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CENTRAL TEXAS TURNPIKE SYSTEM Annual Continuing Disclosure Report

For the Fiscal Year Ended August 31, 2018

Filed by February 28, 2019

By the Texas Transportation Commission Pursuant to Continuing Disclosure Undertakings For Compliance with SEC Rule 15c2-12

Texas Transportation Commission Central Texas Turnpike System Annual Continuing Disclosure Report For the Fiscal Year Ended August 31, 2018

Filed by Texas Transportation Commission Relating to Each Outstanding Issue with CUSIP Prefixes 88283K and 882762*

This annual report (this “Annual Report”) is being provided by the Texas Transportation Commission (the "Commission"), the governing body of the Texas Department of Transportation (the “Department" or "TxDOT") in compliance with the contractual undertaking (an "Undertaking") to provide annual reports of financial information and operating data, as required by Rule 15c2-12 of the United States Securities and Exchange Commission (the "Rule"), regarding the municipal debt issues (each an "Issue") by the Commission for the Central Texas Turnpike System ("CTTS" or "System").

Pursuant to the rules of the Municipal Securities Rulemaking Board (the "MSRB") the participating underwriters for each Issue were required to file a copy of the Official Statements with the MSRB, copies of which are currently available on the internet page for the "TEXAS TRANSPORTATION COMMISSION, CENTRAL TEXAS TURNPIKE SYSTEM REVENUE BONDS (TX)" on the MSRB’s Electronic Municipal Market Access (“EMMA”) system (the “CTTS EMMA internet page”). Also see “III. Relevant Links.”

The Official Statements for each Issue (each an “Official Statement”) should not be considered to speak as of any date other than the date indicated in such document. Capitalized terms used in this Annual Report and not otherwise defined herein shall have the meanings given in the Official Statements.

Information in this Annual Report regarding the Commission and the System have been compiled and provided by TxDOT, on behalf of the Commission, from TxDOT's records and other sources which are believed by TxDOT to be reliable and is provided in satisfaction of the Undertaking. This Annual Report contains information prescribed by the Rule and neither the Commission nor TxDOT makes any warranty concerning the usefulness of such information to a decision to invest in, hold, or sell bonds, notes, or other obligations payable, in whole or in part, from the sources pledged to the payment of the Issues. Information agreed to be provided by the Commission may be reported in full text herein, or may be incorporated by reference to certain other publicly available documents.

References to internet website addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the reader's convenience. Unless specified otherwise, such websites and the information or links contained therein are not incorporated into, and are not part of, this Annual Report.

*All such debt currently “Outstanding” and payable from “Revenues” as such terms are defined in the Official Statement (defined herein).

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Annual Continuing Disclosure Report – Central Texas Turnpike System Fiscal Year 2018 Page 1

Contents

I. Update to Annual Financial Information and Operating Data Required by the Undertaking...... 3 A. THE SYSTEM ...... 4 i. Debt Service Requirements ...... 4 ii. Table of Revenues, Expenses and Debt Service Coverage ...... 5 iii. Payment Method for Tolls ...... 6 iv. Toll Escalation Policy & Toll Rate Schedule ...... 6 v. Toll Discounts ...... 7 vi. Administrative Fees and Customer Service Center Fees ...... 7 vii. Interoperability ...... 8 viii. Recent Traffic and Revenue Results ...... 9 ix. Annual Financial Report for Fiscal Year 2018 ...... 9 x. Annual Inspection Report for Fiscal Year 2018 ...... 9 B. SYSTEM-RELATED FUNDING OBLIGATIONS OF THE COMMISSION ...... 9 C. FUNDING OF COMMISSION OBLIGATIONS ...... 10 i. State Highway Fund Information ...... 10 ii. Texas Department of Transportation Annual Financial Report for Fiscal Year 2018 ...... 10 II. Supplemental Information ...... 10 A. TxTag Fees and Charges Allocation Policy ...... 10 B. Conduent System ...... 11 C. Additions to the System ...... 11 III. Relevant Links ...... 12 IV. Contact Information ...... 12

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I. Update to Annual Financial Information and Operating Data Required by the Undertaking

This Annual Report contains the financial information and operating data with respect to the Commission and the System which the Commission has agreed to update pursuant to the Undertaking. The information provided herein or incorporated by reference speaks as of the date of such information and its incorporation in this Annual Report is not a representation that any of the information has been updated. In addition to this Annual Report, information can be obtained through the Official Statements that are on file with the MSRB’s EMMA system.

