Title
A resolution expressing intent to reimburse expenditures from proceeds of future obligations.
Body
This resolution is required under Internal Revenue Service, Department of Treasury Regulations Section 1.150-2, when the City allocates proceeds of tax-exempt bonds to reimburse itself for prior expenditures paid with funds other than bond proceeds.
The City annually issues bonds and certificates of obligation to finance major capital improvement projects. City departments often commence these capital projects at the beginning of the fiscal year prior to the bond sale and project expenses are paid from sources other than the bond proceeds and those expenses are reimbursed once bond proceeds are received. Treasury rules determine when bond proceeds are treated as spent rather than invested for the purpose of calculating arbitrage. Arbitrage is the profit from borrowing in the tax-exempt market (issuing bonds) and investing in the taxable market (City’s investment portfolio), and certain profits earned in higher yield investments must be rebated to the United States.
This resolution is required to ensure City compliance with Treasury rules in order to prevent its bonds from potentially being declared “arbitrage bonds,” which would place the bonds at risk of losing tax-exempt status.
Maximum principal amount of obligations subject to reimbursement:
Certificates of Obligation $40,000,000
Drainage Utility Revenue Bonds 6,000,000
Water and Sewer Revenue Bonds $20,000,000
Total $66,000,000
Recommended/Desired Action
Staff recommends approval of the resolution.
Attachment(s)
Resolution
Drafter
Ted Chinn
Head of Department
Ted Chinn