorizing the
issuance of the City's Hotel Occupancy Tax Subordinate Lien Revenue Refunding Bonds,
Series 2004A, or (iii) Section 5.3A of the Subordinate Lien Convention Center Bonds
Ordinance authorizing the issuance of the City's Hotel Occupancy Tax Subordinate Lien
Revenue and Refunding Bonds, Series 2004B, without the prior written consent of the Bond
Insurer.

(g) Further Assurances. The City will adopt, deliver, execute and make any and
all further assurances, instruments and resolutions as may be reasonably necessary or proper
to effect the financing of the Hotel Project and to allow the Issuer to comply with reporting
obligations, to assure the Issuer of the City's intention to perform hereunder and for the
better assuring and confirming unto the Issuer and the Trustee of the rights and benefits
provided to them herein.

SECTION 3.5. TAX COVENANTS. The City hereby covenants to the Issuer and the Trustee
that it will not take any action or fail to take any action that would adversely affect the exclusion
from gross income of interest on the Tax-Exempt Bonds.

SECTION 3.6. CONTINUING DISCLOSURE; OTHER FINANCIAL INFORMATION TO BOND

INSURER. The City has entered into the Continuing Disclosure Agreement pursuant to which the
City is required to provide certain annual information, including information relating to the
collection of City Tax Revenues. Any information the City prepares and distributes pursuant to the
Continuing Disclosure Agreement shall also be provided to the Bond Insurer. To the extent not
included in the information that the City provides under the Continuing Disclosure Agreement, the
City shall provide the Bond Insurer, within 180 days after the end of each Lease Year, with the
following additional information:

(a) a statement showing the total City Tax Revenues collected during the most
recently completed fiscal year of the City;

(b) commencing with the end of the first complete Lease Year after the Opening
Date of the Hotel Project, a statement, together with appropriate calculations, comparing the

10
 Debt Service Coverage Amount during the preceding Lease Year with the Debt Service on
the Bonds for the preceding Lease Year; and

(c) a certificate to the effect that a review of the affairs and activities of the City and
the Issuer during the preceding ammal period has been made under his supervision and that,
in the opinion of such representative of the City and to the best of his knowledge and belief
(after having undertaken a reasonable inquiry to make such certification and opinion), no
Event of Default with respect to the Issuer or the City occurred during such time period;
provided, however, that in the event an Event of Default with respect to the City or the Issuer
shall have occurred, such certificate shall so specify and shall state whether such Event of
Default has been cured or is continuing and, if continuing, what steps the City and the Issuer
propose to take to cure such Event of Default and the time necessary to cure such Event of
Default.

ARTICLE IV
PAYMENT OF CITY TAX REVENUES BY THE CITY TO PROVIDE
ADDITIONAL SECURITY FOR SERIES 2005 BONDS AND
REFUNDING BONDS

SECTION 4.1. PAYMENTS TO FUND INSUFFICIENCY IN DEBT SERVICE FUND. (a)

Transfer of City Tax Revenues into Holding Account. Pursuant to Section 5.05 of the Indenture,
on the fifth calendar day of each month or if such day is not a Business Day, the first Business Day
immediately following the fifth calendar day of such month (defined in the Indenture and referred
to herein as a "Lockbox Fund Transfer Date"), commencing with the first month when the
amount of Series 2005 Bond proceeds on deposit in the Capitalized Interest Account of the Debt
Service Fund is not sufficient to fully fund the amount required by the Indenture to be transferred
into the Debt Service Fund (which is expected to be on or about August 1, 2008 - the date which is
expected to be six months after the initial opening of the Hotel Project), the Trustee is required to
transfer Net Operating Revenues from the Revenue Fund to the Debt Service Fund, in approximately
equal monthly installments, amounts sufficient to fund the Debt Service coming due on the next
Debt Service Payment Date (i.e., generally 1/6th of the interest coming due on the next Debt Service
Payment Date and 1/12th of the principal coming due on the next Debt Service Payment Date).
Upon being notified by the Trustee during any month (in accordance with Section 5.06(b) of the
Indenture) that available funds on deposit in the Revenue Fund, together with transfers from certain
other Funds in accordance with Section 5.06(a) of the Indenture , have been insufficient to fully fund
the amount required to be deposited into the Debt Service Fund on any Lockbox Fund Transfer Date,
the City shall, within one Business Day after being so notified by the Trustee of such insufficiency,
transfer from City Tax Revenues as described in Section 4.2 of this Agreement an amount equal to
such insufficiency into a separate account maintained by the City (the "Holding Account") as long
as any Series 2005 Bonds or Refunding Bonds are outstanding. Immediately upon transferring such
amount of City Tax Revenues into the Holding Account, the City shall notify the Trustee in writing
of such transfer in order to provide assurance to the Trustee that funds then on deposit in the Debt
Service Fund, together with City Tax Revenues on deposit in the Holding Account, are sufficient
to satisfy the total amount then required by the Indenture to be on deposit in the Debt Service Fund.

11
All City Tax Revenues on deposit in the Holding Account shall be used only for the purpose of
funding any deficiency in the Debt Service Fund and shall never be used to fund any deficiency in
the Debt Service Reserve Fund or any other fund or account established under the Indenture other
than the Debt Service Fund.

(b) Transfer of City Tax Revenues on Deposit in Holding Account to Trustee. On or

before the Business Day immediately preceding each Debt Service Payment Date, the City will
transfer in immediately available funds all City Tax Revenues on deposit in the Holding Account
on such day, if any (or such lesser amount as directed by the Trustee in writing to the City, taking
into consideration the amount then on deposit in the Debt Service Fund and whether the amount of
Debt Service due and payable on the next Debt Service Payment Date is for interest only or for both
principal and interest) to the Trustee in accordance with wire instructions provided by the Trustee
for further deposit by the Trustee into the City Tax Revenues Account of the Debt Service Fund.
Any City Tax Revenues transferred by the City pursuant to this subsection which are not actually
used by the Trustee to pay Debt Service on a Debt Service Payment Date will be returned to the City
by the Trustee pursuant to Section 5.06(b)(iii) of the Indenture and may be redeposited by the City
into any fund or account from which such City Tax Revenues originated.

(c) Transfer of Excess City Tax Revenues. Except as provided in Section 4.1(b) of this
Agreement, no City Tax Revenues on deposit in the Holding Account will ever be transferred by
the City out of the Holding Account unless the Trustee has notified the City in writing that Net
Operating Revenues have been transferred from the Revenue Fund, or other available funds have
been transferred, into the Debt Service Fund in an amount sufficient to replace all or any portion of
the City Tax Revenues previously deposited by the City into the Holding Account and that the City
no longer needs to maintain such amount of City Tax Revenues in the Holding Account for transfer
to the Debt Service Fund prior to the next Debt Service Payment Date (herein referred to as the
"Excess City Tax Revenues"). In such event, the City may transfer an amount equal to the Excess
City Tax Revenues out of the Holding Account into the funds or accounts of the City from which
such Excess City Tax Revenues originated.

SECTION 4.2. SOURCE OF CITY PAYMENTS; REVENUE TRANSFERS. (a) Source and
Priority of City Payments. All funds required to be transferred to the Holding Account pursuant
to Section 4.1(a) of this Agreement and potentially transferred by the City to the Trustee on behalf
of the Issuer pursuant to Section 4.1(b) of this Agreement are payable solely from the following
revenue sources of the City and in the following order of priority:

Convention Center Hotel State HOT Revenues (as further described in Section 4.2(b)
hereof);

(ii) Convention Center Hotel State Sales Tax Revenues (as further described in Section
4.2(c) hereof);

(iii) Convention Center Hotel 7% Local HOT Revenues (as further described in Section
4.2(d) hereof); and

(iv) Available Expansion HOT Revenues (as further described in Section 4.2(e) hereof).

12
This Agreement shall create no obligation of the City which is payable from taxes or other moneys
of the City other than the City Tax Revenues described herein which are actually received by the
City. The Issuer, the Trustee and the owners of the Series 2005 Bonds and any Refunding Bonds
shall never have the right to demand that any of these payments be made from any funds raised or
to be raised by ad valorem taxation.

(b) Convention Center Hotel State HOT Revenues.

(i) Creation of Account - Grant and Deposit of Revenues. On or before the date of
opening of the Hotel Project the City shall create a separate account on the financial records
of the City into which the City shall deposit all Convention Center Hotel State HOT
Revenues when received by the City (the "Convention Center Hotel State HOT Revenues
Account"). Pursuant to the authority contained in Section 380.001(a), Texas Local
Government Code, the City hereby grants to the Issuer (subject to the provisions of Section
4.3(b) of this Agreement), for the benefit of the Trustee and the holders of the Series 2005
Bonds and any Refunding Bonds, the Convention Center Hotel State HOT Revenues and all
funds on deposit in the Convention Center Hotel State HOT Revenues Account and agrees
to transfer such Convention Center Hotel State HOT Revenues and funds at the times and
in the manner as set forth herein.

(ii) Transfer to Holding Account; Transfer of Excess Amounts Back to City. The
City shall transfer Convention Center Hotel State HOT Revenues from the Convention
Center Hotel State HOT Revenues Account to the Holding Account from time to time as
required by Section 4.1(a) of this Agreement. Any Convention Center Hotel State HOT
Revenues on deposit in the Convention Center Hotel State HOT Revenues Account on the
Business Day immediately following the Debt Service Payment Date occurring in January
of each year may be transferred by the City out of the Convention Center Hotel State HOT
Revenues Account into any other account designated by the City, shall no longer be
considered to be held or otherwise encumbered under the terms of this Agreement, and may
be used by the City for any lawful purpose.

(c) Convention Center Hotel State Sales Tax Revenues.

(i) Creation of Account; Deposit and Grant of Revenues. On or before the date of
opening of the Hotel Project the City shall create a separate account on the financial records
of the City into which the City shall deposit all Convention Center Hotel State Sales Tax
Revenues when received by the City (the "Convention Center Hotel State Sales Tax
Revenues Account"). Pursuant to the authority contained in Section 380.001(a), Texas
Local Government Code, the City hereby grants to the Issuer (subject to the provisions of
Section 4.3(b) of this Agreement), for the benefit of the Trustee and the holders of the Series
2005 Bonds and any Refunding Bonds, the Convention Center Hotel State Sales Tax
Revenues and all funds on deposit in the Convention Center Hotel State Sales Tax Revenues
Account and agrees to transfer such Convention Center State Sales Tax Revenues and funds
at the times and in the manner as set forth herein.

13
 (ii) Transfer to Holding Account; Transfer of Excess Amounts Back to City. The
City shall transfer Convention Center Hotel State Sales Tax Revenues from the Convention
Center Hotel State Sales Tax Revenues Account to the Holding Account from time to time
as required by Section 4.1(a) of this Agreement but only to the extent necessary after making
any transfers to the Holding Account from the Convention Center Hotel State HOT
Revenues Account as required by Section 4.2(b)(ii) above. Any Convention Center Hotel
State Sales Tax Revenues on deposit in the Convention Center Hotel State Sales Tax
Revenues Account on the Business Day immediately following the Debt Service Payment
Date occurring in January of each year may be transferred by the City out of the Convention
Center Hotel State Sales Tax Revenues Account into any other account designated by the
City, shall no longer be considered to be held or otherwise encumbered under the terms of
this Agreement, and may be used by the City for any lawful purpose.

(d) Convention Center Hotel 7% Local HOT Revenues.

(i) Creation of Account; Deposit and Pledge of Revenues. On or before the date of
opening of the Hotel Project the City shall create a separate account on the financial records
of the City into which the City shall deposit all Convention Center Hotel 7% Local HOT
Revenues transferred by the City pursuant to Section 4(d)(iii) of this Agreement (the
"Convention Center Hotel 7% Local HOT Revenues Account"). Pursuant to the
authority contained in Section 351.102(b), Texas Tax Code, the City hereby pledges to the
Issuer, for the benefit of the Trustee and the holders of the Series 2005 Bonds and any
Refunding Bonds, the Convention Center Hotel 7% Local HOT Revenues and all funds on
deposit in the Convention Center Hotel 7% Local HOT Revenues Account and agrees to
transfer such Convention Center Hotel 7% Local HOT Revenues and funds at the times and
in the manner as set forth herein.

(ii) Determination of Excess 7% Local HOT Revenues. Pursuant to the Convention

Center Bonds Ordinances, the City has established and maintains a fund known and defmed
therein as the "General HOT Fund" and three subaccounts of the General HOT Fund known
and defined in the Convention Center Bonds Ordinances as the "General Account," the
"Pledged 1.75% Account," and the Pledged 5.25% Account." All revenues from the 7%
Local HOT are required by the Convention Center Bonds Ordinances to be deposited as
received to the General HOT Fund and immediately allocated as follows: 25% of the 7%
Local HOT revenues to the Pledged 1.75% Account and 75% of the 7% Local HOT
revenues to the Pledged 5.25% Account. All revenues from the 7% Local HOT on deposit
in the Pledged 1.75% Account or the Pledged 5.25% Account which are not required to be
transferred into funds or accounts established under the Convention Center Bonds
Ordinances to pay debt service requirements on the Convention Center Bonds or to fund any
debt service reserve funds related to the Convention Center Bonds (the "Excess 7% Local
HOT Revenues") are permitted by the Convention Center Bonds Ordinances to be
transferred to the Debt Service Fund and the Debt Service Reserve Fund established for the
Series 2005 Bonds.

(iii) Determination of Convention Center Hotel 7% Local HOT Revenues; Accrual

of Insufficient Transfers. The City covenants with the Issuer that on or before the last

14
Business Day of each month, commencing with the month following the date of initial
opening of the Hotel Project, it will determine (based on information and certifications
provided by the Developer and the Operator) the total amount of Convention Center Hotel
7% Local HOT Revenues collected at the Hotel Project during the preceding month and
transfer such amount from Excess 7% Local HOT Revenues into the Convention Center
Hotel 7% Local HOT Revenues Account. In the event Excess 7% Local HOT Revenues are
insufficient to fully satisfy such required transfer to the Convention Center Hotel 7% Local
HOT Revenues Account, the amount of such insufficiency shall accrue to the following
month or months and be paid in the same manner during subsequent months until such
amount is fully transferred to the Convention Center Hotel 7% Local HOT Revenues
Account.

(iv) Transfer to Holding Account: Transfer of Excess Amounts Back to City. The
City shall transfer Convention Center Hotel 7% Local HOT Revenues from the Convention
Center Hotel 7% Local HOT Revenues Account to the Holding Account from time to time
as required by Section 4.1(a) of this Agreement but only to the extent necessary after making
any transfers to the Holding Account from the Convention Center Hotel State HOT
Revenues Account and the Convention Center Hotel State Sales Tax Revenues Account as
required by Section 4.2(b)(ii) and Section 4.2(c)(ii) above, respectively. Any Convention
Center Hotel 7% Local HOT Revenues on deposit in the Convention Center Hotel 7% Local
HOT Revenues Account on the Business Day immediately following the Debt Service
Payment Date occurring in January of each year may be transferred by the City out of the
Convention Center Hotel 7% Local HOT Revenues Account into any other account
designated by the City, shall no longer be considered to be held or otherwise encumbered
under the terms of this Agreement, and may be used by the City for any lawful purpose.

(e) Available 2% Expansion HOT Revenues.

(i) Determination of Available 2% Expansion HOT Revenues. Pursuant to the

Convention Center Bonds Ordinances, the City has established and maintains a fund known
and defined therein as the "Expansion HOT Fund." All revenues from the 2% Expansion
HOT are required by the Convention Center Bonds Ordinances to be deposited as received
to the Expansion HOT Fund. The City has covenanted in the Convention Center Bonds
Ordinances (particularly Section 3.04 of the Prior Lien Convention Center Bonds Ordinance
and Section 4.04 of the Subordinate Lien Convention Center Bonds Ordinance relating to
the Series 2004A Subordinate Lien Convention Center Bonds, and Section 5.3 of the
Subordinate Lien Convention Center Bonds Ordinance relating to the Series 2004B
Subordinate Lien Convention Center Bonds) that all 2% Expansion HOT Revenues shall be
deposited as received in the Expansion HOT Fund and transferred on or before the last
business day of each month to the following funds in the following order of priority:

(A) First, to the Prior Lien Bonds Debt Service Fund in the amounts and for the uses
described in Section 3.05 of the Prior Lien Bonds Ordinance;

(B) Second, to the Debt Service Reserve Fund in the amounts and for the uses
described in the Prior Lien Bonds Ordinance;

15
 (C)Third, to the payment of the Subordinate Lien Convention Center Bonds and any
"Subordinate Lien Obligations" (as defined in the Convention Center Bonds
Ordinances, which term is deemed therein and herein to include the Series 2005
Bonds being issued by the Issuer on behalf of the City to finance the Hotel Project),
including reimbursement obligations incurred in connection therewith, and reserve
funds related thereto, as may be required by any ordinance authorizing the issuance
of such Subordinate Convention Center Bonds and Subordinate Lien Obligations;

(D) Fourth, to the Facilities Fund in the amounts and for the uses described in
Section 3.08 of the Prior Lien Bonds Ordinance.

