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• I called and talked to the individual at Springstead who has already done some calculations on the arbitrage dollars which we will owe the IRS in July 2004. I was informed that currently the city would owe about $5,000 dollars. When I proposed increasing the fund balance in the 1999 G.O. NE Quadrant Street Bond fund to create negative arbitrage to offset the positive arbitrage during this first 5 year period I was informed that we would end up paying significantly less than the $5000. The positive arbitrage and negative arbitrage "net" during each 5 year period. When I checked with Ehlers & Associates I was told the same information. One could think of it as an additional return on our investment when we are reducing an upcoming liability by being able to decrease the amount which we would be required to pay to the IRS while at the same time getting the going rate of return on our investment of any money transferred to the 1999 G.O. NE Quadrant Street Bond fund. What are our obligations on the 1999 G.O. NE Quadrant Street Bond for the next 2 years? For 2004, we are paying the bondholders 4%. The principal payment and interest payments in 2004 total: $178,710 ($135,000 principal and $23,205 interest payment due Feb 1, 2004) ($20,505 interest payment due Aug 1, 2004) • For 2005, we are paying the bondholders 4.1 The principal payment and interest payments in 2005 total: $183,037 ($145,000 principal and $20,505 interest payment due Feb 1, 2005) ($17,532 interest payment due Aug 1, 2005) The total of the principal and interest payments for 2004 and 2005 total: $361,747 The current fund balance in the 1999 G.O. NE Quadrant Street Bond fund is approximately $75,000. Adding the transfer of $291,168 plus the $75,000 totals: $366,168 (slightly more than the $361,747 needed for the principal and interest payments in 2004 and 2005). Currently, I'm getting 1.4% for a one year CD. I've talked to three different brokers that I deal with and asked them what their firms are projecting for the next year. They said that the economy is very sluggish and didn't expect it to recover quickly. Interest rates are not going to increase quickly. The consensus was that there was no way that the interest rates would approach 4% into 2004 and even possibly into 2005. Clearly we are going to be in a situation of negative arbitrage. RECOMMENDATION: Transfer the full amount of $291,168 to the 1999 G.O. NE Quadrant Street Improvement Bond effective October 1, 2003 so the full 4t" quarter negative arbitrage can be used to offset the previous positive arbitrage on the bond. We would then have approximately 9 months of negative arbitra~e to help reduce the possible IRS payment due in July 2004. (4t" quarter 2003, and 1St and 2° quarter 2004). /~