The information to be updated includes all quantitative financial information and operating data with respect to the Commission and the System of the general type included in the Official Statement or offering document for each Issue, under the headings "THE SYSTEM," "SYSTEM-RELATED FUNDING OBLIGATIONS OF COMMISSION" and "FUNDING OF COMMISSION OBLIGATIONS," and in "SCHEDULE II – DEBT SERVICE REQUIREMENTS" and "APPENDIX A – AUDITED FINANCIAL STATEMENTS OF THE SYSTEM". The Commission has also further agreed in the Undertaking to include (i) a table, based on the actual results for such fiscal year, setting forth for such fiscal year, but not including any projection for any future period, the information shown in the table titled "System Estimated Cash Flow and Debt Service Coverage Table," contained in the Official Statement (ii) a copy of the General Engineering Consultant's annual report relating to its inspection of the System and (iii) a copy of the toll rate schedule then in effect.

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A. THE SYSTEM

i. Debt Service Requirements (In Thousands)

Series Series Series Series Total Series Total Debt Fiscal 2002-A 2012-A 2015-A 2015-B First Tier 2015-C Service Year Bonds Bonds Bonds (1) Bonds Obligations Bonds (2) Requirements 2019 $ 20,365 $ 28,034 $ 11,250 $ 9,901 $ 69,550 $ 57,866 $ 127,416 2020 26,715 28,034 11,250 9,901 75,900 57,866 133,766 2021 36,480 28,034 11,250 9,901 85,665 57,866 143,531 2022 43,150 28,034 11,250 9,901 92,335 60,066 152,401 2023 48,940 28,034 11,250 9,901 98,125 63,131 161,256 2024 54,725 28,034 11,250 9,901 103,910 66,142 170,053 2025 60,410 28,034 11,250 9,901 109,595 69,300 178,895 2026 77,205 28,034 11,250 9,901 126,390 66,267 192,658 2027 84,355 28,034 11,250 9,901 133,540 70,001 203,541 2028 91,830 28,034 11,250 9,901 141,015 68,644 209,659 2029 97,040 28,034 11,250 9,901 146,225 69,199 215,424 2030 102,025 28,034 11,250 9,901 151,210 70,138 221,348 2031 - 28,034 11,250 9,901 49,185 178,248 227,434 2032 - 28,034 11,250 49,901 89,185 144,503 233,688 2033 - 28,034 11,250 7,901 47,185 192,931 240,116 2034 - 28,034 11,250 7,901 47,185 184,499 231,684 2035 - 28,034 11,250 121,421 160,705 92,726 253,431 2036 - 28,034 11,250 146,730 186,014 74,466 260,480 2037 - 28,034 11,250 141,000 180,284 87,354 267,638 2038 - 151,269 11,250 - 162,519 105,980 268,499 2039 - 182,520 11,250 - 193,770 74,730 268,499 2040 - 182,519 11,250 - 193,769 74,731 268,500 2041 - 142,060 51,710 - 193,770 74,728 268,498 2042 - - 193,767 - 193,767 74,734 268,501 Total $ 743,240 $ 1,191,017 $ 492,977 $ 603,572 $ 3,030,805 $ 2,136,112 $ 5,166,917

Note: Debt Service is shown on a cash basis, consistent with Debt Service Requirements as reported in CTTS Annual Financial Report For The Fiscal Year Ended August 31, 2018 - Note 5 table "Debt Service Requirements" (excluding unamortized Accretion and Premium).

(1) Debt service associated with the Series 2015-A Bonds after the end of the Multiannual Period (i.e., April 1, 2020) has been assumed at a constant 5% interest rate, with principal of the Series 2015-A Bonds paid at maturity.