Notwithstanding the foregoing, however, the aforementioned Sections of the Convention

Center Bonds Ordinances further provide that as often as the City shall deem necessary, but
at least once a month on or before the penultimate Business Day of each month, the City
shall determine the amounts necessary from the 2% Expansion HOT to satisfy the foregoing
transfers, taking into consideration the money accumulated as of such date in the debt
service funds established for the Convention Center Bonds and the amount necessary to be
transferred to the debt service reserve fund established for the Convention Center Bonds as
required therein. After making the aforementioned determination, in the event the revenues
from the 2% Expansion HOT are not sufficient to satisfy the payment obligations set forth
in clauses First through Third above, the City is required to retain in the Expansion HOT
Fund any amount necessary (after taking into consideration any lawfully available revenues
that may be utilized to pay the debt service requirements on the Series 2005 Bonds) for the
timely payment of the debt service requirements on the Series 2005 Bonds, and, to the extent
funds are available in the Expansion HOT Fund (herein referred to as the "Available 2%
Expansion HOT Revenues"), shall first make transfers to the Debt Service Fund and the
Debt Service Reserve Fund for the Series 2005 Bonds as required by any "ordinance"
authorizing the Series 2005 Bonds. Any money remaining in the Expansion HOT Fund after
such transfers to the Debt Service Fund and the Debt Service Reserve Fund established for
the Series 2005 Bonds and the retention for the payment of the debt service requirements on
the Convention Center Bonds and any other "Subordinate Lien Obligations not issued for
the hotel for the Convention Center" may be transferred to the Facilities Fund to be used by
the City for any lawful purpose.

(ii) Transfer to Holding Account. The City deems this Agreement and the ordinance
which authorized and approved the execution of this Agreement, together with the Indenture
which authorizes the issuance of the Series 2005 Bonds, as the "ordinance" referred to in the
Sections of the Convention Center Bonds Ordinances described in Section 4.2(e)(i) hereof.
Therefore, in accordance with and as permitted by the provisions of the Convention Center
Bonds Ordinances as described in Section 4.2(e)(i) above, the City shall transfer Available
2% Expansion HOT Revenues from the Expansion HOT Fund to the Holding Account from
time to time as required by Section 4.1(a) of this Agreement but only to the extent necessary
after making any transfers to the Holding Account from the Convention Center Hotel State
HOT Revenues Account, the Convention Center Hotel State Sales Tax Revenues Account
and the Convention Center Hotel 7% Local HOT Revenues Account as required by Section
4.2(b)(ii), Section 4.2(c)(ii), and Section 4.2(d)(iv) above, respectively.

16
 SECTION 4.3. UNCONDITIONAL PAYMENTS BY THE CITY TO THE ISSUER; CERTAIN
PAYMENTS SUBJECT TO NON-APPROPRIATION UPON OCCURRENCE OF CERTAIN EVENTS.

(a) Unconditional Payments by the City to the Issuer. In consideration of the Issuer's
agreement to issue the Series 2005 Bonds to fund a portion of the cost of the Hotel Project as
provided in the Project Agreement or the Ground Lease, the City agrees that it will pay to the
Trustee for the benefit of the Issuer, during the term of this Agreement, as an unconditional
obligation of the City (but solely from the sources described in Section 4.2 of this Agreement, and
subject to the provisions of Section 4.3(b) below), the amounts required to be paid as required by
Section 4.1 of this Agreement regardless of whether or not the Hotel Project is completed, operable
or operating and notwithstanding the suspension, interruption, interference, reduction or curtailment
of operation of the Hotel Project. Such payments are not subject to any reduction, whether offset
or otherwise, and are not conditional upon (i) performance or default by the Issuer under this
Agreement or any other obligation or agreement relating to the Series 2005 Bonds to which the
Issuer is a party, or (ii) whether or not the Developer shall perform, fail to perform or default in its
obligations under the Project Agreement, the Ground Lease, the Loan Agreement or any other
document relating to the Series 2005 Bonds and the Hotel Project to which the Developer is a party.
THE ISSUER AND THE BENEFICIARY OF THIS AGREEMENT SHALL NEVER HAVE
THE RIGHT TO DEMAND PAYMENTS REQUIRED TO BE MADE BY THE CITY
PURSUANT TO THIS AGREEMENT OUT OF ANY FUNDS RAISED OR TO BE RAISED
BY TAXATION OR FROM ANY SOURCE WHATSOEVER OTHER THAN AS SPECIFIED
IN SECTION 4.2 OF THIS AGREEMENT, AND SUBJECT TO THE PROVISIONS OF
SECTION 4.3(b) BELOW.

(b) Certain Payments Subject to Non-Appropriation Upon Occurrence of Certain

Events. Notwithstanding the foregoing, in the event the obligations of the City set forth in Sections
4.2(b) and/or 4.2(c) hereof (granting to the Issuer the Convention Center Hotel State HOT Revenues
and the Convention Center Hotel State Sales Tax Revenues and the funds on deposit in the
Convention Center Hotel State HOT Revenues Account and the Convention Center Hotel State Sales
Tax Revenues Account) are held by a Texas court of law having competent jurisdiction to create an
unconstitutional debt of the City, the grant of such Revenues and funds, and the obligations of the
City set forth in Sections 4.2(b) and 4.2(c) hereof to transfer any Convention Center Hotel State
HOT Revenues and Convention Center Hotel State Sales Tax Revenues to the Trustee, shall
thereafter automatically be deemed to be subject to annual appropriation by the City Council of the
City. In such event, the City shall use its best efforts to include in each annual budget, for
consideration and approval by the City Council (such approval, however, being solely within the
discretion of the City Council), such amounts as would be sufficient to satisfy the City's obligations
set forth in Sections 4.2(b) and 4.2(c) hereof; however, the failure to appropriate such amounts in
an annual budget shall not constitute a default under this Agreement.

SECTION 4.4. GRANT OF SECURITY INTEREST IN CITY TAX REVENUES AND VARIOUS
ACCOUNTS. In order to provide further security for the payment of debt service on the Series 2005
Bonds and any Refunding Bonds, the City hereby grants to the Issuer a first lien security interest in
the Convention Center Hotel State HOT Revenues, the Convention Center Hotel State Sales Tax
Revenues, the Convention Center Hotel 7% Local HOT Revenues, and the Available 2% Expansion
HOT Revenues described in this Agreement, together with all funds on deposit from time to time

17
in accordance with this Agreement in the Holding Account, the Convention Center Hotel 7% Local
HOT Revenues Account, Convention Center Hotel State Sales Tax Revenues Account, and the
Convention Center Hotel 7% Local HOT Revenues Account to the full extent that such Revenues
and Accounts may be subject to the Uniform Commercial Code of the State of Texas. The City
acknowledges that the Issuer will grant to the Trustee, in accordance with the terms of the Indenture,
all of its right, title and interest in this Agreement, including but not limited to the security interest
being granted by the City pursuant to this Section.

Pursuant to Chapter 1208.002(2), Texas Government Code, as amended, any security

interests created by this Agreement shall be automatically perfected from the time this Agreement
is entered into or adopted, and shall remain perfected continuously through the termination of this
Agreement in accordance with the terms set forth herein, all without physical delivery or transfer
of control of the Convention Center Hotel State HOT Revenues, the Convention Center Hotel State
Sales Tax Revenues, the Convention Center Hotel 7% Local HOT Revenues, or the Available 2%
Expansion HOT Revenues described in this Agreement, or the funds on deposit in the Holding
Account, the Convention Center Hotel 7% Local HOT Revenues Account, the Convention Center
Hotel State Sales Tax Revenues Account, or the Convention Center Hotel 7% Local HOT Revenues
Account, filing of a document, or another act. Therefore, it shall not be necessary for the City, the
Issuer or the Trustee to file any financing statements or continuation statements or any supplemental
instruments or documents or further assurance in any manner in order to perfect or maintain
perfection of any security interests created by this Agreement. If Texas law is amended at any time
while any Bonds are outstanding and unpaid such that the security interest created by this
Agreement is to be subject to the filing requirements of Chapter 9, Texas Business & Commerce
Code, then in order to preserve to the registered owners of the Bonds the perfection of such security
interest, the City and the Issuer agree to take such measures as they determine are reasonable and
necessary under Texas law to comply with the applicable provisions of Chapter 9, Texas Business
& Commerce Code, and enable a filing to perfect the security interest created by this Agreement.

SECTION 4.5. INVESTMENT OF FUNDS ON DEPOSIT IN VARIOUS ACCOUNTS. The City

may invest any funds on deposit in the Holding Account in any Permitted Investments (as defined
in the Indenture) which mature, or will permit the City to liquidate or withdraw without penalty, on
or before the date the City may be required to transfer such funds from the Holding Account to the
Trustee pursuant to Section 4.1(b) hereof. Similarly, the City may invest any funds on deposit in
the Convention Center Hotel 7% Local HOT Revenues Account, the Convention Center Hotel State
Sales Tax Revenues Account, and the Convention Center Hotel 7% Local HOT Revenues Account
in any Permitted Investments (as defined in the Indenture) which mature, or will permit the City to
liquidate or withdraw without penalty, on or before the date the City may be required to transfer
such funds from any of such Accounts to the Holding Account pursuant to Sections 4.2(b)(ii),
4.2(c)(ii) and 4.2(d)(iv) of this Agreement.

18
 ARTICLE V
AUDITS, ACCOUNTS, RECORDS AND REPORTS

SECTION 5.1. ACCOUNTS, RECORDS AND ACCOUNTING REPORTS. The Issuer covenants
and agrees that it will maintain, or cause to be maintained, books, records and accounts relating to
the Series 2005 Bonds and any Refunding Bonds, and same shall be available for inspection by the
City at reasonable hours and under reasonable circumstances.

SECTION 5.2. ANNUAL AUDITS. After the end of each fiscal year of the Issuer (beginning
with the 2005 fiscal year) and if requested by the City, the Issuer shall have its books, records, and
accounts audited by a certified public accountant and shall submit the results of such audit to the
City within one hundred thirty-five (135) days after the end of the fiscal year.

ARTICLE VI
TERM OF AGREEMENT

This Agreement shall commence on the date of initial delivery of the Series 2005 Bonds and
shall automatically terminate on the date when all Series 2005 Bonds and Refunding Bonds have
been fully paid or legally defeased under Texas law and are no longer considered outstanding. The
City agrees that it will not dissolve the Issuer or terminate this Agreement for any reason so long
as any Series 2005 Bonds or Refunding Bonds remain outstanding.

ARTICLE VII
REMEDIES UPON DEFAULT

SECTION 7.1. No WAIVER. The failure of either party to insist in any one or more
instances upon performance of any of the terms, covenants or conditions of this Agreement shall not
be construed as a waiver or relinquishment of the future performance of any such term, covenant
or condition by the other party hereto, but the obligation of such party with respect to future
performance shall continue in full force and effect.

SECTION 7.2. PAYMENT DEFAULT. In the event of a default by the City in the payment
of any 'sum due and payable to the Trustee under Section 4.1(b), the Trustee shall be authorized to
pursue any remedies authorized by applicable law on behalf of the Issuer without notice to or
consent of the Issuer.

ARTICLE VIII
ASSIGNMENT

Neither the Issuer nor the City may assign or otherwise transfer any rights or obligations
created hereby except that, notwithstanding the foregoing, the Issuer may assign to the Trustee under
the Indenture any of its rights and interests herein as security for the Series 2005 Bonds and any
Refunding Bonds.

19
 ARTICLE IX
AMENDMENTS

This Agreement may be amended only by written instrument duly executed on behalf of the
City and the Issuer and the written consent of the Bond Insurer and with prior written notice to the
Developer. Prior to the initial delivery of the Series 2005 Bonds, the City agrees to enter into and
deliver to the Issuer one or more amendments hereto containing such modifications to this
Agreement as the Trustee, the Bond Insurer or any Rating Agency may request or as the Attorney
General of Texas may require in connection with the Attorney General's approval of the Series 2005
Bonds or any Refunding Bonds; provided, that, the modifications do not, in the aggregate, materially
increase the City's obligations under this Agreement. The foregoing notwithstanding, while any
Series 2005 Bonds or Refunding Bonds are outstanding, no amendment shall become effective until
the parties have received an opinion of nationally-recognized bond counsel, selected by the Issuer
and approved by the City, to the effect that such amendment will not materially adversely impair
the rights of the Developer or the owners of Series 2005 Bonds or Refunding Bonds issued by the
Issuer which are then outstanding and will not adversely affect the excludability of interest on any
outstanding Tax-Exempt Bonds (or outstanding Refunding Bonds originally issued with the intent
that the interest on such Refunding Bonds would be excludable from federal income taxation).

ARTICLE X
ADDRESSES AND NOTICES

SECTION 10.1. City's Notice Information: Until the Issuer is otherwise notified in writing
by the City, the address of the City is and shall remain as follows:

City of San Antonio

506 Dolorosa
San Antonio, Texas 78205
Attention: Finance Director
Telephone: (210) 207-8620
Facsimile: (210) 207-7774

with a copy to: City of San Antonio

City Hall, 2nd Floor
100 Military Plaza
San Antonio, Texas 78205
Attention: City Clerk
Telephone: (210) 207-7253
Facsimile: (210) 207-7032

20
 SECTION 10.2. Issuer's Notice Information: Until the City is otherwise notified in writing
by the Issuer, the address of the Issuer for both notice and payments is and shall remain as follows:

City of San Antonio, Texas Convention Center Hotel Finance Corporation

506 Dolorosa
San Antonio, Texas 78205
Attention: President
Telephone: (210) 207-8620
Facsimile: (210) 207-7774

with a copy to: City of San Antonio, Texas Convention Center Hotel Finance Corporation
do City of San Antonio
City Hall, 2nd Floor
100 Military Plaza
San Antonio, Texas 78205
Attention: City Clerk
Telephone: (210) 207-7253
Facsimile: (210) 207-7032

SECTION 10.3. Trustee's Notice Information: Until the City and Issuer are otherwise
notified in writing by the Trustee, the address of the Trustee is and shall remain as follows:

Wells Fargo Bank, N.A., Trustee

P.O. Box 2019
MAC T5656-013
Austin, Texas 78768
Attention: Corporate Trust Services
Telephone: (512) 344-8640
Facsimile: (512) 344-8621

SECTION 10.4. TIMING OF NOTICES. All written notices required or permitted to be given
under this Agreement from one party to the other shall be deemed given by facsimile transmission
or other electronic means when sent by the sending party or three Business Days after the deposit
thereof in a United States Postal Service mail box or receptacle with proper postage affixed thereto
and addressed to the respective other party at the address set forth above or at such other address as
the parties respectively shall designate by written notice.

SECTION 10.5. TRUSTEE'S WIRE TRANSFER INSTRUCTIONS: Until the City and Issuer are
otherwise notified in writing by the Trustee, the wire transfer instructions the City shall use to
transfer any City Tax Revenues from the Holding Account to the Trustee in accordance with Section
4.1(b) hereof is and shall remain as follows:

Wells Fargo Bank, N.A.

ABA #121000248
Acct #0001038377
BNF: Corporate Trust Clearing
REF: SACCHFC 2005

Prior to wiring any funds to the Trustee pursuant to this Agreement, the Trustee has requested to be
notified, and the City hereby agrees to notify the Trustee, by telephone (512-344-7306) or telecopy

21
(512-344-8621), or at such other numbers provided in writing to the City by the Trustee, that the
City will be wiring funds to the Trustee pursuant to this Agreement.

ARTICLE XI
MISCELLANEOUS PROVISIONS

SECTION 11.1. SUCCESSORS AND ASSIGNS. This Agreement shall bind and benefit the
respective parties and their legal successors, and, except as permitted in Article 8 above, shall not
otherwise be assignable, in whole or in part, by either party without first obtaining the written
consent of the other.

