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 to finance major capital improvements. 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. In a reimbursement, a portion of the bond proceeds are allocated to reimburse original expenditures that were paid before the bond proceeds were 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 yielding 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 mean the bonds could lose their tax-exempt status.
Proposed bond sale amounts for projects identified for the 2026 issuance are:
Certificates of Obligation $8,000,000.00
Water and Sewer Revenue Bonds 10,000,000.00
Total $18,000,000.00
Recommended/Desired Action
Staff recommends approval of the resolution.
Attachment(s)
Resolution
Drafter
Ted Chinn
Head of Department
Ted Chinn