(2) The Series 2015-C Bonds are Second Tier Obligations

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ii. Table of Revenues, Expenses and Debt Service Coverage (In Thousands)

Fiscal Years Ended August 31 (1) 2014 2015 2016 2017 2018 Revenues Toll Revenue $ 130,902 $ 152,306 $ 170,689 $ 185,010 $ 197,546 Fee Revenue (2) 13,312 10,952 1,546 15,704 23,911 Interest & Other Revenue (3) 6,033 6,180 6,670 7,388 9,571 Total Revenues 150,247 169,438 178,905 208,102 231,028

Debt Service First Tier Obligations 41,002 51,172 50,930 57,070 63,410 Second Tier Obligations 30,701 57,866 57,866 57,866 TIFIA Loan 35,022 - - - - Total Debt Service 76,024 81,873 108,796 114,936 121,276

First Tier Debt Service Coverage Ratio 3.66x 3.31x 3.51x 3.65x 3.64x Total Debt Service Coverage Ratio 1.98x 2.07x 1.64x 1.81x 1.90x

Revenues in Excess of Current Debt Service 74,223 87,565 70,109 93,166 109,752

Transfers (to)/from Commission for Expenses Transfers from the Commission to the System 53,604 56,133 45,587 5,191 (4) 25,933 (4) Transfers (to) the Commission from the System (5) (51,530) (54,426) (43,520) - - Net Transfers (to)/from Commission 2,075 1,707 2,067 5,191 25,933

Total Current Fiscal Year Available Revenues (6) $ 76,298 $ 89,272 $ 72,176 $ 98,357 $ 135,685

(7) $ 52,970 $ 56,399 $ 47,232 $ 51,572 $ 56,694 Operations & Maintenance and Capital Expenditures

Note: Totals may not sum due to rounding. (1) Revenues and expenses are reported on the accrual basis of accounting. (2) Represents fees received. For further information regarding Fee Revenue, see “I. A. THE SYSTEM - vi. Administrative Fees and Customer Service Center Fees” and "II. Supplemental Information – A. TxTag Fees and Charges Allocation Policy.” (3) Primarily comprised of interest earnings on the First Tier Debt Service Reserve Fund but also include earnings on the Second Tier Reserve Fund, Rate Stabilization Fund, and Revenue Fund. (4) Transfers from the Commission in Fiscal Year 2018 mainly represent approximately $22.6 million in non-roadway specific customer service center and interoperability fee revenue which was collected over FY 2016 and FY 2017 and was previously retained by TxDOT and held outside the CTTS Trust Estate. While the FY 2016 and FY 2017 funds transferred to the CTTS are excluded for purposes of calculating debt service coverage and facilitate comparison to prior years, the FY 2018 customer service center and interoperability fees are Pledged Revenues in FY 2018 and after. For further information, see "I. B. SYSTEM-RELATED FUNDING OBLIGATIONS OF COMMISSION" and "II. Supplemental Information – A. TxTag Fees and Charges Allocation Policy.” (5) In prior years, transfers to the Commission represent payments by the System to reimburse the State Highway Fund for operations and maintenance expenses and capital expenditures. Payments exclude certain transfers to Operating, Maintenance, and Reserve Maintenance Accounts held by the Commission outside of the Indenture which are required to be funded at two months of the ensuing year's budgeted amounts. Beginning in Fiscal Year 2017, System disbursements were made directly from the System Operating, Maintenance, and Reserve Maintenance accounts and thus reimbursements to the State Highway Fund were not necessary. See “System Operating, Maintenance, and Reserve Maintenance Accounts” Fiscal Year 2018 funding below. (6) Revenues of the System after payment of Debt Service plus Net Transfers (to)/from the Commission. (7) System Operations and Maintenance Expenses and Capital Expenditures shown do not reflect depreciation.

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System Operating, Maintenance, and Reserve Maintenance Accounts (In Thousands) As of 8/31/18 Required * Funded * Operating Account $ 8,513 $ 55,078 Maintenance Account 2,218 14,510 Reserve Maintenance Account 5,819 55,256 Total $ 16,550 $124,844

* As of August 31, 2018, reserve funding included August operating and maintenance expense of approximately $5 million not yet paid and nearly $120 million for operating, maintenance and capital expense provided in the CTTS 2019 Annual Budget (the two month requirement is approximately $16.6 million).

iii. Payment Method for Tolls

General. The Department currently allows all drivers to pay tolls for the use of the System in two ways: (i) using an electronic toll collection ("ETC") transponder in the vehicle to debit a pre-paid account or (ii) paying a bill for tolls sent by mail ("Pay by Mail"). During Fiscal Year 2018, 66% of the total transactions processed for the System are attributable to ETC transponder accounts and 34% are attributable to image-based transactions, consisting of invoiced Pay by Mail transactions and not invoiced, unbillable transactions. The Fiscal Year 2018 overall collection rate for CTTS is 81% including both ETC and Pay by Mail transactions and taking into account previously disclosed delays and suspensions due to the CUSIOP implementation described in “I. A. THE SYSTEM - vii. Interoperability-Implementation of CUSIOP” herein.