SECTION 11.2. BENEFIT OF AGREEMENT. This Agreement shall be for the sole and
exclusive benefit of the City and the Issuer and shall not be construed to confer any rights upon any
third party other than (i) the Trustee on behalf of holders of the Series 2005 Bonds and any
Refunding Bonds, as appropriate, (ii) the Bond Insurer and other financial institutions providing
credit enhancement for the Series 2005 Bonds and any Refunding Bonds, and, (iii) for the limited
purpose of being able to enforce the covenant set forth in Section 3.4(d) hereof, the Developer.

SECTION 11.3. COMPLIANCE WITH LAWS. This Agreement shall be subject to all present
and future valid laws, orders, rules and regulations of the United States of America, the State of
Texas and of any regulatory body having jurisdiction.

SECTION 11.4. SEVERABILITY. In the event any term, covenant or condition herein
contained shall be held to be invalid by any court of competent jurisdiction, such invalidity shall not
affect any other term, covenant or condition herein contained, provided that such invalidity does not
materially prejudice either the Issuer or the City in their respective rights and obligations contained
in the valid terms, covenants or conditions hereof.

SECTION 11.5. ENTIRE AGREEMENT. This Agreement merges the prior negotiations and
understandings of the parties hereto and embodies the entire agreement of the parties.

SECTION 11.6. INCORPORATION OF RECITALS. The City and the Issuer hereby find that
the statements set forth in the recitals of this Agreement are true and correct, and the City and the
Issuer hereby incorporate such recitals as a part of this Agreement.

SECTION 11.7. LEGAL AUTHORITY. The City Attorney of the City or his or her designee
shall have the right to enforce all legal rights and obligations of the City under this Agreement
without further authorization. The Issuer covenants to provide to the City Attorney of the City all
documents and records that the City Attorney reasonably deems necessary to assist in determining
the Issuer's compliance with this Agreement, with the exception of those documents made
confidential by federal or State law or regulation.

22
 SECTION 11.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be regarded as an original and all of which shall constitute one and
the same instrument.

SECTION 11.9. APPROVALS. This Agreement has been duly approved by the City Council
of the City and the Board of Directors of the Issuer.

[Signature Page Follows]

23
 IN WITNESS WHEREOF, the City and the Issuer have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.

CITY OF SAN ANTONIO, TEXAS

CONVENTION CENTER HOTEL FINANCE
CORPORATION

By q-Pir
Ed Garza
President
Attest .

CITY OF SANANTONIO, TEXAS

By:
sto er J a y
Assistant City Manager
Attest:

Letic a M Vacek
City Clerk

Approved as to Form.

rrb Martha Sepeda

Acting city Attorney

[SIGNATURE PAGE TO ECONOMIC DEVELOPMENT AGREEMENT]

 EXHIBIT A

MASTER GLOSSARY OF TERMS

The Master Glossary of Terms is omitted at this point as it appears elsewhere in this
Transcript of Proceedings
MOODY'S
INVESTORS SERVICE

Rating Update: MOODY'S MAINTAINS Baa2 ON THE CITY OF SAN ANTONIO'S CONVENTION
CENTER HOTEL REVENUE BONDS

Global Credit Research - 30 Dec 2010

Other Sectors
TX

Opinion

NEW YORK, Dec 30, 2010 — RATING RATIONALE:

Moody's maintains the Baa2 rating on the San Antonio Convention Center Hotel Revenue Bonds. The hotel opened on time in March 2008 and
hence has a relatively short operating history, during a challenging economic environment which struck the hotel and convention industry
particularly hard. The rating affirmation is based on the recovery of hotel and convention activity in the current year and the expectation of
operating margins and key credit ratios that are closer to that which was originally expected. The additional security provided by the state and
city hotel occupancy taxes provides an important cushion against potential downturns in the industry that could otherwise compromise debt
service coverage by net revenues of the hotel. The rating also incorporates the funding of approximately 80% of the debt service reserve fund
with a surety policy from Ambac, whose claim paying ability is considered by Moody's to be very weak. The outlook on the rating is stable.

LEGAL SECURITY: The bonds are secured by a pledge of net hotel operating revenues. Additional security and credit support are provided by
state and city hotel occupancy. tax (HOT) revenues, which are available if net hotel revenues are insufficient. These include, in order of priority:
first, a senior interest in the site-specific 6% state HOT, second, a senior interest in the site-specific 6.25% state sales tax primarily on food,
beverage, telephone and parking revenues; third, a subordinate interest in the site-specific 7% local HOT; and fourth, a senior interest in the 2%
city-wide HOT. The state taxes are available for the first 10 years of hotel operations, while the local taxes are available for the life of the bonds.
If tax revenues are used for debt service, the private owner must reimburse the City or state prior to taking distributions.

INTEREST RATE DERIVATIVES: None

STRENGTHS

*City's pledge of various HOT revenues are expected to cover the majority of annual debt service if necessary, although the primary security is
hotel net revenues

*Substantial upfront equity contributions and private ownership structure provide economic incentives to successfully manage the project

*San Antonio has exhibited favorable demand trends for hotel and convention center activity, with city-wide future bookings of meeting and
conventions running above target through 2017

*Calendar year-to-date tax receipts in 2010, until September are currently over 15.62% higher than the same period in the prior year, with
especially strong collections in the April 2010 - June 2010 period

CHALLENGES

"Bondholders are exposed to hotel industry volatility since the project will rely on hotel net revenues for operating expenses at a minimum

*Heightened competition in the regional and national convention center markets

*Thirty-year bond amortization requires commitment to reinvest in hotel capital and equipment to sustain a strong future market position

*Back-loaded debt structure could result in tax support being called upon in the future as the first year of principal amortization on Series 2005B
occurred in 2010, while the first principal amortization on Series 2005A does not occur until 2028, the same year that principal is fully paid down
on Series 2005B.

*A major portion of the Debt Service Reserve Fund is backed by a credit facility from Arnbac Assurance Corporation, whose claims paying
ability carries a Moody's Caa2 rating

RECENT DEVELOPMENTS

The 1,003 room, downtown San Antonio Grand Hyatt hotel, located adjacent to the Henry B. Gonzalez Convention Center, has been operational
since March 2008, as scheduled. The hotel is a strategic asset to the City as it seeks to maintain its place among the top convention cities in
the country, and allows the City to broaden its scope to host larger conventions and meetings, such as the American Dental Association (over
30,000 attendees), Alcoholics Anonymous, and National Athletic Trainers Association, among others. The convention and hospitality industry
around the country took a heavy blow during the recession as businesses and households pared back spending, however, in FY 2009 over
580,000 visitors attended 307 events held at the Convention Center and lviunicipal Auditorium in San Antonio. The City sees enormous
economic benefits in tfie local convention and hospitality industry, and has maintained positive marketing campaigns to attract more
conventions to San Antonio.

Even though San Antonio is a top convention center location, the competition among cities to attract conventions and conferences is intense. In
addition, the opening of the 1,002 room JW Marriott Hotel approximately 20 minutes outside of San Antonio in the Texas Hill Country has the
potential to divert certain conferences away from downtown San Antonio. Even with these challenges, it is Moody's opinion that convention
demand will remain robust for the downtown San Antonio area, thus proving beneficial to the San Antonio Convention Center Hotel. Preliminary
bookings throughout the City are proving strong with the current booking pace exceeding the City's forecasts through 2017. It should be noted
that although the booking pace is currently higher than budget, events can be cancelled as was the case in May 2009 when two events were
cancelled due to the H1N1 outbreak, and the economic downturn.

On a calendar year basis, 2009 was the first full-year of operation for the hotel, while on the City of San Antonio's fiscal year basis (October -
September.) there are two full years of tax receipt data available. Based on 2009 calendar year data, the hotel slightly underperformed
projections, however the operating results show the resilience of the facility given the tough economic environment. The Average Room Rate
achieved in calendar year 2009 was $167.94 compared to the projected $162.11, while Revenue per Available Room (RevPAR) was $103.52
compared to the $115.09 forecasted, reflecting the underperformance in occupied rooms (225,664 achieved compared with 259,150
forecasted). The hotel maintains a strong competitive position within the City of San Antonio, as city-wide RevPAR for 2009 was $56.08 while
the city-wide Average Room Rate was $109.37. Debt Service Coverage by net revenues of the hotel in calendar year 2009 totaled 1.55 times,
without any tax support, reflecting a minor shortfall compared to the projected coverage (1.61 times), but nonetheless an adequate level for the
current rating category.

Debt service for 2009 reflected only interest payments, given the back-loaded debt structure by which the 2005B bond principal payments
commenced in 2010. Current hotel revenues available for debt service (not counting any tax support) are capable of servicing maximum annual
debt service (MADS) ($15.698 million achieved in 2039) with little margin to spare, however it is Moody's view that hotel revenues will continue
to grow given the demand fundamentals in the San Antonio area.

Although interim financial data for calendar year 2010 from the hotel is currently unavailable, tax receipt data provided by the City and state
points to a firmer operating environment. Calendar year-to-date tax collections through September 2010 show tax receipts 15.62% higher than
the same period in 2009 reflecting stronger room revenue at the hotel. Stronger room revenue should also imply higher total revenues in 2010
as parking garage and food/beverage revenues track higher in tandem. The bulk of tax receipt growth can be traced to the second quarter of
calendar year 2010 when tax collections were 43.74% stronger than the same period in 2009.

The project's debt service reserve fund (DSRF) is sized to cover MADS equal to $15.7 million. The DSRF comprises $3.7 million in cash,
funded with bond proceeds, and a $12 million credit facility from Ambac Assurance Corporation, whose claims paying ability carries a fvbody's
Caa2 rating. There are no plans to cash fund the DSRF. If a situation arose by which, per the indenture, the surety had to be replaced or the
DSRF cash funded, the hotel operator would be responsible for meeting this requirement. If cash funded, the indenture requires that the DSRF
is fully funded within 12 months of the deficiency, which would be achieved only in part if using the cash going through the revenue waterfall, and
would require an equity infusion from the operator. Moody's notes that the DSRF would only be tapped after using the various tax revenue that is
pledged for debt service. Nonetheless, the Arribac surety funded DSRF presents a credit weakness.

Although calendar year 2010 is shaping out to be stronger than 2009, Moody's still expects the hotel to underperform initial projections, but
generate sufficient net revenues to cover expenses and debt service at levels that are consistent with those of other Baa2 rated projects.

REGULATORY DISCLOSURES

The bond ratings were assigned by evaluating factors believed to be relevant to the credit profile of the issuer such as i) the business risk and
competitive position of the issuer versus others within its industry or sector, ii) the capital structure and financial risk of the issuer, iii) the
projected performance of the issuer over the near to intermediate term, iv) the issuer's history of achieving consistent operating performance
and meeting budget or financial plan goals, v) the nature of the dedicated revenue stream pledged to the bonds, vi) the debt service coverage
provided by such revenue stream, vii) the legal structure that documents the revenue stream and the source of payment, and viii) and the
issuer's management and governance structure related to payment.

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public
information, confidential and proprietary Moody's Investors Service's information, confidential and proprietary Moody's Analytics' information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of maintaining a credit rating.

Outlook

The stable outlook is based on Moody's view that the expected market demand for this facility combined with tax collections will generate
sufficient revenues to provide satisfactory debt service coverage levels consistent with this rating level.

What could change the rating - UP

Upside potential for the rating could arise from a multi-year period of a higher-than-expected occupancy rates, average room rates, RevPAR,
and debt service coverage margins. The positive ratios would have to be accompanied by a fully funded debt service reserve account (cash or
a surety from an insurer with high credit quality) in order to result in positive rating pressure.

What could change the rating - DOWN

Downward rating pressure, although mitigated by available tax revenues, could result from weakening financial performance of the hotel and of
the related specific location and city-wide taxes that back the bonds.

KEY INDICATORS

Project type: Headquarters Hotel (adjacent to existing convention center)

Size: 1,003 rooms

Occupied rooms, 2009: 225,664

Occupancy Rate, 2009: 61.64%

Average Room Rate, 2009: $167.94

RevPAR, 2009: $103.52

 Hotel Revenue DSCR (without tax support), 2009: 1.55x

Hotel Revenue DSCR (with tax support), 2009: 3.28x

Debt Service Reserve: $15.7 million (MADS) ($3,697,500 cash funded, $12,000,000 surety)

Operating Expense Reserve: $1.5 million

RATED DEBT

Contract Revenue Empowerment Zone Bonds, Series 2005A (AIVTT Bonds), $129.9 million

Contract Revenue Bonds, Taxable Series 200513, $78.2 million

CONTACTS

Ben Gorzell, Jr.

Chief Financial Officer

City of San Antonio

210-207-8652

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, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in
every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully
digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for
further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of
each rating category and the definition of default and recovery.

Analysts

Laura Barrientos
Analyst
Public Finance Group
Moody's Investors Service

Maria Matesanz
Backup Analyst
Public Finance Group
Moody's Investors Service

Ghee Mee Hu
Director
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376

Research Clients: (212) 553-1653

Moody's Investors Service

250 Greenwich Street
New York, NY 10007
USA

MOODY'S
INVESTORS SERVICE

© 2011 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RffINGS ARE MOODY'S INVESTORS SERVICE, INC:S ("MIS") CURRENT OPINIONS OF THE
RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE
SECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAI- AN ENTITY MN NOT MEET ITS
CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS
IN THE EVENT OF DEFAULT. CREDIT RArINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT
NOT LIMITED TO: LIQUIDITY RISK MARKET VALUE RISK OR PRICE VOLATILITY CREDIT RATINGS ARE
NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE
INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TO
PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT WINGS DO NOT COMMENT ON THE
SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGS
WTH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WLL MAKE ITS OWN STUDY
AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR
SALE.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAN, INCLUDING BUT NOT LIMITED TO,
COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED,
REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD,
OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR
MANNER OR BYANY MEANS WHATSOEVER, BYANY PERSON WITHOUT MOODY'S PRIOR WRITTEN
CONSENT. All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and
reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information
contained herein is provided "AS IS" without warranty of any kind. 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, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and
cannot in every instance independently verify or validate information received in the rating process. Under no
circumstances shall MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part
caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within
or outside the control of MOODY'S or any of its directors, officers, employees or agents in connection with the
procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such
information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever
(including without limitation, lost profits), even if MOODY'S is advised in advance of the possibility of such damages,
resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections,
and other observations, if any, constituting part of the information contained herein are, and must be construed solely
as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities.
Each user of the information contained herein must make its own study and evaluation of each security it may
consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY,
TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY
SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR
MANNER WHATSOEVER.

MIS, a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most
issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and
preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating
services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies
and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain
affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS
and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at
www.moodys.com under the heading "Shareholder Relations — Corporate Governance — Director and Shareholder
Affiliation Policy."

Any publication into Australia of this document is by MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61
003 399 657, which holds Australian Financial Services License no. 336969. This document is intended to be provided
only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access
this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a
representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly
disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations
Act 2001.

Notwithstanding the foregoing, credit ratings assigned on and after October 1, 2010 by Moody's Japan K.K. ("MJKK")
are MJKK's current opinions of the relative future credit risk of entities, credit commitments, or debt or debt-like
securities. In such a case, "MIS" in the foregoing statements shall be deemed to be replaced with "MJKK". MJKK is a
wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly owned by Moody's
Overseas Holdings Inc., a wholly-owned subsidiary of MCO.

