CORNERSTONES MUNICIPAL UTILITY DISTRICT

CORNERSTONES MUNICIPAL UTILITY DISTRICT

Minutes of Meeting of Board of Directors

The Board of Directors of Cornerstones Municipal Utility District (the “District”) met at 805 Hidden Canyon, Katy, Harris County, Texas at 7:00 p.m. on December 20, 2004, in accordance with the duly posted notice of said meeting, with a quorum of directors present as follows:

Tony Garza, President - arrived at 7:10

Gary Hughes, Vice President

E.C. Norris, SecretarY

John Irwin, Assistant Secretary

Darryl Box, Investment Officer

Also present were Kathie Naumow, Recording Secretary; Terry Holland of Myrtle Cruz, Inc.; Dusty Lane of Eco-Resources, Inc.; Marvin Zahradnik of Landev Engineers, Inc.; Mark Brooks of Young & Brooks; Doug Knopka of Cinco, LTD.; and business owner Gordon W. Edwards.

The Vice President called the meeting to order at 7:05 and declared it open for such business as might come before it.

APPROVAL OF MINUTES

After discussion, upon motion duly made, seconded and unanimously carried, the minutes of the November 15, 2004 board meeting were approved.

QUESTIONS/COMMENTS FROM THE PUBLIC

Gordon W. Edwards had some questions that Dusty will handle.

CONSIDER AND POSSIBLY AUTHORIZE CORNERSTONE PLACE ENTRANCE SIGNAGE

Tabled to next month meeting. No objections.

TAX ASSESSOR/COLLECTOR'S REPORT

Mark Brooks presented the Tax Assessor/Collector report in Bob Leared's absence. Taxes Receivable 8/31/2004: $44,410.80, adjustments $1,123.05. Original 2004 Tax Levy: $1,018,601.70, adjustments $239,479.00. Total Taxes Receivable: 1,303,614.55. Prior years taxes collected $19,900.23, 2004 taxes collected $83,577.40. Taxes Receivable at 11/30/2004: $1,200,136.92. Month of 11/2004: beginning cash balance $25,979.29, total receipts $97,603.45, total disbursements $3,356.26, cash balance at 11/30/2004 $120,226.48. Total Disbursements for month of December 2004 $105,595.55, remaining cash balance $14,630.93. The district is 99.882% collected for 2001 taxes, 99.796% for 2002 taxes, 99.483% for 2003 taxes and 6.643% for 2004. Upon motion duly made, seconded and unanimously carried, the board approved the tax assessor/collector's report and payment of the tax bills presented.

FINANCIAL ADVISOR

OPERATOR'S REPORT

Dusty Lane of Eco-Resources, Inc., the District's operator, reported as to District operations and facilities and presented the November 2004 Operations Report. Total connections for November 2004 were 1487. Meter installations and inspections for Oct 14 - Nov 13: New taps Installed - 0; Sewer inspections completed - 4; Builder Inspections completed - 3; Customer Service inspections completed - 0; Net Rental Meter Change - 0. The required 7 samples were taken during 11/2004. TCEQ Chemical Analysis: Metals 8/25/99; Radio-Chemicals 10/29/02; Volatile Organic Chemicals 10/29/02; Minerals 3/23/04. Water production: Pumped 15,563,000 at Water Plant #1, Total supplied - 15,563,000, Daily Average - 518,766. Subsidence Information: Estimated number of months available - 4.0, Permit months remaining - 1, Percent of permitted production - 73.18. Water Accountability is at 94% Year to Date. Total Operations Charges $13,661.76. Actual work related expenses - $7,002.00. Total Current billing $54,848.41. Total Aged Receivables $16,521.17. Total Accounts Receivables $71,369.58. Facility Checklist completed: Water Plant #1 on 11/21/2004. Inspections Completed: Fire Hydrants on 6/7/2004. Total Deposits for November 2004 $68,576.07. Disconnects/Reconnects income: $155.60. Pull Fees: $0.00. Provided Discharge Monitoring Report, number exceeded all zero. Reported on repairs made and also presented the board with a copy of the Cornerstones M.U.D. Delinquent list. Reported they had a chlorine violation last month during changeover, received notice and responded.

Upon motion duly made, seconded and unanimously carried, the board approved the operator's report and authorized repairs on plant.

ENGINEER'S REPORT

Marvin reported no new requests. He talked to Brown & Gay, and they are trying to get contract for the Cinco Conveyance Line rehab work signed and executed. Should start in January. Received request from Harris County Flood Control to obtain access to start repair, which should begin in March along HCFCD Unit T103-01-00 adjacent to property located at 22132 Highland Knolls Drive. After discussion, upon motion duly made, seconded and unanimously carried, the board approved the requested Temporary Right-of-Entry and Construction Easement.

Upon motion duly made, seconded and unanimously carried, the board approved the Engineer's report.

BOOKKEEPER'S REPORT

Terry Holland of Myrtle Cruz, Inc., the District's bookkeeper, presented the monthly report. Debt service funds available December 20, 2004 - $2,445,025.26. Total Debt Service Requirements for 2005: $1,364,020.00. Capital projects funds available December 20, 2004 - $266,077.41. General Operating: Previous cash balance November 15, 2004 - $17,460.63, total deposits $68,621.02, beginning cash balance December 20, 2004 - $67,366.93. General Operating Funds available December 20, 2004 - $1,298,943.03. Included copy of budget for fiscal year ending September 30, 2005, Investment Report and Tex Pool Performance sheet. Received bid for mulching to pass on to the board, will check and see when mulching was last done. Upon motion duly made, seconded and unanimously carried, the board approved the Bookkeepers monthly report. After discussion, upon motion duly made, seconded and unanimously carried, the board approved said bills and ordered checks issued on the appropriate District accounts in payment thereof.

CONDUCT HEARING ON TERMINATION OF WATER AND SEWER SERVICE

The board conducted a hearing on the termination of utility service. The operator presented a list of delinquent utility accounts that were delinquent by more than 60 days and reported that the customers have been given written notice 10 days prior to this meeting and the opportunity to appear before the board of directors to explain, contest or correct the utility service bill and to show reason why the utility service should not be terminated for nonpayment. None of the customers on the list were present or have presented any statement on the matter. After discussion, upon motion duly made, seconded and unanimously carried, the board authorized the operator to terminate utility service to the unpaid accounts in accordance with standard procedures.

DISCUSS AND POSSIBLY APPROVE NEW CUSTOMER PAYMENT OPTIONS

CONSIDER AND POSSIBLY APPROVE FIRST AMENDMENT TO THE RESTATED CINCO REGIONAL SEWAGE TREATMENT PLANT AGREEMENT

Tony reported on repair of trunk line rehabilitation. We have already paid our portion. Cinco said they weren't going to pay their share, but Memorial MUD has agreed to pay Cinco's share. Mark hasn't received anything more on this.

AUTHORIZE ANY NECESSARY ACTIONS WITH RESPECT TO GREENBELT TRACTS OR OTHER DISTRICT LAND

John will talk to Cornerstone HOA on the sign placement. Graffiti is still on the brick wall in the greenbelt. Tony will call PCMI. Chesterfield HOA will need to sign release if the MUD District has graffiti cleaned off.

PENDING BUSINESS

Billing statement change table to next month.

ENGINEER PERFORMANCE REVIEW

Tabled to next month meeting.

After concluding and there being no further business to come before the board, the meeting was adjourned at 8:00 p.m.

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Attachments: Bookkeeper's Report