ETC Transponder Payment Method. The ETC transponder payment method requires that drivers attach a transponder to the windshields of their vehicles which sends a signal to the electronic tolling equipment as the vehicle crosses a tolling point. The Department's ETC transponder is branded as a "TxTag". Each TxTag transponder is associated with a pre-paid customer account and funds are withdrawn by the Department from the account as tolls are incurred. A single toll account can have multiple TxTag transponders associated with the account.

As of August 31, 2018, there were 1,231,124 active toll accounts with 2,238,379 active TxTag transponders state-wide. As of August 31, 2018, the number of active TxTags increased approximately 9% over such number as of August 31, 2017.

Pay by Mail Payment Method. For transactions that do not post to an ETC transponder account, a Pay by Mail invoice is mailed to the address registered to the license plate of the vehicle. Pay by Mail toll rates are 33% more than an ETC transponder toll rate, plus a per statement fee. During Fiscal Year 2018, approximately 11% of all image-based transactions on the System could not be invoiced, including but not limited to exempt vehicles such as government and emergency vehicles. Additionally, during Fiscal Year 2018, the collection rate on invoiced Pay by Mail transactions on the System was 53% and the collection rate for all image-based transactions (invoiced and non-invoiced) was 50%.

iv. Toll Escalation Policy & Toll Rate Schedule

In August 2012, pursuant to Minute Order 113244, the Commission approved an annual toll escalation policy (the “2012 Toll Escalation Policy”) under which rate increases will be considered by the Commission every October and shall be automatically effective on January 1 of the following year, unless the Commission votes prior to January 1 to change the escalation rate. The percentage of annual toll escalations is based on the Consumer Prices for All Urban Consumers (CPI-U) before seasonal adjustment, as published by the Bureau of Labor Statistics of the US Department of Labor. Minute Order 115361 adopted by the Commission on October 25, 2018, approved a 2.7% toll rate escalation, in accordance with the 2012 Toll Rate Escalation Policy, effective January 1, 2019. The table below sets forth the escalation rates applied per the 2012 Toll Escalation Policy. October Annual Escalation Effective Approval Percent January 1 2014 1.7% 2015 2015 0.2% 2016 2016 1.1% 2017 2017 1.9% 2018 2018 2.7% 2019

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The toll rates shown in the table below apply to ETC transactions for two-axle vehicles ("Auto"). The Full Length Toll Rates include mainline plaza rates multiplied by the number of mainline tolling points for each roadway and exclude entrance and exit ramp charges. Annual Toll Rates for all years shown were adjusted in accordance with the 2012 Toll Rate Escalation Policy. However, because of the percent of the escalation and rounding to the nearest penny, certain years do not show a change in the per mile Toll rates presented. Auto ETC Toll Rates Full Length Toll Rates Per Mile Toll Rates Jan Jan Jan Jan Jan Jan Element 2017 2018 2019 2017 2018 2019 SH 130 (49.0 miles) $7.08 $7.20 $7.40 $0.14 $0.15 $0.15 SH 45N (12.8 miles) $2.14 $2.18 $2.24 $0.17 $0.17 $0.18 SH 45SE (7.0 miles) $1.05 $1.07 $1.10 $0.15 $0.15 $0.16 Loop 1 (4.0 miles) $1.07 $1.09 $1.12 $0.27 $0.27 $0.28 The currently effective CTTS Toll rate schedule approved by Minute Order 115361 dated October 25, 2018, may be found online at the CTTS EMMA issuer homepage and is incorporated by reference into and made a part of this Annual Report. Also see “III. Relevant Links.”

v. Toll Discounts

Veteran Toll Waiver Program. In compliance with the provisions of the Master Indenture and after receipt of the required certification by the Traffic Consultant, the Commission authorized free passage on the System for both TxTag and Pay by Mail customers who are disabled veterans or recipients of the Purple Heart, Congressional Medal of Honor, Air Force Cross, Distinguished Service Cross, Army Distinguished Service Cross or Navy Cross (Legion of Valor) effective December 24, 2012. To take advantage of this program, eligible veterans are required to register the license plates of their vehicles with the Texas Department of Motor Vehicles. The transactions for such registered license plates are invoiced to TxDOT and TxDOT pays the System for the transactions. TxDOT has a monitoring program to identify eligible transactions and the associated revenue to be reimbursed. The Department reimburses the appropriate Master Indenture account for the cost of tolls waived for customers with such eligible plates.