This credit rating is an opinion as to the creditworthiness or a debt obligation of the issuer, not on the equity securities
of the issuer or any form of security that is available to retail investors. It would be dangerous for retail investors to
make any investment decision based on this credit rating. If in doubt you should contact your financial or other
professional adviser.
 OFFICIAL Si ATEMENT DA TED MAY 10, NOS

NEW fli.SUES: BOOK-F,NTRY ONLY RATINGS: Moody's: "Ass"

S&Ft "AAA"
See "RATINGS" herein
In the opinion of McCall. Padthurst & Horton I I P and Escamilla & Polak, Ini. l'rtvIlond ( ounsel ). andel existing statutes, regulations. published rulings, and
antri decisions Interest on the Senes 2005A Bonds (defined below) will he excludable twins gloss income for federal income ins punnets, except as explained andel
'TAX MATI ERS ShRIES 200M BONDS herein, and, will be an nem of tax prelereme for piuposes of determining the alternative 111111101101. is% imposed on
individuals and coipornuons In the opinion of Cu Bond ( masa newest on thc Taxable SOWS 20051) Bonds (defined below) is includable in gross one for federal
income tax purposas under existing statutes, regulations, published rulings and court decisions See "TAX MATTERS - TAXABLE SERIES 2005B NM' heieus
CITY OF SAN ANTONIO, TEXAS CONVENTION CENTER HOTEL FINANCE CORPORATION
(it Texas nonprofit loyal government corporation acting on Debella' the City of San Antonio, Texas)

$129,930,000 578,215,000
CONTRACT REVENUE EMPOWERMENT ZONE BONDS, CONTRACT REVENUE BONDS.
SERIES 2005A (AMT BONDS) TAXABLE SERIES 20050
Dated May 15, 2005, Interest Accrues from Mang Date Due As shown on :nude cover
The City of Sari Antonio Texas Convention Cada Hotel Finanee Corporation (the "Issuer"), a Texas nonprofit local government corporation acting on
behalf ofeserR—r y o San Antonio, Texas (the "City"). is issunillal24,00MITMitract Revenue Empowerment Zone Bonds, Series 2005A IAMT Bonds)
(the "Sates 2005A Bonds-) and ns 578,215,00D Contract Revenue Bonds, Taxable Series 200513 (the 'l'axable Senes 200$B Bonds") (collectively, the Series
2005A Bonds and the Taxable Series 20050 Bonds are referred to berem as the "Series 2005 Bonds") The Series 200$ Bonds are being issued pursuant to the
provisions of Texas law described herein Additionally, the Series 2005A Bonds will be issued as "Empowerment Lone Bonds" pursuant to federal tax law All
of the Series 200$ Bonds will be issued pursuant to an Indenture of Mal (the "Indenture") between the Issuer and Wells Fargo Bank, N A • Austin, Texas, as
trustee (the "Trustee")
The ptoceeds of the Series 2005 Bonds will be loaned by the Issuer to Hotel Investments, L a Delaware blmted pattnershipOhe "Developer"), mosuant
to a "Loan Agreement." to be used by the Developer to (a) finance a portion of the costs required to design, develop, construct, equip, finish and opens full-
service 1,000 room hotel together with up to 1,000 parking spaces m an underground parking garage, subject to the terms oftertain project document% described
herein (the "Hotel Project"). (b) fund approximately 38 months of capialtzed interest (which IS intended to cover the pertod commencing with the date of
issuance of the Series 2005 Bonds through six months following completion of construction of the Hotel Project); (e) hind a debt service reserve fund lor the
Series 200$ Bonds in part with the purchase of a reserve fund credit facility and in pen with proceeds. and (d) pay certain costs of issuing the Series 2005
Bonds In addition to the loaned Series 2005 Bond proceeds, the Hotel Project will be financed in part with Initial Preferred Equity (described herem) in the
amount of S77,33L200
The Hotel Project will he developed by the Developer pursuant to a "Project Agreement" between the City and the Developer a "Design/Raid
Agreement" between the Developer and FaulknerUSA, L P , a Texas limited partnership (the "Design/Balder), and a "Guaranty" between the City and
FaulknatISA, Inc a Delaware corporation (the "Guarantor") The Hotel Project will be prepared for opening by Hyatt Corporate» (the 'Operator") pursuant
to • "Product and Design AssisiStIte and Pre-Opening Services Agreement" between the Operator and the Design/Budder, and, after opening, managed and
operated by the Operator pursuant to a "Hotel Management Agreement" between the Developer and the Operator and A "Room Blocking Agreement" between
the City and the Developer
The Series 2005 Bonds wslt be registered and offered an denominattons of 55,000 and integral multiples thereof Interest on the Series 200$ Don& will he
payable semiannually on each January 15 and July 1$, commencing July 15, 2005 The Series 2005 Bonds are subject to optional, mandatory sinking tund, and
extraordinary mandatory redempbon as described herein, are limited obligations of the Issuer, and are equally and ratably secured by the asset., in the Dust
hstate (defined herein)pledged under the Indenture
the SelleS 2005 Bonds initially will bc registered in the name of Cede & Co as registered owner and nominee for The Deposnoty Dot Company. New
York, New York ("MC"), which will act as securities depository for the Series 2005 Bonds The Sates 2005 Bonds will be issued in book-entry Indy form,
and holders of the Series 2005 Bonds voll not receive physical delivery of bonds except as described herein During any period in which ownership of any of
the Series 2005 Bands as determined only by a book entry at DTC, the Trustee will make payments on such Series 2005 Bonds to DTC or D1C's nominee in
accordence with arrangements between the Trustee and DTC
Payment of prinapal of and intmest on the Series 2005 Bonds will be insured in accordance with the terms of a financial guaranty insurance policy to he
issued simultaneously with the delivery of the Series 2005 Bonds by Amber Assurance Corporation (the "Bond Insurer") Sec "FINANCIAL GUARANTY
INSURANCE POLICY AND RESERVE FUND CREDIT FACILITY" herein
Alribi0C
See the Inside cover page for the maturity schedules, interest rates, Initial yields, and CUSIP numbers.
THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR GENERAL REFERENCE ONLY. IT IS NOI INTENDED AS A
SUMMARY OF THE TERMS OF AND SECURITY FOR THE SERIES 2005 BONDS. SEE "SECURITY AND SOURCES OF PAYMENT FOR
TOE SERIES 2005 BONDS" AND "RISK FACTORS" HEREIN FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHORED RE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SERIES 2005 BONDS.
THE SERIES 2005 BONDS WILL NOT CONSTITUTE AN INDEBTEDNESS OR GENERAL OBLIGATION OF THE ISSUER. IHE CITY,
SEXAR COUNTY, THE STATE OF TEXAS, OR ANY OTHER POLITICAL SUBDIVISION OF THE STATE OF rExAs. WI owl THE
MEANING OF ANY CONSTITUTIONAL PROVISIONS OR STATUTORY LIMITATION WHATSOEVER, BUT THE SERIES 2005 BONDS
WILL BE LIMITED SPECIAL OBLIGATIONS OF THE ISSUER PAYABLE FROM THE FUNDS PROVIDED THEREFOR AS PROVIDED IN
THE INDENTURE, NEITHER THE FAITH NOR CREDIT OF THE CITY (OTHER THAN CERTAIN CITY TAX REVENUES DES('RIBED
HEREIN), BEXAR COUNTY, THE STATE OF TEXAS, OR ANY OTHER POLITICAL sum:wagon! OF TIIE STATE OF TEXAS IS PLEDGED
1'0 THE PAYMENT OF THE PRINCIPAL OP THE SERIES 2005 BONDS OR THE INTEREST OR ANY PREMIUM THERF.ON oR OTHER
cosT InIDENT THERETO. NEITHER THE MEMBERS OF THE GOVERNING BODY OF THE ISSUER NOR ANY PERSON EXEC MING
THE SERIES 2005 BONDS WILL BE LIABLE PERSONALLY ON THE SERIES 2005 BONDS BY REASON OF TIRE ISSUANCT 1 HEREOF.
THE ISSUER HAS NO TAXING POWER.
Tin Sena 2005 Bends are offered for delivery when, as and if tssued, subject to die approving opinion of the Ationmy General of the State of feast atal Ibe legal
opinion of Co-Bond Counsel. RS To the validity of the MOM= Of die Series 2005 Bonds under the Conotivilon and laws of the State al Texas Certain legal miners will he
passed on ter the t Ity by Its special counsel, Bracewell P. Houston. texas, for the rndcrwnters by thew counsel, Weirton:1St:Oral & Minna P C . San
Antonio TCXOS. for the Bond Insurer by es counsel. DEA Piper RudnuAt Gray Cary US 1 1 P. New Yak, New York, for the Guarantor and the Design/Builder by their
counsel, Andrews Kurth IA,. Houston, Texa.s, for the nei clopvr by its counsel, Boyar & Mtller , P Houston Texas, and for the Operator by its mama I ay. Office of
San San Lee. Los Angeles. Califonne The Senes 2003 Bonds will be available for delivery through my en or about lune 8 2005

Citigr011p UBS Financial Services Inc.

Piper Jaffrey & C'o. SAMCO Capital Markets Southwestern Capital Markel., Int,
A Division of Penson Pinanclal Services
do under such agreements, but excluding the Unassigned Rights and the right to enforce such rights; (d) the Deed of
Trust; and (e) any and all property (other than amounts in or required to be deposited in, the Rebate Fund) of evety
kind or description now or hereafter owned by the Issuer, or which may now or hereafter be sold, transferred,
conveyed, assigned, hypothecated, endorsed, deposited, pledged, mortgaged, granted or delivered to or deposited
with, the Trustee by or on behalf of the Issuer or the City as additional security under the Indenture, or which
pursuant to any of the provisions of the Financing Documents may come into the possession or control of the
Trustee or the Depository Bank, or a receiver lawfully appointed pursuant to the Indenture, as such additional
security, including, without limitation, any payment and performance bonds and completion guaranties obtained by
the Developer, the Design/Builder, or any other Person in favor of the Trustee; and the Trustee is authorized to
receive all such property as additional security for the payment of the Series 2005 Bonds, and to hold and apply all
such property subject to the terms of the Indenture, the Economic Development Agreement, and the Cash
Management Agreement.

The Trust Estate will be held in trust by the Trustee for the equal and proportionate benefit and security of
the Bond Insurer (as the provider of the Financial Guaranty Insurance Policy and the Series 2005 Reserve Fund
Credit Facility), the City and the Registered Owners without preference of any Bond of a Series over any other, but
with such preferences, privileges, priorities, and distinctions among the Series 2005 Bonds as provided in the
Indenture, and for the enforcement of the payment of the Series 2005 Bonds in accordance with their terms, and the
Indenture, and the right of the City to be repaid for certain City Tax Revenues paid by the City pursuant to the
Economic Development Agreement and the Ground Lease and to receive payment of the Basic Rental, Participation
Rental, and all other Rental in accordance with the terms of the Ground Lease, and the right of the Bond Insurer to
be repaid for amounts drawn on the Series 2005 Reserve Fund Credit Facility as set forth in the Ambac Guaranty
Agreement, and all other sums payable under the Indenture, on the Series 2005 Bonds, or under the Ground Lease.
See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2005 BONDS—Pledge of Trust Estate" and
"—Economic Development Agreement."

The Issuer and the City will enter into that certain "Economic Development Agreement" (the "Economic
Development Aweement"), dated as of May 15, 2005, whereby the City will agree to pledge or grant to the Issuer
the "City Tax Revenues," (defined below) in order to provide security for the payment of debt service on the Series
2005 Bonds when due in the event that Net Operating Revenues (as defined in APPENDIX B) received by the
Developer from the operation of the Hotel Project due to the Issuer under the Loan Agreement during any month are
insufficient to fully fund the Debt Service Fund for the payment of debt service on the Series 2005 Bonds when due
(subject to the terms of the Economic Development Agreement). The City Tax Revenues will consist of
(a) revenues derived from the 6% state hotel occupancy tax (the "6% State HOT") collected at the Hotel Project
during the first ten years after the Hotel Project is open for initial occupancy (the "Convention Center Hotel State
HOT Revenues"); (b) revenues derived from the 6.25% state sales and use tax (the "6.25% State Sales Tax")
collected at the Hotel Project, including from all businesses located in the Hotel Project, during the first ten years
alter the Hotel Project is open for initial occupancy (the "Convention Center Hotel State Sales Tax Revenues"); (c)
revenues derived from the 7% local hotel occupancy tax (the "7% Local Hon collected at the Hotel Project as
long as any Series 2005 Bonds (or Refunding Bonds) are outstanding (the "Convention Center Hotel 7% Local HOT
Revenues"), subject to such Convention Center Hotel 7% Local HOT Revenues not being required to pay debt
service or other requirements related to the Prior Lien Convention Center Bonds or the Subordinate Lien Convention
Center Bonds; and (d) available revenues derived from the 2% expansion hotel occupancy tax (the "2% Expansion
Tax") collected at all hotels in the City as long as any Series 200$ Bonds (or Refunding Bonds) are outstanding (the
"Available 2% Expansion HOT Revenues"). The City will grant to the Issuer a first lien security interest in the
Convention Center Hotel State HOT Revenues, the Convention Center Hotel State Sales Tax Revenues, and the
Available 2% Expansion HOT Revenues, and will grant to the Issuer a subordinate lien security interest in the
Convention Center Hotel we Local HOT Revenues, together with all funds on deposit from time to time in
accordance with the Economic Development Agreement in the Holding Account (as defined in APPENDIX B), the
Convention Center Hotel 7% Local HOT Revenues Account, the Convention Center Hotel State Sales Tax
Revenues Account, and the Convention Center State HOT Revenues Account to the full extent that such Revenues
and Accounts may be subject to the Uniform Commercial Code of the State of Texas. The City will separately
account for the four components of the City Tax Revenues in separate accounts maintained by the City. See
"SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2005 BONDS—Economic Development
Agreement."

2
 in anticipation of issuing the Series 2005 Bonds. the City adopted Ordinance No. 99284 on June 3, 2004
(the "Amendatory Ordinance"), amending Ordinance No. 83735 originally adopted on March 14, 1996 (collectively
the "Prior Lien Convention Center Bond Ordinance") which authorized the issuance of its "City of San Antonio,
Texas Hotel Occupancy Tax Revenue Bonds, Series 1996" issued in the original aggregate principal amount of
$182,012,480.60, (the "Prior Lien Convention Center Bonds") and currently outstanding in the aggregate principal
amount of $68,785,000. The purpose of the Amendatory Ordinance was to (a) conform the Prior Lien Convention
Center Bond Ordinance with current Texas law regarding the allocation of the rip Local HOT; (b) allow a pledge on
a prior lien basis of 1.75% of the N. Local HOT allocated pursuant to Section 351.103(b), Texas Tax Code; (c)
authorize a common reserve fund for the Convention Center Bonds (defined below); (d) allow a pledge on a prior
lien basis of the Available 2% Expansion HOT Revenues for the timely payment of debt service requirements on
obligations issued to finance a hotel for the Convention Center; and (e) limit the City's ability to issue prospective
obligations on a parity with the Prior Lien Convention Center Bonds. Pursuant to Ordinance No. 99286 and
Ordinance No. 99287, each adopted on June 3, 2004 (collectively, the "Subordinate Lien Convention Center Bond
Ordinances"), the City issued its "City of San Antonio, Texas Hotel Occupancy Tax Subordinate Lien Revenue
Bonds, Series 2004A," currently outstanding in the aggregate principal amount of $10,390,000, and its "City of San
Antonio, Texas Hotel Occupancy Tax Subordinate Lien Revenue and Refunding Bonds, Series 2004B," currently
outstanding in the aggregate principal amount of $111,425,000 (the "Subordinate Lien Convention Center Bonds")
(collectively, the Prior Lien Convention Center Bonds and the Subordinate Lien Convention Center Bonds, are
referred to herein as the "Convention Center Bonds" and the Prior Lien Convention Center Bond Ordinance and the
ordinances approving the Subordinate Lien Convention Center Bonds referred to herein as the "Convention Center
Bonds Ordinances"), for the purpose of refunding a portion of the Prior Lien Convention Center Bonds and to
finance certain additional improvements to the Convention Center described in the Amended Plan.

On April 12, 2005, the EZ Governanee Board adopted a resolution approving the Hotel Project for
financing with tax-exempt Empowerment Zone Bonds and recommended that the Issuer issue up to $130,000,000 of
tax-exempt Empowerment Zone Bonds to finance all or a portion of the Hotel Project and that the City Council
designate and reserve up to $130,000,000 of the City's Empowerment Zone Capacity to finance all or a portion of
the Hotel Project with tax-exempt Empowerment Zone Bonds.

Pursuant to ordinances adopted by the City on Apri114, 2005, the City Council (i) approved the Hotel
Project for Empowerment Zone Bond financing; (ii) designated and reserved up to $130,000,000 of the City's
Empowerment Zone Capacity to finance a portion of the Hotel Project with tax-exempt Empowerment Zone Bonds;
(iii) requested and authorized the Issuer to issue up to $130,000,000 of tax-exempt Series 2005A Bonds, together
with the Taxable Series 2005B Bonds, the proceeds of which will be loaned to the Developer and used to provide a
portion of' the funds required to develop, construct, equip, furnish, and open the Hotel Project; (iv) approved and
authorized all agreements relating to the Hotel Project and the issuance of the Series 2005 Bonds to which the City
is a party; and (v) approved the form of, and consented to the Issuer entering into all agreements and instruments to
which the Issuer is a party in connection with the issuance of the Series 2005 Bonds. On April 28, 2005, the City
Council approved an additional ordinance for the purpose of approving an amendment to the Project Agreement.

