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 15, 2008, 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

Also present were Kathie Naumow, Recording Secretary; Terry Holland of Myrtle Cruz, Inc.; Dusty Lane of SouthWest Water Company; Brenda McLaughlin of Bob Leared Interests; Marvin Zahradnik of Landev Engineers, Inc.; Mark Brooks of Young & Brooks, Doug Knopka of Cinco, LTD, Stephen Eustis of RBC Capital Markets and Noah Worley of DHK.

The meeting was called to order at 7:01 p.m. and declared open for such business as might come before it.

1. APPROVE MINUTES OF PRIOR MEETINGS;

After discussion, upon motion duly made, seconded and unanimously carried, the Minutes of the November 17, 2008 meeting were approved as presented.

2. QUESTIONS/COMMENTS FROM THE PUBLIC;

3. AUTHORIZE ANY NECESSARY ACTIONS IN CONNECTION WITH CONTRACT FOR PURCHASE OF ELECTRICITY;

Board member Chip Norris received Rate Option Report from Karen Sears with Legacy Energy Solutions. The rates went down slightly. After discussion and a unanimous vote the Board voted to sign with Suez Energy Resources for one year, which will extend the term one year. Chip will contact Karen Sears with the Boards decision.

4. AUTHORIZE ANY NECESSARY ACTIONS IN CONNECTION WITH NFBWA PUMPAGE FEE INCREASE;

NFBWA plans to increase rates to sixty cents per one thousand gallons effective 1/1/09. Dusty will put a notice on bills to inform customers of the NFWBA pumpage fee increase. The Board discussed options for the NFBWA Capital Contribution. Brenda McLaughlin will prepare some additional information to review next month. Stephen Eustis will get the best estimate for interest rates.

5. CONSIDER CONSULTANTS' REPORTS, AS NEEDED;

a. TAX ASSESSOR/COLLECTOR'S REPORT,

Brenda McLaughlin of Bob Leared Interests, the District's Tax Assessor/Collector, presented the Tax Assessor/Collector report to the Board. Taxes Receivable 8/31/2008: $26,557.41, Reserve for Uncollectables $999.76; Adjustments $9,430.84. Original 2008 Tax Levy: $1,090,108.87, Adjustments $43,255.37. Total Taxes Receivable: $1,168,352.73. Prior Years Taxes Collected $9,081.17, 2008 Taxes Collected $63,114,92. Taxes Receivable at 11/30/2008: $1,096,156.64. 2008 Receivables: Debt Service $563,289.13; Maintenance $506,960.19. Month of 11/2008: Beginning Cash Balance $18,296.81; Total Receipts $69,576.73, Total Disbursements $3,047.79, Cash Balance at 11/30/2008 $84,825.75. Total Disbursements for the month of December 2008: $67,411.40, Remaining Cash Balance $17,414.35. The District is 99.999% collected for 1999, 100.00% collected for 2000, 99.978% collected for 2001 taxes, 99.940% for 2002 taxes, 99.979% for 2003 taxes, 99.948% for 2004, 99.807% for 2005, 99.637% for 2006, 98.659% for 2007 and 5.569% for 2008. Brenda also presented the Top Delinquent Taxpayers report.

After discussion and upon motion duly made, seconded and unanimously carried, the Board approved the Tax Assessor/Collector's Report and payments of the tax bills presented.

b. FINANCIAL ADVISOR,

After discussion, and upon motion duly made, seconded and unanimously carried, the Board voted to transfer funds from the operating account to the debt service fund in the amount of $216,000.00 for the recent cash call.

