CORNERSTONES MUNICIPAL UTILITY DISTRICT

Minutes of Meeting of Board of Directors

September 18, 2006

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 September 18, 2006, in accordance with the duly posted notice of said meeting, with a quorum of directors present as follows:

Tony Garza, President

Gary Hughes, Vice President

John Irwin, Secretary

E.C. Norris, Assistant Secretary

Darryl Box, Investment Officer

and being absent:

None

Also present were Kathie Naumow, Recording Secretary; Terry Holland of Myrtle Cruz, Inc.; Brenda McLaughlin of Bob Leared Interests; Dusty Lane of Eco-Resources, Inc.; Marvin Zahradnik of Landev Engineers, Inc.; Mark Brooks of Young & Brooks, Doug Knopka of Cinco LTD, and Blake Roberts of Katy Inflatable Zone.

The meeting was called to order at 7:00 and declared open for such business as might come before it.

APPROVE MINUTES OF PRIOR MEETINGS

After discussion, upon motion duly made, seconded and unanimously carried, the minutes of the August 21, 2006 meeting were approved as presented.

QUESTIONS/COMMENTS FROM THE PUBLIC

Blake Roberts with Katy Inflatable Zone has land under contract with Doug Knopka of Cinco LTD. Presented to the board plans and concept drawings for a new business that will include Inflatable Zone, Miniature Golf and Batting Cages.

AUTHORIZE PUBLICATION OF PROPOSED TAX RATE

The board reviewed a letter from Dain Rauscher advising to keep the tax rate as is. The tax base should be the same as last year. Discussed waiting for more value numbers to come in and call special meeting to publish rates. After further discussion and motion made seconded and carried the board voted unanimously to authorize publication of the proposed tax rate as recommended by the financial advisor, but moving $.01 from debt service to maintenance. The board will consider adoption of the tax rate at the next regular meeting.

TAX ASSESSOR/COLLECTOR'S REPORT

Brenda McLaughlin presented the Tax Assessor/Collector report. Taxes Receivable 8/31/2005: $16,911.61, reserve for uncollectables $635.83; adjustments $795.72. Original 2005 Tax Levy: $1,172,903.87, adjustments $98,259.13. Total Taxes Receivable: $1,288,234.50. Prior years taxes collected $11,747.60, 2005 taxes collected $1,251086.30. Taxes Receivable at 8/31/2006: $25,400.60. 2005 Receivables: Debt Service $15,159.96; Maintenance $4,916.74. Month of 8/2006: beginning cash balance $30,957.50 total receipts $14,478.32, total disbursements $13,871.57, cash balance at 8/31/2006 $31,564.25. Total Disbursements for the month of September 2006 $16,813.03, remaining cash balance $14,751.22. The district is 99.978% collected for 2001 taxes, 99.929% for 2002 taxes, 99.957% for 2003 taxes, 99.749% for 2004 and 98.421% for 2005. Presented board with a list of the top delinquent taxpayers.

After discussion and 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

N/A

OPERATOR'S REPORT

Dusty Lane of Eco-Resources, Inc., the District's operator, reported as to District operations and facilities and presented the August 2006 Operations Report. Total connections were 1494. Meter installations and inspections for Jul 14 - Aug 13: New taps Installed - 0; Abandoned connections - 0; Sewer inspections completed - 0; Builder Inspections completed - 0; Customer Service inspections completed - 0; Net Rental Meter Change - 0. Wastewater treatment; Permitted Average Daily Flow - 3,000,000GPD. The required 7 samples were taken during 8/2006. TCEQ Chemical Analysis: Metals 8/25/99; Radio-Chemicals 08/11/05; Volatile Organic Chemicals 8/11/05; Minerals 5/18/06. Water production: Pumped 27,973,000 at Water Plant #1, Total supplied - 27,973,000, Daily Average - 902,354. Subsidence Information: Estimated number of months available - 5.3, Permit months remaining - 4, Percent of permitted production - 59.81. Water Accountability is at 95% Year to Date. Total Operations Charges $15,355.27. Actual work related costs - $6,657.00. Total Current billing - $62,693.16. Total Aged Receivables $17,404.61. Total Accounts Receivables $80,097.77. Facility Checklist completed: Water Plant #1 on 8/25/2006. Inspections Completed: Fire Hydrants on 6/15/2006. 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. Everyone has been duly notified of situation and it is being addressed.

Upon motion duly made, seconded and unanimously carried, the board approved the operator's report and denied customer request for adjustment.

ENGINEER'S REPORT

Marvin reported on activities in the district. He met with Knopka on Harris County Detention requirements and solutions. No request for utilities or service this month. Doug Knopka updated the board on projects in the district.

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 September 18, 2006 - $2,889,191.15. Total Debt Service Requirements for 2006: $1,349,070.00. General Operating: Previous cash balance August 21, 2006 - $22,459.58 total deposits $64,674.43. Beginning cash balance September 18, 2006 - $85,643.18. General Operating Funds available September 18, 2006 - $1,947,704.25. Included copy of budget for fiscal year ending September 30, 2006, Investment Report and Tex Pool Performance sheet. Removed election costs, and increased interest earned. After discussion, upon motion duly made, seconded and unanimously carried, the board approved the adoption of the budget subject to any changes in projected tax revenue.

After discussion, upon motion duly made, seconded and unanimously carried, the board approved report and 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.

CINCO REGIONAL OPERATING COMMITTEE REPORT

Tony reviewed pay estimate on construction of $147,296.48. Our share is 33 1/3%. Total is 1,266,500; $312,103.28 for work completed to date. Getting ready for another cash call of approximately $95,000. Started installation of fine bubbler system.

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

Tony will request written quote for sprinkler repair and a separate quote for landscape maintenance.

PENDING BUSINESS

N/A

After concluding and there being no further business to come before the board, the meeting was adjourned at 8:26 p.m.

_______________________________

Secretary

Attachments: Bookkeeper's Report