Economic Development Program

The City approved an ordinance (the "Program Ordinance") establishing an economic development
program pursuant to Chapter 380, Texas Local Government Code, as amended, for the purpose, among others, of
making loans and grants of public money to promote local economic development and stimulate business and
commercial activity in the City. Pursuant to the Program Ordinance, the City approved, by ordinance, the Economic
Development Agreement (the "Project Ordinance") on April 14, 2005, whereby, the City agreed to pledge or grant
to the Issuer the City Tax Revenues, consisting of the Convention Center Hotel State HOT Revenues, the
Convention Center Hotel State Sales Tax Revenues, the Convention Center Hotel 7% Local HOT Revenues, and the
Available 2% Expansion HOT Revenues, in order to provide additional security for the payment of debt service on
the Series 2005 Bonds when due in the event that Net Operating Revenues received by the Developer from the
operation of the Hotel Project due to the Issuer under the Loan Agreement during any month are insufficient to fully
fund the Debt Service Fund for the payment of debt service due on the Series 2005 Bonds (subject to the terms of
the Economic Development Agreement). See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES
2005 BONDS—Economic Development Agreement."
 Summary of Liens op City Tax Revenues TABLE 2

Convention Center Hotel State HOT Revenues (6% State HOT collected at Hotel Project)
Granted to the Series 2005 Bonds as a priority lien (during first 10 years after Opening Date)

Not available to be pledged to Convention Center Bonds

Convention Center Hotel State Sales Tax Revenues (6.25% State Sales Tax collected at Hotel Project)
Granted to the Series 2005 Bonds as a priority lien (during first 10 years after Opening Date)
1•••■•

Not available to be pledged to Convention Center Bonds

Convention Center Hotel 7% Local HOT Revenues (7% Local HOT collected at Hotel Project)
5.25% pledged to the Prior Lien Convention Center Bonds as a prior Hee
1.75% pledged to the Prior Lien Convention Center Bonds as a prior Hee
7.00%

5.25% pledged to the Subordinate Lien Convention Center Bonds as a subordinate Hee
1.75% pledged to the Subordinate Lien Convention Center Bonds as a subordinate Hee >
7.00%

Revenues pledged to the Series 2005 Bonds are derived solely from the 7% Local HOT collected at the
Hotel Project, and are subordinate to the pledge thereof to the Prior Lien Convention Center Bonds and the
Subordinate Lien Convention Center Bonds
Available_2% Expansion HOT Revenues
Pledged to the Series 2005 Bonds as prior Hee
Pledged to the Priority Lien Convention Center Bonds as subordinate lien

Not pledged to Subordinate Lien Convention Center Bonds

tip
The Prior Lien Convention Center Bonds are secured by a prior hen on the City-vade 7% Local HOT Revenues
tSP
The Subordinate Lien Convention Center Bonds are secured by a hen on the City-wide ns Local 110T Revenues which is subordinate to
the lien securing the Prior Lien Convention Center Bonds
The prior lien on the Available 2% Expansion HOT Revenues is after taking into consideration any lawthlty available revenues that may be
utihzed to pay the debt service requirements on thc Series 2005 Bonds

(Remainder of Page Intentionally Left Blank)

 General

The City has determined that the construction and operation of' the Hotel Project will promote local
economic development and will stimulate business and commercial activity in the City. In consideration of these
benefits, the City and the Issuer have entered into the Economic Development Agreement, whereby the City agrees,
to pledge or grant City Tax Revenues in order to provide security for the payment of debt service on the Series 2005
Bonds in the event the Net Operating Revenues are insufficient to pay all debt service on the Series 2005 Bonds
when due subject to the terms of the Economic Development Agreement as described below.

City Tax Revenues

All City Tax Revenues required to be transferred by the City to the Trustee on behalf of the Issuer pursuant
to the Economic Development Agreement in the event of certain insufficiencies in amounts in the Debt Service
Fund are payable solely from the following revenue sources of the City and in the following order of priority:

birsi, from Convention Center Hotel State HOT Revenues. On or before the date of opening of the Hotel
Project the City will create a separate account on the financial records of the City into which the City will
deposit all Convention Center Hotel State HOT Revenues when received by the City (the "Convention
Center Hotel State HOT Revenues Account"). Any Convention Center Hotel State HOT Revenues on
deposit in the Convention Center Hotel State HOT Revenues Account on the Business Day immediately
following the Debt Service Payment Date occutring in January of each year may be transferred by the City
out of the Convention Center Hotel State HOT Revenues Account into any other account designated by the
City, will no longer be considered to be held or otherwise encumbered under the tenns of Economic
Development Agreement, and may be used by the City for any lawful purpose:

Second, from Convention Center Hotel State Sales Tax Revenues. On or before the date of opening of the
Hotel Project the City will create a separate account on the financial records of the City into which the City
will deposit all Convention Center Hotel State Sales Tax Revenues when received by the City (the
"Convention Center Hotel State Sales Tax Revenues Account"). Any Convention Center Hotel State Sales
Tax Revenues on deposit in the Convention Center Hotel State Sales Tax Revenues Account on the
Business Day immediately following the Debt Service Payment Date occurring in January of each year
may be transferred by the City out of the Convention Center Hotel State Sales Tax Revenues Account into
any other account designated by the City, will no longer be consideted to be held or otherwise encumbered
under the terms of the Economic Development Agreement, and may be used by the City for any lawful
purpose;

Third, from Convention Center Hotel 7% Local HOT Revenues. On or before the date of opening of the
Hotel Project the City will create a separate account on the financial records of the City into which the City
will deposit all Convention Center Hotel 7% Local HOT Revenues transferred by the City pursuant to the
Economic Development Agreement (the "Convention Center Hotel 7% Local HOT Revenues Account").
Pursuant to the Convention Center Bonds Ordinances, the City has established and maintains a fund known
and defined therein as the "General HOT Fund" and three subaccounts of the General HOT Fund known
and defined in the Convention Center Bonds Ordinances as the "General Account," the "Pledged 1.75%
Account," and the "Pledged 5.25% Account." All revenues from the 7% Local HOT are required by the
Convention Center Bonds Ordinances to be deposited as received to the General HOT Fund and
immediately allocated as follows: 25% of the r% Local HOT revenues to the Pledged L75% Account and
75% of the 704 Local HOT revenues to the Pledged 5.25% Account. All revenues from the 7% Local HOT
on deposit in the Pledged 1.75% Account or the Pledged 5.25% Account which are not required to be
transferred into funds or accounts established under the Convention Center Bonds Ordinances to pay debt
service requirements on the Convention Center Bonds or to fund any debt service reserve funds related to
the Convention Center Bonds (the "Excess 7% Local HOT Revenues") are permitted by the Convention
Center Bonds Ordinances to be transferred to the Debt Service Fund and the Debt Service Reserve Fund
established for the Series 2005 Bonds. On or before the last Business Day of each month, commencing
with the month following the date of initial opening of the Hotel Project, the City will determine (based on
information and certifications provided by the Developer and the Operator) the total amount of Convention
Center Hotel 7% Local HOT Revenues collected at the Hotel Project during the preceding month and

58
transfer such amount from Excess 7% Local HOT Revenues into the Convention Center Hotel 7% Local
HOT Revenues Account. In the event Excess 7% Local HOT Revenues are insufficient to fully satisfy
such required transfer to the Convention Center Hotel 7% Local HOT Revenues Account, the amount of
such insufficiency will accrue to the following month or months and be paid in the same manner during
subsequent months until such amount is fully transferred to the Convention Center Hotel 7% Local HOT
Revenues Account.

The City will transfer Convention Center Hotel 7% Local HOT Revenues from the Convention Center
Hotel 7% Local HOT Revenues Account to the Holding Account (as defined herein) from time to time as
required by the Economic Development Agreement but only to the extent necessary after making any
transfers to the Holding Account from the Convention Center Hotel State HOT Revenues Account and the
Convention Center Hotel State Sales Tax Revenues Account as required by the Economic Development
Agreement. Any Convention Center Hotel 7% Local HOT Revenues on deposit in the Convention Center
Hotel 7% Local HOT Revenues Account on the Business Day immediately following the Debt Service
Payment Date occurring in January of each year may be transferred by the City out of the Convention
Center Hotel 7% Local HOT Revenues Account into any other account designated by the City, will no
longer be considered to be held or otherwise encumbered under the terms of the Economic Development
Agreement, and may be used by the City for any lawful purpose; and

Fourth, from Available 2% Expansion HOT Revenues. Pursuant to the Convention Center Bonds
Ordinances, the City has established and maintains a fund known and defined therein as the "Expansion
HOT Fund." All revenues from the 2% Expansion HOT are required by the Convention Center Bonds
Ordinances to be deposited as received to the Expansion HOT Fund. The City has covenanted in the
Convention Center Bonds Ordinances (particularly the Prior Lien Convention Center Bonds Ordinance and
the Subordinate Lien Convention Center Bonds Ordinance relating to the Series 2004A Subordinate Lien
Convention Center Bonds, and the Subordinate Lien Convention Center Bonds Ordinance relating to the
Series 2004B Subordinate Lien Convention Center Bonds) that all 2% Expansion HOT Revenues wilt be
deposited as received in the Expansion HOT Fund and transferred on or before the last business day of each
month to the following funds in the following order of priority:

(a) First, to the Prior Lien Bonds Debt Service Fund in the amounts and for the uses
described in the Prior Lien Bonds Ordinance;
(b) Second, to the Debt Service Reserve Fund in the amounts and for the uses described in
the Prior Lien Bonds Ordinance;
(c) Third, to the payment of the Subordinate Lien Convention Center Bonds and any
Subordinate Lien Obligations, which term is deemed therein and in the Economic Development Agreement
to include the Series 2005 Bonds to fmance the Hotel Project), including reimbursement obligations
incurred in connection therewith, and reserve funds related thereto, as may be required by any ordinance
authorizing the issuance of such Subordinate Convention Center Bonds and Subordinate Lien Obligations;
(d) Fourth, to the Facilities Fund in the amounts and for the uses described in the Prior Lien
Bonds Ordinance.
NOTWITHSTANDING THE FOREGOING, HOWEVER, THE CONVENTION CENTER BONDS
ORDINANCES FURTHER PROVIDE THAT AS OFTEN AS THE CITY WILL DEEM
NECESSARY, BUT AT LEAST ONCE A MONTH ON OR BEFORE THE PENULTIMATE
BUSINESS DAY OF EACH MONTH, THE CITY WILL DETERMINE THE AMOUNTS
NECESSARY FROM THE 2% EXPANSION HOT TO SATISFY THE FOREGOING
TRANSFERS, TAKING INTO CONSIDERATION THE MONEY ACCUMULATED AS OF SUCH
DATE IN THE DEBT SERVICE FUNDS ESTABLISHED FOR THE CONVENTION CENTER
BONDS AND THE AMOUNT NECESSARY TO BE TRANSFERRED TO THE DEBT SERVICE
RESERVE FUND ESTABLISHED FOR THE CONVENTION CENTER BONDS AS REQUIRED
THEREIN. AFTER MAKING THIS DETERMINATION, IN THE EVENT THE REVENUES
FROM THE 2% EXPANSION HOT ARE NOT SUFFICIENT TO SATISFY THE PAYMENT
OBLIGATIONS SET FORTH IN CLAUSES (a) THROUGH (e) ABOVE, THE CITY IS
REQUIRED TO RETAIN IN THE EXPANSION HOT FUND ANY AMOUNT NECESSARY

59
 ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

June 8, 2005

THIS IS TO CERTIFY that the City of San Antonio, Texas Convention Center
Hotel Finance Corporation (the "Issuer") has submitted to me City of San Antonio,
Texas Convention Center Hotel Finance Corporation Contract Revenue
Empowerment Zone Bond, Series 2005A (the "Bond") in the principal amount of
$129,930,000 for approval. The Bond is dated May 15, 2005, numbered T-1, and was
authorized by a Resolution of the Issuer passed on May 5 , 2005 (the "Resolution").

I have examined the law and such certified proceedings and other papers as I deem necessary
to render this opinion.

As to questions of fact material to my opinion, I have relied upon representations of the Issuer
contained in the certified proceedings and other certifications of public officials furnished to me
without undertaking to verify the same by independent investigation.

I express no opinion relating to any Official Statement or other offering material relating to the
Bond.

I have not investigated the sufficiency of the security for the Bond or the probability of
payment as specified therein, and express no opinion with respect thereto.

Based on my examination, I am 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 Indenture
of Trust dated as of May 15, 2005):

(1) The Bond has been issued m accordance with law and is a valid and binding limited
special obligation of the Issuer.

(2) The Bond is payable from the Trust Estate.

POCT OFrIck Box 12548. AUSTIN, TEXAS 78711-2548 TEL (512)465-2100 %Wu , 'JM, STATE TN US
411 Equal Eurplormitt Opporrovvy Employer PrInted aftK..1sd Paper
City of San Antonio, Texas Convention Center Hotel Finance Coiporation Contract Revenue
Empowerment Zone Bond, Series 2005A - $129,930,000

(3) Neither the State of Texas, San Antonio, Texas, nor any political corporation,
subdivision, or agency of the State shall be obligated to pay the Bond or interest
thereon and neither the faith and credit nor the ad valorem taxing power of the State of
Texas, San Antonio, Texas, or any other political corporation, subdivision, or agency
of the State of Texas is pledged to the payment of the principal of, premium, if any, or
interest on the Bond.

(4) The Holder of the Bond shall never have the right to demand payment of the Bond out
of any funds raised or to be raised by ad valorem taxation.

Therefore, the Bond is approved.

ral of the State of Texas

No 43326
Book No 2.005B
MAA
OFFICE OF COMPTROLLER

OF THE STATE OF TEXAS

I, CAROLE KEETON STRAYHORN, 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 San Antonio, Texas Convention Center Hotel Finance Corporation

Contract Revenue Empowerment Zone Bond, Series 2005A

numbered T-1 of the denomination of $ 129,930,000, dated May 15. 2005, 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 8th day of June, 2005, under Registration Number 70063.

Given under my hand and seal of office, at Austin, Texas, the 8th day of
June, 2005.

CAROLE KEETON STRAYHORN

Comptroller of Public Accounts
of the State of Texas
 OFFICE OF COMPTROLLER

OF THE STATE OF TEXAS

I, Melissa Mora, 0 Bond Clerk Di 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
8th day of June, 2005, I signed the name of the Comptroller to the certificate of registration
endorsed upon the:

City of San Antonio, Texas Convention Center Hotel Finance Corporation Contract Revenue
Empowerment Zone Bond, Series 2005A,

numbered 1-1 d 15 2005, and t at in signing the certificate of registration I used the
following signal

IN WI S g EREOF I have exectd tt certificate this the 8th day of June, 2005.

I. Carole Keeton Strayhorn. 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 tilt 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 bondskertificates described in this certificate have been duly registered in the office of the
Comptroller, Under Registration Number 70063.

GIVEN under my hand and seal of office at Austin, Texas, this the 8th day of June, 2005

`Pirit
CAROLE KEETON STRAYHORN
11174 4 1 4 rAol f
c nt' Comptroller of Public Accounts
of the State of Texas
 ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

June 8, 2005

THIS IS TO CERTIFY that the City of San Antonio, Texas Convention Center
Hotel Finance Corporation (the "Issuer") has submitted to me City of San Antonio,
Texas Convention Center Hotel Finance Corporation Contract Revenue Bond,
Taxable Series 2005B (the "Bond") in the principal amount of $78,215,000 for
approval. The Bond is dated May 15, 2005, numbered T-1, and was authorized by a
Resolution of the Issuer passed on May 5, 2005 (the "Resolution").

I have examined the law and such certified proceedings and other papers as I deem necessary
to render this opinion.

As to questions of fact material to my opinion, I have rehed upon representations of the Issuer
contained in the certified proceedings and other certifications of public officials furnished to me
without undertaking to verify the same by independent investigation.

I express no opinion relating to any Official Statement or other offering material relating to the
Bond.

I have not investigated the sufficiency of the security for the Bond or the probability of
payment as specified therein, and express no opinion with respect thereto.

Based on my examination, I am 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 Indenture
of Trust dated as of May 15, 2005):

(1) The Bond has been issued in accordance with law and is a valid and binding limited
special obligation of the Issuer

(2) The Bond is payable from the Trust Estate.

POST OFFICE BOX 12548, AUSTIN. TEXAS 78711-2548 IEL (512)461-2100 %%AU' CiAo SIATE TN LIS
kgmal Emplownt Opporimmo Lorployer Prrntrd n 11. ■ ard Pap,
City of San Antonio, Texas Convention Center Hotel Finance Corporation Contract Revenue Bond,
Taxable Series 2005B - $78,215,000

- Page 2 - ..../M*1••••••••■•••■•

(3 ) Neither the State of Texas, San Antonio, Texas, nor any political corporation,
subdivision, or agency of the State shall be obligated to pay the Bond or interest
thereon and neither the faith and credit nor the ad valorem taxing power of the State of
Texas, the San Antonio, Texas, or any other political corporation, subdivision, or
agency of the State of Texas is pledged to the payment of the principal of, premium, if
any, or interest on the Bond.