c. OPERATOR'S REPORT,

Dusty Lane of SouthWest Water Company, the District's Operator, reported on the Districts operations and facilities, and presented the November 2008 Operations Report. Total Connections were 1501. Meter Installations and Inspections for Oct 14 - Nov 13: New Taps Installed - 0; Sewer Inspections Completed - 0; Builder Inspections completed - 0; Customer Service Inspections completed - 0; Net Rental Meter Change - 0. The required 7 samples were taken during November 2008. TCEQ Chemical Analysis: Metals 12/4/06; Radio-Chemicals 08/11/05; Volatile Organic Chemicals 8/11/05; Minerals 5/18/06; Trihalomethane Gasses (THMs) 8/30/2007 and Halocacetic Acids (HAAs) 8/30/2007. Water Production: Pumped 21,764,000 at Water Plant #1, Total Supplied - 21,764,000, Daily Average - 725,467. Subsidence Information: Estimated Number of Months Available - 16.30, Permit Months Remaining - 10, Percent of Permitted Production - 10.93. Water Accountability is at 90.8 for 10/04/08-11/04/08 and 93.0 for the Four Month Average. Total Operations Charges $17,248.06. Actual work related costs - $9,748.00 for repairs. Total Current Billing $70,904.68. Total Aged Receivables $25,463.27. Total Accounts Receivables $96,367.95. Facility Checklist Completed: Water Plant #1 11/30/08. Inspections Completed: Fire Hydrants 06/13/08. Total Deposits for November 2008 $66,158.34. Disconnects/Reconnects Income: $425.00. Dusty reported on repairs made and presented the Board with a copy of the Cornerstones M.U.D. Delinquent List and the Discharge Monitoring Reports. Everyone has been duly notified of situation and it is being addressed. No customer request this month. Reported they will be filing with FEMA for plant repairs in the amount of $23,449.78. John Irwin will review all long tap work orders done and report back next month.

Upon motion duly made, seconded and unanimously carried, the Board approved the Operator's report.

d. ENGINEER'S REPORT,

Marvin Zahradnik of Landev Engineers, Inc., the District's Engineer, presented the engineers report. No new requests for water or sewer. Has one possibility next to Pei Wei but has not received any information. Investigated the sink hole and the lines at 1723 and 1727 Briar Chester were TV'd and determined it is not going into the sanitary system.

Upon motion duly made, seconded and unanimously carried, the Board approved the Engineers report.

e. BOOKKEEPER'S REPORT,

Terry Holland of Myrtle Cruz, Inc., the District's Bookkeeper, presented the monthly report. Debt Service Funds available December 15, 2008 - $603,927.44. Total Debt Service Requirements for 2008: $1,413,182.50. General Operating: Previous Cash Balance November 17, 2008 - $5,442.25, Total Deposits $66,858.68. Beginning Cash Balance December 15, 2008 - $71,203.01. General Operating Funds available December 15, 2008 - $2,360,984.26. Terry included copies of the Debt Service Calculations for Yield Restriction Report, Cornerstones Energy Report, the Cinco Regional WWTP Improvements Report, Budget for Fiscal Year Ending September 30, 2008, the Investment Report, the Deposit/Collateral Report by District and the Tex Pool Performance sheet. Next month he will have the new bond rate sheet for 2009.

After discussion, upon motion duly made, seconded and unanimously carried, the Board approved the Bookkeepers report and payment of said bills and ordered checks issued on the appropriate District accounts in payment thereof.

6. CONSIDER AND POSSIBLY AUTHORIZE FEMA GRANT APPLICATION;

Discussed possible program for grant money from FEMA for emergency power at Plant.

7. 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.

8. CINCO REGIONAL OPERATING COMMITTEE REPORT;

Tony Garza updated the Board from Cinco Plant meeting. Inspection passed at the plant.

9. AUTHORIZE ANY NECESSARY ACTIONS WITH RESPECT TO GREENBELT TRACTS; AND

Tony Garza called Centerpoint regarding the trees growing over lines and fences in Cornerstone. Made request to Reliant to look at it as well. Also reported tree is still laying on a homeowner's garage. John Irwin also called Centerpoint regarding the trees.

10. PENDING BUSINESS;

After concluding and there being no further business to come before the Board, the meeting was adjourned at 8:17 p.m.

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Attachments: Bookkeeper's Report