Since the program began, TxDOT reimbursed the System approximately $23.1 million to pay for approximately 17.9 million eligible veteran transactions. In Fiscal Year 2018, the System was reimbursed approximately $6.31 million on approximately 4.8 million transactions.

vi. Administrative Fees and Customer Service Center Fees

The Commission continually monitors and evaluates its fee structure and may adopt additional fees in the future or revise the existing fee structure as it determines to be appropriate. The revenue derived from the fees and charges described are referred to herein as "Customer Service Center Revenues." See "II. Supplemental Information – A. TxTag Fees and Charges Allocation Policy.”

Fees not attributable to a specific transaction or roadway. In addition to the toll rates charged for the System, the Commission charges fees for various customer services related to utilizing the various toll facilities of the Department that are not attributable to a specific transaction or roadway. These fees are assessed to reimburse for specific TxTag services. In fiscal years 2016 and 2017, these fees were not distributed to the CTTS or to any other toll road for which the Toll Operations Division (TOD) of TxDOT provides services. In August 2018, TxDOT transferred all such fees collected in fiscal years 2016 through 2018 to the System. Future customer service center fees will be deposited directly into the CTTS Revenue Fund. See “II. Supplemental Information – A. TxTag Fees and Charges Allocation Policy” for more information regarding changes to TxDOT’s fee allocation policy in 2018. Fee structure during Fiscal Year 2018 is set forth below.

Standard TxTag Fee - $7.99, only applies to Accounts that are not enrolled in AutoPay. This fee was lowered during Fiscal Year 2017 from $13.85 to $7.99. Specialty TxTag Fee - $45.00 for motorcycles and license plates; includes $35.00 refundable deposit. Mailed Monthly Statement or Mailed /Faxed On-Demand Statement Fee - $1.15. Returned Check Fee - $30.00 per check. Administrative (late) Fee - $4.00

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Changes to Toll Collection and Billing Procedures. The 85th Texas Legislature passed Senate Bill 312 (“SB 312”), which was signed into law by the Governor on June 9, 2017. SB 312 contains new provisions which, among other things, impose limitations on the amount of fees that can be assessed by TxDOT and obligate TxDOT to invoice customers for Pay by Mail transactions for certain toll roads that it operates, including the CTTS. The changes to toll collection and billing procedures implemented pursuant to SB 312 apply to toll transactions incurred on the CTTS, and certain other toll roads operated by TxDOT, on and after March 1, 2018. In anticipation of the changes to its toll collection and billing procedures required by SB 312, beginning on November 1, 2017, TxDOT suspended the imposition of violation fees for toll transactions occurring on the System (and certain other toll roads operated by TxDOT). The new invoice based fee structure was implemented March 1, 2018 and administrative fees were assessed beginning August 9, 2018. The Department does not anticipate the changes will have a material adverse impact on the Commission’s or the Department’s ability to comply with its covenants and obligations under the Master Indenture, including the covenants as to tolls, or the Commission’s ability to comply with its obligations under the Master Indenture, including the toll rate covenants of the Commission set forth therein.

vii. Interoperability

Interoperable toll revenues for the System reflect tolls for transactions on CTTS roadways paid with a transponder other than TxTag, representing approximately 15% of toll revenues of the System in Fiscal Year 2018.