(4) The Holder of the Bond shall never have the right to demand payment of the Bond out
of any funds raised or to be raised by ad valorem taxation.

Therefore, the Bond is approved

ral of the State of Texas

No 43327
Book No 20058
MAA
OFFICE OF COMPTROLLER

OF THE STATE OF TEXAS

I, CAROLE KEETON STRAYHORN, 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 San Antonio, Texas Convention Center Hotel Finance Corporation

Contract Revenue Bond, Taxable Series 2005B

numbered T-1 of the denomination of $ 78,215,000, dated May 15, 2005, 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 8th day of June, 2005, under Registration Number 70065.

Given under my hand and seal of office, at Austin, Texas, the 8th day of
June, 2005.

CAROLE KEETON STRAYHORN

Comptroller of Public Accounts
of the State of Texas
 OFFICE OF COMPTROLLER

OF THE STATE OF TEXAS

I, Melissa Mora, 0 Bond Clerk El 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
8th day of June, 2005, I signed the name of the Comptroller to the certificate of registration
endorsed upon the:

City of San Antonio, Texas Convention Center Hotel Finance Corporation Contract Revenue Bond,
Taxable Series 2005B,

numbered T-1 atçl May 15, 2005, ançt that in signing the certificate of registration I used the
following signa re41.4._

IN WIT HEREOF I have executed ificat th e 8th day of June. 2005.

I. Carole Keeton Strayhorn. 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 authonty 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 70065,

GIVEN under my hand and seal of office at Austin, Texas, this the 8th day of June, 2005

/1 •
.e. // '•• .
?/' .
fe. CAROLE KEETON STRAYHORN
lfiiimi.w.0'
l 4" Comptroller of Public Accounts
of the State of Texas
 SUSAN
TEXAS COMPTROLLER Of PUBLIC ACCOUNTS
COMBS

March 28, 2007

Mr. Brian T. McCabe

Cantey Hanger LLP
400 West 15th Street, Suite 200
Austin, Texas 78701-1647

RE: San Antonio Convention Center Hotel - Tax Rebates

Dear Mr. McCabe:

I have reviewed your letter of January 29, 2007, your Memorandum of March 30, 2006,
and the sources cited within those documents. Following are the statements on which
you requested a formal finding and our responses.

1. The City is an "eligible central municipality" as defined under Tax Code Section
351.001(7) and qualifies for the refunds in Tax Code Section 151.429(h) through Tax
Code Section 351.102(c) without qualifying as a "qualified hotel project".

RESPONSE: The City of San Antonio ("City") qualifies as an "eligible central

municipality" as defined under Tax Code §351.001(7). As such, the City is entitled to the
amounts referenced in Tax Code §351.102(c).

2. Hotel Investments, LP, as the Owner, of the Hotel Project, should receive a rebate
of all of the sales and use taxes paid or collected on the construction materials as the
"Owner of the Convention Center Project" as defined in Section 151.429(h).

RESPONSE: There are two underlying premises to this statement. The first is
that Tax Code §151.429(h) entitles an owner of a qualified hotel project to receive a
rebate of all sales and use taxes paid or collected during the construction of the qualified
hotel project. The second is that Hotel Investments, LP should receive the same benefits
as the owner of a qualified hotel project. For the reasons stated below, we do not agree
with either premise.

WWW.WINDOW.STATE.TX.US • P.O. Box 13528 • AUST1N, TX 78711 - 3528 • 51 2-463 - 4000 • TOLL FREE: 1 - 800 - 531 - 5441 • FAX: 512-463-4965
 Mr. Brian T. McCabe
March 28, 2007
Page 2

a. Amounts Rebated under §151.429(h)

Tax Code §151.429(h) states:

Notwithstanding the other provisions of this section, the owner of a

qualified hotel project shall receive a rebate, refund, or payment of 100
percent of the sales and use taxes paid or collected by the qualified hotel
project or businesses located in the qualified hotel project pursuant to this
chapter and 100 percent of the hotel occupancy taxes paid by persons for
the use or possession of or for the right to the use or possession of a room
or space at the qualified hotel project pursuant to the provisions of Chapter
156 during the first 10 years after such qualified hotel project is open for
initial occupancy.

We interpret §151.429(h) to allow the owner of a qualified hotel project to receive

rebates of (a) all of the state sales and use taxes paid or collected by the qualified hotel
project or businesses located within it for the first ten years after the qualified hotel
project is open for initial occupancy; and (b) all of the state hotel occupancy taxes paid to
a qualified hotel project during the first ten years after the qualified hotel project is open
for initial occupancy'. We do not interpret this section as allowing the refund of any
taxes paid during the construction of the hotel. We have researched the legislative
history of this section and this research supports our position.

Tax Code §151.429(h) was added in 1993 as part of House Bill 2282.
Throughout the public hearings on the bill in both the House Ways and Means
Committee and the Senate Intergovernmental Relations Committee, the bill is described
as a local bill, pertaining to Houston only. The language used throughout the bill,
particularly the requirement that the municipality have a population of 1,500,000 or
more, ensured, at that time, that only the City of Houston could meet the requirements.

House Bill 2282 was discussed in a public hearing of the House Ways & Means
Committee on April 5, 1993. Representative Garnet Coleman described the intent of the
bill as allowing tax rebates to help the City of Houston construct a new hotel near the
George R. Brown Convention Center because the city was losing convention bookings

The Attorney General's Office has endorsed this reading of the statute, stating "Thus, unlike other
qualified businesses in an enterprise zone, a qualified hotel project . . . is entitled to receive a 100 percent
rebate of site-generated state sales and use taxes and state hotel occupancy taxes." Attorney General Letter
Opinion DM 95-085, p. 4.
 Mr. Brian T. McCabe
March 28, 2007
Page 3

and substantial revenue due to an inadequate supply of nearby hotel rooms. Several other
supporters of the bill spoke at the hearing, all expressing how important the bill was to
the City of Houston and how the tax rebates were necessary to the project. Robert Eury
of Central Houston, Inc. explained that the rebate of the taxes on the new facility would
help pay off the revenue bonds that would finance the construction. Robert Randolph, an
attorney with Vinson & Elkins who helped draft the legislation, described the plan
established by the bill as "tax incremental financing." Randolph stated that the increased
value and increased taxes resulting from the project would be rebated back for purposes
of providing the financing. He attributed the Comptroller's zero fiscal note on the bill to
the fact that "the taxes that are proposed to be rebated are taxes that are not there now
because the hotel is not there. Those taxes that would be rebated are only those that are
generated by the hotel project itself." Randolph also testified that the rebates were
limited to seven years 2 and after that, the Comptroller and local entities would begin to
collect the taxes. None of the four speakers who spoke for HB 2282 during this hearing
discussed the rebate of anything other than taxes generated by the hotel once it was
operational. The rebate of taxes paid during construction was never mentioned, despite a
lengthy discussion of the bill.

HB 2282 was discussed briefly by Senator Henderson during a public hearing of

the Senate Intergovernmental Relations Committee on April 28, 1993. He described the
bill as a local bill allowing Houston to build a convention center hotel. He did not fiilly
describe the bill, stating only that it allowed rebates for ten 3 years of the hotel and motel
occupancy taxes. He stated the bill "eventually will produce some money for the state."
He did not mention anything about refunding taxes paid during the construction phase of
a qualified hotel project. The bill was passed on the Senate floor with limited discussion.

Tax Code §151.429(h) was amended in 1995 by Senate Bill 1629 to change the
rebate period from seven to ten years. Senator Henderson laid out the bill in a public
hearing of the Senate Finance Committee on April 24, 1995. Again, he referred to it as a
local bill to aid the City of Houston in building a convention center hotel. He stated that
"we provided in [the] last session that taxes generated by the hotel could go back into the
structure to retire the bonds . . ." He described how interest rates had increased since the
original legislation had been enacted and that was the basis for the request to extend the
rebate period from seven to ten years. In a May 4, 1995 public hearing of the same
committee, Jim Short, representing the City of Houston, testified that "last session [the]
Legislature passed enabling legislation which allowed a period of seven years to capture
and rebate those taxes." He further testified that while the City was in negotiations with

2 As originally enacted, the rebate period in §151.429(h) was limited to seven years.
3 This was a misstatement since the bill only provided for rebates for seven years.
Mr. Brian T. McCabe
March 28, 2007
Page 4

the primary respondents to its request for proposals, interest rates doubled, so the
economics they had planned on no longer worked and they needed a longer period of
time to capture the taxes and dedicate them to the debt retirement.

The Bill Analysis states the purpose of SB 1629 to be: "fals proposed, S.B. 1629
extends the period allowing a municipality to build a convention center hotel and
dedicate both city and state taxes generated by the facility to the debt service for a period
of 10 years."

Throughout all of the hearings and floor debates in the House and the Senate on
both HB 2282 and SB 1629, as well as the various versions of the bills, the fiscal notes,
and the bill analysis (available for SB 1629 only), there is never any mention of refunding
taxes paid during the construction process. The discussions focus strictly on the rebate of
taxes generated or collected by the qualified hotel project. Given all of this, it seems
clear that the intent of Tax Code §151.429(h) was to provide rebates based on taxes
generated once the hotel project was open for initial occupancy.

• Despite all of this, if a qualified hotel project were to be designated as an

enterprise zone project, there does not seem to be any impediment to it receiving the
same refunds that other enterprise zone projects receive, including those identified in the
remainder of Tax Code §151.429.

Unfortunately, your client's project is neither a qualified hotel project nor a designated
enterprise zone project.

b. Who is Entitled to Amounts Described in §351.102(c)?

Having determined that the only amounts allowed to be rebated under

§151.429(h) are state sales and use taxes and state hotel occupancy taxes generated after
initial occupancy of the hotel, we next address who is entitled to receive these amounts.

The Attorney General Letter Opinion which you provided, DM 95-085, concludes
that a qualified hotel project, as defined in HB 2282, includes a privately owned hotel.
Therefore, the private owner of a qualified hotel project is entitled to receive the rebates
identified in §151.429(h). However, as previously stated, Hotel Investments, LP does not
own a qualified hotel project. It is the owner of a hotel project located on land owned by
an eligible central municipality. The fact that §351.102(c) grants the hotel projects of
eligible central municipalities the same rebates as qualified hotel projects does not
transform them into qualified hotel projects. Contrary to the implication of Item 20 of
your March 30, 2006, Memorandum, there is nothing irreconcilable or conflicting
Mr. Brian T. McCabe
March 28, 2007
Page 5

between §151.429(h) and §351.102(c) that would lead to this conclusion. Further, only
the municipality may claim these rebates, as plainly stated by §351.102(c). You seem to
have acknowledged both of these points in the first numbered statement of your January
29, 2007, letter (quoted above), wherein you stated that "The City. . . . qualifies for the
refunds in Tax Code Section 151.429(h) through Tax Code Section 351.102(c) without
qualifying as a 'qualified hotel project[r

3. The Comptroller, through the authority of [Tax Code Section] 151.429(h) and as
set forth in Office of the Attorney General Letter Opinion DM 95-085, may, following
sufficient review and audit of the rebate requests, pay the rebate directly to Hotel
Investments, LP.

Based on our analysis of the preceding two issues, Hotel Investments, LP is not
due any rebates resulting from the application of §351.102(c) or §151.429(h) to the Hotel
Project.

This opinion is based on the facts presented and the current law. Other facts
though similar may provide a different result.

If you have any questions, please call me at (512) 475-0545 or 1-800-531-5441,

extension 5-0545, or you may write me at Comptroller of Public Accounts, P.O. Box
13528, Austin, Texas 78711-3528.

Sincerely,

William Hamner
Director of Tax Administration
WestLaw
Tex. Atty. Gen. Op. LA-132, 1977 WL 26460 (Tex.A.G.) Page 1

Tex. Atty. Gen. Op. LA-132, 1977 WL 26460 (Tex.A.G.)

Office of the Attorney General

State of Texas

Letter Advisory No. 132

March 31, 1977

Re: Expenditure of fees by licensing boards without appropriation.

The Honorable Bill Presnal

Chairman
Committee on Appropriations
House of Representatives
Austin, Texas 78767

Dear Chairman Presnal:

You have requested our opinion regarding the applicability of article 8, section 6 of the Texas Constitution to the
expenditure of funds by state agencies which are presently fmanced outside the legislative appropriation process.
Article 8, section 6 provides, in pertinent part:
No money shall be drawn from the Treasury but in pursuance of specific appropriations made by law; nor shall
any appropriation of money be made for a longer term than two years. . . .
A number of agencies, such as the State Board of Morticians, the State Board of Podiatry Examiners, and the State
Board of Plumbing Examiners, are funded entirely by licensing fees. See V.T.C.S. arts. 4582b, § 21; 4568; 4574;
6243-101; § 7. The Legislature currently appropriates no money to these boards, and their funds are not deposited
with the State Treasurer. You ask whether this practice violates article 8, section 6 of the Texas Constitution.

The relevant portion of article 8, section 6 has been a part of every Texas Constitution since 1846, and its language has
not been altered since the present Constitution was adopted in 1876. Without directly addressing the meaning of
'drawn from the Treasury' for purposes of article 8, section 6, a number of Attorney General Opinions have approved
various unappropriated expenditures by certain state agencies. An Attorney General's Opinion of 1953, however,
sounded a warning about this practice:
Mil a closer case in which the Legislature's intent is less clear, the nature of the fund would constitute an im-
portant interpretation factor. It is our opinion that the framers of the Texas Constitution never considered the
possibility that any public funds of the State would be kept anywhere except 'in' the State Treasury where they
would be subject to the continuing legislative scrutiny and control guaranteed by Article VIII, Section 6. We have
not had the opportunity to give this subject the detailed consideration that it merits but we are satisfied that the
practice of permitting various public moneys of the State to be kept 'out of' the State Treasury in the 'custody' of
the Treasurer, or in the custody of other State officers, is a practice that has been conceived and developed after
the present Constitution was ratified in 1876.
Attorney General Opinion MS-13 (1953), fn. 3 at 3-4. No court decision, however, has attempted to formulate a
precise defmition of 'drawn from the Treasury' for purposes of article 8, section 6.

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Tex. Atty. Gen. Op. LA-132, 1977 WL 26460 (Tex.A.G.) Page 2

The Texas Constitution itself provides several exceptions to the provisions of article 8, section 6, one of them explicit.
Section 6(b) of article 16 of the Constitution permits Is]tate agencies charged with the responsibility of providing
services to those who are blind, crippled, or otherwise physically or mentally handicapped' to accept funds from
private or federal sources. The amendment states further:
*2 Notwithstanding any other provision of this Constitution, the state agencies may expend money accepted
under this subsection without the necessity of an appropriation, unless the Legislature, by law, requires that the
money be expended only on appropriation.
The presence of this language in the amendment indicates that the general rule is that public money may not be ex-
pended without an appropriation. It is evident that 'notwithstanding any other provision of this Constitution' refers to
article 8, section 6.

The Supreme Court has also in a number of instances held that other constitutional provisions permit the Legislature to
avoid the requirements of article 8, section 6. In City of Aransas Pass v. Keeling, 247 S.W. 818 (Tex. 1923), the
Legislature had by statute appropriated state taxes to be collected in San Patricio County for a period of 20 years. The
Court declared that, since article 11, section 8 of the Constitution expressly authorizes the Legislature to grant aid to
counties and cities for the construction of sea walls, the Legislature, in exercising this power, is not limited by article 8,
section 6's two-year limit on an appropriation. Id. at 820. Likewise, in Brazos County Conservation and Reclamation
District v. McCrow, 91 S.W.2d 665 (Tex. 1936), the Supreme Court held that a gyant to river conservation and rec-
lamation districts in certain counties for a 20-year period was permitted under article 3, section 51, which authorizes
the Legislature to grant 'aid in cases of public calamity.' Id. at 673-74. A similar grant to the Harris County Flood
Control District was upheld in Harris County Flood Control District v. Mann, 140 S.W.2d 1098, 1103, on the ground
that it came within the terms of article 16, section 59, the conservation amendment.

Without relying on a specific constitutional exception, the Supreme Court has on three other occasions considered
instances in which a statute provided that unappropriated funds might be withdrawn from the State Treasury. In
Rogers v. Daniel Oil & Royalty Co., 110 S.W.2d 891 (Tex. 1937), the Supreme Court upheld the constitutionality of a
statute which permitted the payment of taxes under protest, and their recovery without an appropriation if the tax-
payer's claim was successful. In such a case, the Court said:
[T]he treasurer does not place the money in the State Treasury, as such, but places it in suspense . . .. Under the
statute, since the money does not go into the treasury, as such, no additional legislative enactment is necessary to
enable the treasurer to do with it as directed by the statute or the court. Id. at 894.
The Rogers rationale implies that the Treasurer can, in some instances, act as a trustee for funds which, although in the
State's possession, do not constitute State property. This view was given a fuller formulation in two subsequent cases.

In Manion v. Lockhart, 114 S.W.2d 216 (Tex. 1938), an escheat statute permitted the heir or devisee of an estate to
recover funds already paid to the State Treasurer, who contended that article 8, section 6 prohibited the operation of
the statute in the absence of an appropriation. The Supreme Court drew a distinction between money paid to the State
Treasurer, as provided by the the escheat statute, and money paid into the State Treasury. In the former case, the Court
said, the Treasurer acts merely as a custodian or trustee of the funds. Id. at 218.

*3 In Friedman v. American Surety Co. of New York, 151 S.W.2d 570 (Tex. 1941), the Supreme Court was required
to deal with a constitutional challenge to the Unemployment Compensation Act. In this instance, the Court reasoned
that, although money in the Unemployment Compensation Fund is in the possession of the state, article 8, section 6 is
inapplicable because the funds
are trust funds, and do not belong to the state in its sovereign capacity, but are for the benefit of a group from
whose wages, or from whose employers, money is taken, and is compensation in the nature of wages . .
Id. at 579. The State Treasurer, the Court declared, merely acts as a trustee for the money. Id.

Thus, over the course of one hundred years under the present Constitution, Texas courts have created a major excep-
tion to article 8, section 6, which we may call the trust fund doctrine. It holds that certain money in the possession of

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Tex. Atty. Gen. Op. LA-132, 1977 WL 26460 (Tex.A.G.) Page 3

the State is not State property, but rather money for which the State Treasurer acts as trustee. Pursuant thereto, the
Supreme Court has upheld the validity of the Unemployment Compensation Fund, and two statutes which essentially
permitted the payment of particular funds to a rightful claimant without the necessity of an appropriation. In each of
these instances, application of the trust fund doctrine was made plausible by the character of the funds involved.
While the Friedman, Manion and Rogers indicate that some money held by the State is not required to be in the
Treasury, it can be argued that the trust doctrine discussed by the Supreme Court marks the farthest reach of the ex-
ception.

A long line of Attorney General Opinions has obscured the meaning of article 8, section 6. These rulings, considered
together, do not provide any consistent interpretation of the amendment, and some of them ignore it altogether. In
Attorney General Opinion 0-3711 (1942), for example, Attorney General Maim, while acknowledging that 'public
monies' must be deposited in the State Treasury, stated that examination fees collected by the State Board of Medical
Examiners 'are not collected for the State,' are therefore 'not 'public funds," and, as a result, 'do not require a biennial
appropriation as a condition precedent to their expenditure.' Id. at 2. Likewise, Attorney General Opinion 0-6414
(1945) at 2, held that funds collected by the State Board of Pharmacy are not ' public moneys,' and hence, might be
spent by the Board without a legislative appropriation. In both Opinions, the Attorney General apparently considered a
statute as determinative of the status of certain fees as public funds, without regard to any constitutional requirement.

Attorney General Shepperd addressed himself to the meaning of article 8, section 6 on at least three occasions. At-
torney General Opinion MS-13 (1953) held that the Texas Employment Commission 'may not make expenditures
from the [Unemployment Compensation] Administration Fund subsequent to August 31, 1953, without an appropri-
ation by the Legislature.' In Attorney General Opinion MS-169 (1955), however, Attorney General Shepperd reverted
to the position of Attorney General Mann by stating the truism that 'money that is not required to be deposited 'in' the
State Treasury need not be appropriated by the Legislature in order to be available for expenditure.' Id. at 6.

*4 Attorney General Opinion MS-196 (1955) dealt with the constitutional argument, but devised an unusual rationale
for holding it inapplicable. After Acknowledging that, under the court's decision in Texas Pharmaceutical Ass'n v.
Dooley, 90 S.W.2d 328 (Tex. Civ. App.—Austin 1936, no writ), money received by licensing or regulatory agencies
constitutes State funds, whether deposited in the Treasury or not, the Opinion concluded that, since article 4, section
23 of the Constitution requires that fees collected by the Comptroller, the Treasurer, and the Commissioner of the
General Land Office be paid into the Treasury, these are the only fees necessarily subject to the terms of article 8,
section 6.

In Attorney General Opinion WW-565 (1959), Attorney General Wilson applied the Friedman doctrine to funds of
the Employees Retirement System and the Teachers Retirement System, holding that they are trust funds which need
not be deposited in the State Treasury, and, if not so deposited, subject to expenditure by statute without an appro-
priation. Attorney General Opinion WW-600 (1959) approved the expenditure of Teacher Retirement System trust
funds to defray the costs of administration.

Attorney General Opinion C-88 (1963) upheld a statute which required that investigation fees collected by the Reg-
ulatory Loan Commissioner be retained by him. The Opinion did not discuss the constitutionality of the sta-
tute. Attorney General Opinions M-970 (1971) and M-1041 (1972) dealt with that portion of the real estate broker
and salesman license fees dedicated by statute to a particular purpose. The latter Opinion declared that funds dedicated
by statute are not 'in' the State Treasury and thus, not required to be appropriated prior to their expenditure. Once
again, the constitutional issue was not addressed.

In Attorney General Opinion H-138 (1973), we construed an amendment to section 4(a) of article 249a, V.T.C.S.
Prior to amendment, the statute had provided that fees collected by the Architectural Examiners Board 'shall be de-
posited in the State Treasury to the credit of a special fund.' The amended version of the statute required payment 'to
the State Treasurer.' The Opinion specifically declined to address the constitutional question, but, relying heavily on
legislative intent as reflected in the transcript of the committee hearing on the bill, it held that the altered language of

2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Tex. Atty. Gen. Op. LA-132, 1977 WL 26460 (Tex.A.G.) Page 4

the statute did not convert the fund into a trust fund:
Architects Registration Fund 109 .. . is used for the general administrative expenses of a state agency. It has little,
if any, resemblance to a trust and, notwithstanding the omission of the language concerning legislative appro-
priation and the substitution of the word 'Treasurer' for the word 'Treasury,' we do not believe the Legislature
intended to establish Fund 109 as a trust fund.
Id. at 3.

Attorney General Opinion H-154 (1973) construed article 5221f, which provided that fees collected by the Perfor-
mance Certification Board for Mobile Homes 'shall be paid to the state treasury and placed in a special account for the
use of the department in the administration and enforcement of this Act.' The Legislature appropriated to theBoard a
lesser amount than the income collected from fees, and the Board argued that article 5221f conferred upon it the
authority to expend the unappropriated portion of these funds. Opinion H-154, however, held that the fees could not
be withdrawn from the Treasury without a specific appropriation, since
*5 there is nothing about the fees collected under the Act to indicate that they are to be held in trust . .
Id. at 2.

Attorney General Opinion H-674 (1975) reverted to the rationale of Opinion M-1041 (1972), holding that certain
funds of the Optometry Board dedicated by statute to another purpose need not be appropriated, so long as the dedi-
cation occurs before the money is deposited to the Board's account in the State Treasury.

Finally, Attorney General Opinion H-716 (1975) affirmatively applied to article 8, section 6 the principle that money
'drawn from the Treasury' includes all State funds, including special funds, unless exempted by other provisions of the
Constitution. The Opinion observed that the only court-sanctioned exceptions to this rule were the trust fund doctrine
established by Friedman and the exception for funds of doubtful ownership, as promulgated in Rozers. Opinion
H-716 also noted the distinction which must be drawn between the 'Treasury' and the General Revenue Fund:
Mil our opinion the statutory direction that such receipts should not be deposited in the general revenue fund of
the state does no more than reiterate the requirement that they be deposited in a special fund.

Thus, a long line of Attorney General Opinions has not provided a clear answer to your inquiry. The Opinions so often
fail even to consider the constitutional issue that we must conclude that, taken together, they have little precedential
value in squarely addressing your question. They do, however, indicate a long history of approval of certain funds
being maintained outside of the Treasury.

This practice is almost as old as our constitution. Our research has revealed at least one fund maintained outside the
State Treasury and spent without appropriation shortly after the Constitution was adopted. The 'Message Accompa-
nying the Report of the Board of the Agricultural and Mechanical College of the State of Texas 1879-1880' indicates
on pages 18 and 19 that:
There being no legislative appropriation to fall back on, the contingent fund—that is, the receipts coming in from
the students—had to bear all the burdens. I repeat, that no one cent has ever been appropriated to pay the current
expenses of running the college. In this respect the college has had to look to itself, without State aid or private
donation of any kind.

The Legislature has been aware of the maintenance of certain funds out of the Treasury [see House Subcommittee on
Funds not Subject to Appropriation, 'A Survey of Funds Derived from Unappropriated Sources (1972); Legislative
Budget Board, 'A Survey of Funds Not in the State Treasury' (1975)], yet it has not acted to end the practice. For
example, both Senate Bill 275 and House Bill 1233 in the 64th Legislature would have required most funds to be
deposited in the Treasury, but neither was enacted.

This long history of administrative and legislative acts and omissions resulting in the maintenance of funds outside the
Treasury is helpful in constitutional interpretation. While such administrative and legislative interpretation can never

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Tex. Atty. Gen. Op. LA-132, 1977 WL 26460 (Tex.A.G.) Page 5

'fritter away' the obvious sense or boundaries of the Constitution, Kimbrough v. Barnett, 55 S.W. 120, 123 (Tex.
1900), where a construction of the Constitution has been acquiesced in for a long period, particularly where there have
been numerous occasions where it could be challenged, it affords a persuasiveness to the construction akin to prece-
dence. Shepherd v. San Jacinto Junior College District, 363 S.W.2d 742 (Tex. 1962), Walker v. Baker, 196 S.W.2d
324 (Tex. 1946). An interpretation made within a few years of the adoption of the Constitution is entitled to great
weight. Hill County v. Sheppard, 178 S.W.2d 261 (Tex. 1944).

*6 We also note that the courts of other states have concluded that similar constitutional provisions do not require that
all money received by state agencies be appropriated. New Jersey Sports & Exposition Authority v. McCrane, 292
A.2d 545 (N.J., 1972), app. dism'd, 409 U.S. 944 (1972); Gipson v. Ingram, 223 S.W.2d 595 (Ark. 1949). A Missouri
case is of particular interest. The Missouri Constitution required that all money collected and received by the State
from any source whatsoever must go into the State Treasury. Notwithstanding language this strong, the Supreme
Court of Missouri concluded that insurance proceeds due a state college were not required to be deposited in the
Treasury to await legislative appropriation. State ex rel. Thompson v. Board of Regents for Northeast Missouri State
Teachers' College, 264 S.W. 698 (Mo. 1924) (en banc).

In summary, there appear to be persuasive arguments on both sides of the question you have raised. The question is
difficult and is aggravated by decades of inaction and acquiescense. Since the issue is so close and has been ignored for
so long, we cannot say with assurance what resolution the courts would ultimately reach. Nevertheless, with this
caveat regarding the difficulty of the issue, it is our professional judgment that if the Texas Supreme Court were
presented squarely with this issue at the present time, it would rely heavily on the long standing administrative and
legislative interpretation and the decisions of courts of other states to conclude that funds, such as those collected as
licensing fees, are not required by the Constitution to be maintained in the State Treasury.

By determining that our best legal judgment is that such funds are not required to be deposited in the Treasury and
appropriated by the Legislature, we in no way suggest that the Legislature lacks power either to mandate that the funds
be placed in the Treasury or to appropriate them. Attorney General Opinions WW-565 (1959), MS-196 (1955),
MS-169 (1955) and 0-6414 (1945). But see Attorney General Opinion C-88 (1963).

Very truly yours,

John L. Hill
Attorney General of Texas

APPROVED:

David M. Kendall
First Assistant

C. Robert Heath
Chairman Opinion Committee

Tex. Atty. Gen. Op. LA-132, 1977 WL 26460 (Tex.A.G.)

END OF DOCUMENT

© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

 Office of tbe 51Ittornep etenerat
state of texas
DAN MORALES
ATTORNEY GENERAL December 15, 1995

The Honorable Pete P. Gallego Letter Opinion No. 95-085

Chair
Committee on General Investigating Re: Whether the term "qualified hotel
Texas House ofRepresentatives project," as defined by House Bill 2282,
P.O. Box 2910 Act of May 11, 1993, 73d Leg., 1LS., ch.
Austin, Texas 78768-2910 231, 1993 TeL Gen. Laws 480, includes a
private entity selected by a munici-
pality (RQ-854)
Dear Representative Gallego:
You aslc, in essence, whether the term "qualified hotel project," as defined by
House Bill 2282, 1 passed by the Seventy-third Legislature in 1993, includes a private
entity selected by it municipality.2 Pursuant to House Bill 2282, a "qualified hotel project"
is eligible to receive rebates of certain tax proceeds.

The Seventy-third Legislature enacted the language in House Bill 2282 defining
the term "qualified hotel project" as an amendment to the Texas Enterprise Zone Act,
V.T.C.S. article 5190.7. Section 6 of House Bill 2282 added section 3(aX14) to the act to
provide as follows:
"Qualified hotel project" means a hotel proposed to be
constructed by a municipaliv or a nonprofit municipakt sponsored
local government corporation created pursuant to the Togas
Transportation Corporation Act (Article 1528/, Vernon's Texas Civil
Statutes) that is within 1,000 feet of a convention center owned by a
municipality having a population of 1,500,000 or more, including all
facilities ancillary thereto such as shops and parking facilities.
[Emphasis added.]
Section 6 also added section 3(aX15) to the Enterprise Zone Act defining the term
"eligible taxreole proceeds" as follows:

1 Act of May 11, 1993, 73d Leg., B.S., ch. 231, 1993 Tex. Oen. Laws 440.

2Your query also asks about a private-publie ownership arrangement Because we believe our
answer to the above question resolves that issue, we do not address it specifically.
 The Honorable Pete P. Gallego - Page 2 (L095-085)

"Eligible taxable proceeds" means taxable proceeds generated,

paid, or collected by a qualified hotel project or a business at a
qualified hotel project, including hotel occupancy taxes, ad valorem
taxes, sales and use taxes, and mixed beventge taxes.
In the same session that the legislature enacted House BM 2822, it repealed article $190.7
and codified the article in chapter 2303 of the Government Code. See Act of May 4,
1993, 73d Leg., KS., ch. 268, §§ 1, 46, 1993 Tex. Gen. Laws 583, 883-97, 986. The
codification was a nonsubstantive revision; the legislature intended no substantive change
in the law. Id. § 47, 1993 Tex Gen. Laws 583, 986-87. In 1995 the Seventy-fourth
Legislature incorporated the definition of "qualified hotel project" into subsection (8) of
section 2303.003 of the Government Code in order to conform newly codified chapter
2303 with House Bill 2282.3 See Act of Apr. 25, 1995, 74th Leg., R.S., ch. 76, § 5.50,
1995 Tex. Sess. Law Serv. 458, 505. The definition of "eligible taxable proceeds" has
been incorporated in section 2303.5055(e) of the Government Code. See id. § 5.53, 1995
Tex. Sess. Law Sem. 458, 510. All references in this opinion are to the Enterprise Zone
Act prior to codification.

Your query requires us to consider whether the phrase "hotel proposed to be

constructed by a municipality or a nonprofit municipally sponsored local government
corporation" in the definition of "qualified hotel project" refers only to a hotel owned by a
municipality or a municipally sponsored corporation, or whether it also refers to a hotel
owned by a private entity. Briefs submitted to this office suggest two differing
constructions of the phrase. One brief suggests that the phrase "proposed to be
constructed by a municipality" does not require municipal ownership but rather is intended
to distinguish hotels that the municipality has selected for tax rebates (regardless of their
• ownership) from other hotels that might be built within the designated convention center
area. The other brief suggests that the phrase is merely a temporal reference, denoting a
hotel that a municipality or municipally sponsored corporation proposes to construct and
thus will own at some future time. In order to answer your query, we must look at the
definition of the term "qualified hotel project" in the context of House Bill 2282 as a
whole.