General. In 2017, a new interoperability agreement was executed among TxDOT, other Texas tolling entities, the Oklahoma Turnpike Authority, and the Kansas Turnpike Authority, and is referred to as the Central US Interoperability Agreement or the “CUSIOP”. The CUSIOP replaced the Interoperability Agreement signed in 2007 and revised the interoperability transaction fees paid by the toll road owner to the transponder issuer. Pursuant to the terms of the CUSIOP, in order to reimburse the costs to process these transactions and manage customer accounts, the toll road owner pays the transponder issuing agency a fee of 5 cents per transaction and 3% of the revenue generated for each interoperable transaction, with a minimum of 8 cents per transaction. In fiscal years 2016 and 2017, these interoperability fees were not distributed to the CTTS or to any other toll road for which TOD provides services. In August 2018, TxDOT transferred all such fees collected in fiscal years 2016 through 2018 to the System. Future interoperability fees will be deposited directly into the CTTS Revenue Fund. See “II. Supplemental Information – A. TxTag Fees and Charges Allocation Policy” for more information regarding changes to TxDOT’s fee allocation policy in 2018.

Implementation of CUSIOP. The implementation of the CUSIOP and related systems integration resulted in temporary interruptions to certain customer service and billing functions, including delayed toll postings, revenue and expense recognition, statement processing, invoicing for violations and escalation of past due transactions to the collections process. TxDOT, the other Texas tolling entities and the Kansas Turnpike Authority are in the process of completing the related systems integration in connection with the implementation of the CUSIOP. The foregoing issues have not materially adversely impacted the ability of the Commission to comply with its covenants under the Master Indenture.

Additional Interoperability Agreements. TxDOT expects to enter into one or more interoperability agreements involving other states to comply with the Moving Ahead for Progress in the 21st Century Act requiring seamless interoperability on toll facilities nationwide. In June 2017, the Commission authorized TxDOT to enter into an interoperability agreement with other Texas toll entities, the Oklahoma Turnpike Authority, the Kansas Turnpike Authority, and Florida’s Turnpike Enterprise (Southeast United States Interoperability Hub “SSIOP”) which is owned, operated, and maintained by Florida’s Turnpike Enterprise. SSIOP provides interoperability of transponders for multiple facilities in the states of Florida, North Carolina, South Carolina, Georgia, and Alabama. TxDOT anticipates that there will be continuing efforts to advance interoperability through both the CUSIOP and SSIOP agreements.

Lockbox and Custodial Agreement. TxDOT’s customer service center receives transaction data from various toll road operators in the state, including TxDOT-owned toll roads such as the System, regarding the use of toll roads in the State. TxDOT also provides clearinghouse services and back office functions relating to the operation of certain toll roads including call center operations, account management and maintenance, transponder issuance and replacement for toll roads, invoicing, toll collection, violation processing and enforcement, revenue handling and accounting and customer service support. In order to properly account for and disburse revenue received, TxDOT executed the Master Custodial Agreement to hold, administer and disburse funds from certain lockbox and custodial revenue accounts. The Master Custodial Agreement is between TxDOT and The Bank of New York Mellon Trust Company, N.A. The Master Custodial Agreement was recently extended for an additional 5 years and is currently scheduled to expire on November 8, 2023.

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viii. Recent Traffic and Revenue Results

For detailed information on actual transactions and revenues, please see the Central Texas Turnpike System Quarterly Report of Actual Transactions and Revenue for Fiscal Year 2018 and for the First Quarter of Fiscal Year 2019, which are available online at the CTTS EMMA issuer homepage and are incorporated by reference into and made a part of this Annual Report. Also see “III. Relevant Links.”

ix. Annual Financial Report for Fiscal Year 2018

The CTTS Fiscal Year 2018 Audited Annual Financial Report ("AFR") may be found online at the CTTS EMMA issuer homepage and is incorporated by reference into and made a part of this Annual Report. Also see “III. Relevant Links.”

x. Annual Inspection Report for Fiscal Year 2018

The General Engineering Consultant’s CTTS Fiscal Year 2018 Annual Inspection Report may be found online at the CTTS EMMA issuer homepage and is incorporated by reference into and made a part of this Annual Report. Also see “III. Relevant Links.”