3Subsection (8) provides as &lions:

"Qualified hotel project" means a hotel proposed to be constructed by a
municipality or a nonprofit municipally sponsored local government corporation
created under the Texas Transportation Caporation Act (Article 15284 Vernon's
Texas Civil Statutes) that is within 1,000 feet of a convention cater owned by a
municipality having a population of 1,500,000 or more, including shops, parking
facilities, and any other facilities ancillary to the hotel.
Although worded slightly differently, the codification of the definition of "qualified hotel project" in
section 2303.003(8) of the Government Code is idendcal in meaning to the original statutory language.
See Act of May 4, 1993, 73d Leg., R.S., ch. 268, § 47, 1993 Tex. Gen. Laws 583, 98647.
The Honorable Pete P. Gallego - Page 3 (L095-085)

In addition to defining the terms "qualified hotel project" and "eligible tax
proceeds," House Bill 2282 amends other sections of the Enterprise Zone Act, another
civil statute, and the Tax Code to delineate the authority of a municipality with respect to
a qualified hotel project and to establish the tax benefits to which a qualified hotel project
is entitled. The first four sections of the bill clearly refer to a hotel that is publicly owned.
Section 4 of House Bill 2282 amends section 2(a) of article 1269j-4.1 to provide that a
city is authorized to "establish, acquire, lease as a lessee or lessor, purchase, construct,
improve, enlarge, equip, repair, operate or maintain . . . improvements" including "hotels
owned by a municipality or a nonprofit municipalty sponsored local government
corporation created pursuant to the Texas Transportation Corporation Act . . . within
1,000 feet of a convention center owned by a municipality with a population of 1,500,000
or more." Act of May 11, 1993, 73d Leg., R.S., ch. 231, § 4, 1993 TeL Gen. Laws 480,
481 (emphasis added).

• Sections 1, 2, and 3 of House Bill 2282 amend provisions of the Tax Code relating
to municipal and county hotel occupancy taxes. See Tax Code §§ 351.001(2), .102(a),
352.101(a). Section 1 amends the definition of "convention center facilities" and
"convention center complex" in section 351.001 of the Tax Code to include "hotels owned
by the municipality or a nonprofit munidpalty :ponsored local government corporation
created pursuant to the Texas Transportation Corporation Act . . within 1,000 feet of a
convention center owned by a municipality with a population of 1,500,000 or more." Act
of May 11, 1993, 73d Leg., R.S., ch. 231, § 1, 1993 Tex. Gen. Laws 480, 480 (emphasis
added). Section 351.101 of the Tax Code authorizes cities to use revenue generated from
municipal hotel occupancy taxes to construct and operate "convention center facilities."
Section 2, which amends section .352.101(aXl) of the Tax Code, provides that county
hotel occupancy tax revenue may be used to construct and operate "hotels owned by a
municipality or a nonprofit municipalty sponsored local government corporation created
pursuant to the Texas Transportation Corporation Act . . . within 1,000 feet of a
convention center owned by a municipality with a population of 1,500,000 or more." M
§ 2, 1993 Tex Gen. Laws 480, 480-81 (emphasis added). The result of these provisions
is to authorize cities and counties to use revenues from municipal and county hotel
occupancy taxes to construct and operate a convention center hotel that is owned by a
municipality or a municipally sponsored corporation. In addition, section 3 of House Bill
2282 amends section 351.102(a) of the Tax Code to provide that a municipality may
pledge the revenue derived from a municipal hotel occupancy tax collected at the hotel for
the payment of bonds or other obligatiors of a municipally sponsored corporation that
were issued to pay the cost of "the acquisition and construction of a convention center
hotel." Id t' 3, 1993 Tex. Gen. Laws 484, 481.
Unlike the foregoing sections, the remaining sections of the bnl, sections 5 through
10, do not refer to a hotel owned by the municipality or a municipally sponsored
corporation but rather to the owner of a qualified hotel project. Lae section 6, sections 5,
7, and 8 amend the Enterprise Zone Act. Section 5 amcnds the definition of the term
"qualified business" in the Enterprise Zone Act to include an entity that "is a qualified
hotel project that is owned by a municipality with a population of 1.500.000 or more or a
The Honorable Pete P. Gallego - Page 4 (L095-085)

nonprofit municipally sponsored local government corporation created pursuant to the

Texas Transportation Corporation Act." Id. § 5, 1993 Tex. Gen. Laws 480, 481-82
(emphasis added). Section 7 amends section 13 of the Enterprise Zone Act. Prior to this
amendment, sections 12 and 13 of the Enterprise Zone Act permitted cities and counties
to refund local sales and use taxes paid by a .qualified business or to reduce or eliminate
any fees or taxes, other than sales and use or property taxes, imposed on a qualified
business. Section 7 of House Bill 2822 provides in pertinent part as follows:
(b) A municipality, county, political subdivision, or other
governmental body may enter into an agreement to rebate, refund, or
pay eligible taxable proceeds to the owner of the qualified hotel
project at which such eligible taxable proceeds were generated or
collected for a period not to exceed 10 years. A municipality with a
population of 1,500,000 or more may tater into an agreement to
guarantee from hotel occupancy taxes the bonds or other obligations
of a municipally sponsored local government corporation created
pursuant to the Texas Transportation Corporation Act . . . that were
issued or incurred to pay the cost of constructing remodeling or
rehabilitating a qualified hotel project.
Id. § 7, 1993 Tex. Gen. Laws 480, 482 (emphasis added). Sections 9 and 10 of House
Bill 2282 amend section 151.429 of the Tax Code, which had provided only limited
refunds of state sales and use taxes paid by enterprise projects, to provide that "the owner
of a qualified hotel project" shall receive a rebate of 100 percent of the state sales and use
taxes and state hotel occupancy taxes paid or collected by the qualified hotel project for a
specified period. Thus, unlike other qualified businesses in an enterprise zone, a qualified
hotel project is eligible to enter into agreements for tax rebales with any and all local
taxing authorities and is entitled to receive a 100 percent rebate of site-generated state
sales and use taxes and state hotel occupancy taxes.
In order to interpret the meaning of the definition of "qualified hotel prctject" in
section 6 of H.B. 2282, we look not just to the language of section 6 but rather to H.B.
2282 as a whole. See Morrison v. Chan, 699 S.W.2d 205, 208 (rex. 1985) ("Mt is our
duty to construe statutes as written, and, if possible, ascertain the Legislature's intent from
the language of the act. To ascertain legislative intent, we must look to the statute as a
whole and not to its isolated provisions.") (citation omitted). Based upon our review of
House Bill 2282 as a whole, we are persuaded that the phrase "hotel proposed to be
constructed by a municipality or a nonprofit municipally sponsored local government
corporation" in section 6 may include a privately owned hotel. .

First, the leOslature used the words "proposed to be constructed" rather than
"owned" or "proposed to be constructed and owned." We believe that if the legislature
had intended to limit the term "qualified hotel project" to a publicly owned hotel it would
have used the term "hotel owned by a municipality or a nonprofit municipally sponsored
local government corporation" as it did repeatedly in sections 1 through 4 of House Bill
2282. The rules of statutory construction do not permit us to add words to a statute
The Honorable Pete P. Gallego - Page 5 (L095-085)

unless it is absolutely necessary to do so to give effect to clear legislative intent. Hunter v.

Fort Worth Ccpital Cotp., 620 S.W.24 547, 552 (Tex. 1981) ("Only when it is necessary
to give effect to the clear legislative intent can we insert additional words into a statutory
provision.") (citing Malay v. Legislative Reckstricting Bd, 471 S.W.2d 570, 572 (Tex.
1971)); Cameron v. Tema & Garrett, Inc., 618 S.W.2d 535, 540 (Tex. 1981) ("[E]very
word excluded from a statute must also be presumed to have been excluded for a purpose.
Only when it is necessary to give effect to the clear legislative intent can we insert
additional words or requirements into a statutory provision.") (citing Mauzy, 471 S.W.2d
at 572). Given that House Bill 2822 does not manifest such clear legislative intent, we
believe it would be inappropriate for this office to insert the words "and owned" into the
definition of a qualified hotel project.
Second, in construing a statute, this office, like a court, must give effect to all
words of a statute and may not treat any statutory language as surplusage if possible.
Chevron Corp. v. Redmon, 745 S.W.2d 314, 316 (Tex. 1987) (citing Perkins v. State, 367
S.W.2d 140 (Tex. 1963)); see also Cameron, 618 S.W.2d at 540 ("It is a nde of statutory
construction that every word of a statute must be presumed to have been used for a
purpose."). Sections 1 and 2 of the bill authorize cities and counties to spend their hotel
occupancy tax revenues to construct and operate a hotel owned by a municipality or a
municipally sponsored corporation. If only a municipality or a municipally sponsored
corporation may 'own a qualified hotel project, than inclusion of "hotel occupancy taxes"
in the term "eligible taxable proceeds" in sections 6 and 7 of House Bill 2282 regarding
tax rebates would have no purpose given the authority bestowed on cities and counties to
spend their hotel occupancy tax revenues to construct and operate a hotel owned by a
municipality or a municipally sponsored corporation in sections 1 and 2. It would be
inappropriate for this office to construe the definition of the term "qualified hotel project"
so as to render this statutory language meaningless. See id.
Third, as a more general matter, we believe it is significant that the legislature
chose to enact the tax rebate provisions as part of the Enterprise Zone Act. The primary
purpose of the Enterprise Zone Act is to encourage the expansion of the private sector
within depressed urban and rural areas. See V.T.C.S. art. 5190.7, § 2(a) (repealed 1993).
The legislative findings of the act provide in pertined part:
(b) It is therefore the public policy of this state to provide the
people of this state with the necessary means to assist communities,
their residents, and the private sector to create the proper economic
and social environment to induce the investment of private resources
in productive business entaprises located in severely distressed
areas . . . . In achieving this objective, through this Act the state
seeks to provide appropriate investments, tax benefits, and regulatory
relief to encourage the business community to commit its financial
participation . . . .
(c) It is the purpose of this Act to establish a process that
clearly identifies those distressed areas and provides incentives by
The Honorable Pete P. Gallego - Page 6 (L095-085)

both state and local government to induce private investment in

those areas by means of the removal of unnecessary governmental
regulatory barriers to economic growth and the provision of tax
incentives and economic development program benefits.
Id. § 2(b), (c) (emphasis added). We believe that if the legislature had intended for only
municipal or municipally sponsored corporations to be entitled to tax rebates, it would
have chosen a different statutory vehicle for sections 5 through 8 of House Bill 2282.
Furthermore, we believe that these provisions must be interpreted in keeping with the
purposes of the Enterprise Zone Act which they amend.

The argument has been made that the legislature employed the phrase "propoied
to be constructed by a municipality" in section 6 of House Bill 2282 because of the nature
of the designation process set forth in the Enterprise Zone Act, i.e., that a project must be
approved by state and local authorities before it is awarded Enterprise Zone Act incentives
and is constructed. Under thLs view, the use of the phrase "proposed to be constructed by
a municipality" recognizes the act that the majority of Enterprise Zone Act provisions
deal with activities occurring before construction of a project has commenced. This
argument, however, ignores the fact that House Bill 2282 provides in section 6 that a
qualified hotel project is entitled to automatic approval as au enterprise project
A qualified hotel project shall be deemed to have met the
employment, income, and other critesia of a qualified business and an
entesprise project, and the enterprise zone in which the qualified
hotel is located shall be deemed to have met all qualifications of this
Act to permit the [Texas Department of Commerce] to designate the
qualified hotel project as an enterprise project.
Act of May 11, 1993, 73d Leg., R.S., ch. 231, § 6, 1995 Tex. Gen. Laws 480, 482.

It also has been argued that the legislature could not have intended to include a
privately owned hotel within the term "qualified hotel project" because, unlike a
municipally owned or sponsored hotel, such a hotel would not be entitled to use general,
non-site-specific municipal and county hotel occupancy tax revenues to finance, construct,
and operate the hotel as provided in sections 1 through 3 of the bill We do not find this
argument persuasive, however, because it is entirely reasonable to suppose that the
legislature intended to give a municipality the choice between public and private
ownership alternative& While a privately owned hotel may not be entitled to use general,
non-site-specific municipal and county hotel occupancy tax revenues, it is entitled to a
rebate of state hotel occupancy taxes and state sales and use taxes generated on site and is
also eligible to negotiate tax rebates for other tax proceeds generated on site with local
taxing entities, including the county and city. Furthermore, we fail to see how it follows
that the affirmative grant of authority to a city to own and operate a convention center
hotel and to use hotel occupancy tax revenues to do so in sections 1 through 4 of the bill
precludes a private party from owning and operating such a hotel. For example, we have
been asked why the legislature would amend article 1269j-4.1 to permit a city to own a
The Honorable Pete P. Gallego - Page 7 (L095-085)

hotel if the legislature intended such hotels to be privately owned. Again, we believe that
this amendment and the amendments to chapters 351 and 352 of the Tax Code are entirely
consistent with the conclusion that House Bill 2282 is intended to give a city the flexibility
to choose between private and public ownership of a convention center hotel.
For these reasons, we believe that the phrase "proposed to be constructed by a
municipality" in section 6 of House Bill 2282 is not intended to require municipal
ownership of a qualified hotel project but rather is intended to distinguish between hotels
that the municipality has selected to be eligible for tax rebates (regardless of the type of
ownership) from other hotels that might be built within the designated convention center
area. The result is to authorize local taxing jurisdictions to negotiate tax rebate
agreements as provided by the Enterprise Zone Act with only those convention center
hotel projects, whether private or public, selected by the city, and to entitle only those
hotels selected by the city to receive a 100 percent rebate of state sales and use taxes and
state hotel occupancy taxes.
Based upon our review of House Bill 2282 as a whole, we believe that the
definition of "qualified hotel project" includes a privately owned hotel. To conclude
otherwise would render significant provisions in the bill meaningless. 4 We also emphasize
that because House Bill 2282 applies only to a hotel proposed to be constructed by a
municipality or • it municipally sponsored corporation that is within 1,000 feet of a
convention center owned by a municipaliv having a population of 1,500,000 or more this
opinion is of very limited application. Moreover, the effect of this opinion is to give such
a municipality the flexibility to choose between public and private ownership
arrangements; the opinion merely construes House Bill 2282 and does not endorse one
type of ownership arrangement over another.

4Given that it is possible to construe House Bill 2282 based on its statutory language, we believe
that it is unnecessary to resort to the extrinsic legislative history &House BM 2282 as an aid to statutory
construction. See Minton v. Prank, 545 S.W.2d 442, 445 (Tex. 1976) ("Where the intent is apparent from
the words of the statute, it is not necessary for this Court to make any analysis of the extsinsic evidence of
legislativ6 intent"); see also BoAin v. State, 818 S.W.24 782, 785 (Tex. Crim. App. 1991) ("We fOCUS on
the literal text . . . because the text is the only definitive evidence of what the legislators ... had in mind
when the statute was enacted into law. There really is no other certain method for determining the
collective legislative intent or purpose at some point in the past, even assumhtg a single intent or purpose
was dominant at the time of enactment").

We also note that we have been invited to consider postenadment statements regarding the intent
of House Bill 2282 made by individuate, a legislator and an attorney, involved in its passage. We decline
to do so. See Attorney General Opinions DM-321 (1995) at 1-2 n. 1 ("Post-enactment statements of
legislators do not form part of the legislative history of provisions that may be taken account of in their
construction.") (citing 2A NORMAN 1. SINGER, STAN'S= AND STATMORY CONSTRUCTION § 48.16 (5th ed.
1992)), JM-1256 (1990) at 74 (same); see also General Olean. Corp v. De la Lastra, 852 S.W.2d 916,
923 (Tex.) (4111he intent of an inctividual legislator, even a statute's principal author, is not legislative
history controlling the construction to be given a statute"), cert. denied, 114 S. Ct 490 (1993); City ofEl
Paso v. Madero Dev. and Constr. Ca, 803 S.W.2d 396, 401 (Tex App.—B1 Paso 1991, no writ), cert.
denied, 502 U.S. 1073 (1992); Magtew v. Town of Sunnyvale, 774 S.W.2d 284, 298-99 (Tex. App.—
Dallas 1989, no wit), cert. denied, 498 US. 1087 (1991).
The Honorable Pete P. Gallego - Page 8 (L095-085)

§UMMARY

The terns "qualified hotel project," Ls defined by House Bill

2282, Act of May 11, 1993, 73d Leg., RS., ch. 231, 1993 Tex. Gen.
Laws 480, includes a private entity selected by a municipality.

Yours very truly,

fg
I
Mary R. Crouter
Assistant Attorney General