B. SYSTEM-RELATED FUNDING OBLIGATIONS OF THE COMMISSION

System Operations, Maintenance and Capital Expenditures (In Thousands)

2015 2016 2017 2018 2019 Actual Actual Actual Actual Budget Operations & Maintenance (1) $ 55,531 $ 43,705 $ 51,192 $ 56,694 $ 64,388 Capital (2) 868 3,527 380 114,311 Total $ 56,399 $ 47,232 $ 51,572 $ 56,694 $ 178,699

Note: Totals may not sum due to rounding. (1) Excludes depreciation expense and maintenance expense associated with Reserve Maintenance within the meaning of Section 515 of the Master Indenture. (2) Includes maintenance expense associated with Reserve Maintenance and capital expenditures within the meaning of Section 515 of the Indenture. The Commission budgets capital expenditures and unusual and extraordinary maintenance in the Reserve Maintenance Account for a rolling five-year period. Fiscal year 2019 capital budget includes approximately $49 million for SH 130 expansion and $30 million for the addition of a US 290 direct connector funded by monies held in the CTTS Capital Contribution Account. In addition, the Fiscal Year 2019 capital budget includes$31 million for Back Office Development and $4 million in other Major Maintenance to be paid from the Reserve Maintenance Accounts. For further information relating to capital projects, see "II. Supplemental Information – C. Additions to the System". Any budget for Fiscal Years 2020 through 2022 assuming use of Department funds is subject to future legislative appropriation.

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C. FUNDING OF COMMISSION OBLIGATIONS

i. State Highway Fund Information

The Commission has covenanted in the Master Indenture to (i) pay Operating Expenses to the extent of any deficiency in the Operating Account; (ii) pay all Maintenance Expenses when due, for which it may be reimbursed and (iii) fund the Reserve Maintenance Account, all subject to funds appropriated by the Legislature in a manner that would allow their use. This funding obligation of the Commission has historically been funded from the State Highway Fund, the primary source of funding for the construction, maintenance and operation of the Texas highway system. Beginning in Fiscal Year 2017, System expenses were paid directly from the System Operating, Maintenance and Reserve Maintenance accounts and reimbursements to the State Highway Fund were not necessary. For further information regarding the Department and the State Highway Fund, reference is made to the State Highway Fund disclosures which are available online at the Commission’s EMMA issuer homepage.

The Section "STATE HIGHWAY FUND" of the Commission’s Official Statement in connection with the State Highway Fund, Series 2017 Bonds and the State Highway Fund Continuing Disclosure Updates for Fiscal Year 2018, linked on the Commission’s EMMA issuer homepage, are hereby incorporated by reference into and made a part of this Annual Report. Also see “III. Relevant Links.”

ii. Texas Department of Transportation Annual Financial Report for Fiscal Year 2018

The TxDOT Fiscal Year 2018 Audited Annual Financial Report ("AFR") may be found online at the State Highway EMMA issuer homepage for CUSIP prefix 88283L and is incorporated by reference into and made a part of this Annual Report. Also see “III. Relevant Links.”

II. Supplemental Information

A. TxTag Fees and Charges Allocation Policy

The Commission and TxDOT continually monitor and evaluate its fee structure and allocation methodology for customer service center and interoperability fee revenues. Prior to 2016, a large portion of the customer service center fees not attributable to a CTTS transaction were deposited into the CTTS Revenue Fund held by The Bank of New York Mellon Trust Company, N.A., as trustee, pursuant to the Trust Indenture dated as of July 1, 2002 (the “CTTS Revenue Fund”). Effective for Fiscal Years 2016 and 2017, TxDOT directed non-roadway specific revenues, including certain customer service center and interoperability fee revenues, to TxDOT, rather than CTTS, to offset the operating costs incurred by TxDOT resulting from its expanded toll operations for TxDOT owned and/or operated toll facilities and systems including CTTS.

In August 2018, TxDOT decided to utilize CTTS as the back office system provider for all TxDOT owned and/or operated toll roads and systems. As a result, all existing customer service center and interoperability fee revenues were transferred to CTTS. In August 2018, TxDOT deposited approximately $37,419,000 of customer service center and interoperability fee revenue (the “August 2018 Deposit”) into the CTTS Revenue Fund. Future customer service center and interoperability fee revenues will be deposited directly into the CTTS Revenue Fund. No adjustment to the CTTS financial statements are being made for Fiscal Years 2016 and 2017.

To reduce back office system costs and eliminate transaction-based vendor fees, TxDOT is in the process of developing a new back office system tailored for TxDOT’s needs. TxDOT has awarded IBM a four-year contract to develop, implement, host and maintain software and a system to process toll transactions, handle billing and support customer service for TxDOT’s more than 2.3 million TxTag users and toll road drivers who opt for Pay By Mail invoicing. This system will be owned by CTTS. TxDOT currently anticipates capital, implementation and support costs of approximately $57,000,000 over Fiscal Years 2019-2021. TxDOT anticipates that the August 2018 Deposit together with the customer service center and interoperability fee revenues collected during Fiscal Years 2019-2021 will be sufficient to pay the capital costs of the back office system project. The allocation of expenses directly associated with the collection of the customer service center and interoperability fee revenues remain subject to TxDOT policies to achieve an equitable allocation of expenses among TxDOT owned and/or operated toll roads and systems.

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B. Conduent System

Customer service is managed and overseen by TOD staff and Conduent State and Local Solutions, Inc. (“Conduent”), formerly known as Xerox State & Local Solutions, Inc., pursuant to an agreement between TxDOT and Conduent, which is a subsidiary of Conduent, Incorporated. The term of the Conduent agreement is scheduled to expire in June 2020, which may be extended pursuant to its terms at TxDOT’s option through June 2023, or, as discussed above regarding the development of a new back office system. TxDOT may terminate such agreement at any time and procure and implement one or more new back office systems or agreements to provide the services currently being provided by Conduent, at its discretion.

C. Additions to the System

SH 130 Expansion Project. The Commission adopted Minute Order 114813 on January 26, 2017 authorizing TxDOT to proceed with the SH 130 expansion project to add an additional toll lane to both the northbound and southbound segments from SH 45N to US 290 (approximately 9 miles of Segment 2 of SH 130) and from US 290 to SH 71 (approximately 11 .4 miles of Segment 3 of SH 130), and to expend funds from the capital contribution account of the construction fund created under the CTTS indenture for that purpose. This project was divided into the following two separate construction contracts for letting:

 Segment 2 (approximately 9 miles from SH 45N to US 290): The project was let by TxDOT on December 6, 2017. Contract awarded to OHL USA, Inc. in April 2018. Construction is scheduled to be complete in late 2020.  Segment 3 (approximately 11 .4 miles from US 290 to SH 71): The project was let by TxDOT on October 3, 2018. Contract awarded to OHL USA, Inc. in December 2018. Construction is scheduled to be complete in late 2020.

SH 130 and US 290 Direct Connector. The Commission adopted Minute Order 114958 on June 29, 2017, authorizing construction and funding for a direct connector between SH 130 and the Central Texas Regional Mobility Authority’s (CTRMA) US 290 toll project (290 Toll). Two additional direct connectors between SH 130 and 290 Toll were authorized and will be part of the CTRMA system. The SH 130 direct connector and related improvements that will be part of the SH 130 element of the CTTS will connect eastbound 290 Toll to southbound SH 130. On June 18, 2018, TxDOT and CTRMA executed agreements for the construction and delivery of the direct connectors. Pursuant to these agreements, CTRMA is responsible for construction of all direct connectors and related improvements. Construction began December 2018 and is anticipated to be complete in 2021.

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III. Relevant Links

EMMA Website www.emma.msrb.org www.emma.msrb.org/IssuerHomePage/Issuer?id=FE6B1DF57 CTTS EMMA Issuer Homepage C7936E2E043151ED20A6141&type=M CTTS AFR (Fiscal Year 2018) https://emma.msrb.org/ER1180931-ER922631-ER1323974.pdf CTTS Annual Inspection Report https://emma.msrb.org/ER1130860-ER884995- (Fiscal Year 2018) ER1285686.pdf https://emma.msrb.org/ER1160744-ER907557- CTTS Toll Rate Schedules ER1308025.pdf State Highway Fund EMMA www.emma.msrb.org/IssuerHomePage/Issuer?id=FE6AF031F Issuer Homepage B2E2FD1E043151ED20ABC22&type=M TxDOT AFR https://emma.msrb.org/ER1180917-ER922869- (Fiscal Year 2018) ER1323962.pdf State Highway Fund Annual https://emma.msrb.org/ER1197048-ER937009- Continuing Disclosure ER1338047.pdf (Fiscal Year 2018) TxDOT Website www.txdot.gov TxDOT Investor www.txdot.gov/inside-txdot/division/debt/investors.html Relations Website

IV. Contact Information

For additional information concerning this report, please contact:

Mr. Benjamin H. Asher Director, Project Finance, Debt and Strategic Contracts Division Texas Department of Transportation 125 East 11th Street Austin, Texas 78701-2483 512-463-8611 Email: [email protected]

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