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Discussion Issues: <br />Bank Qualified: <br />Arbitrage Rebate: <br />Under Minnesota Statutes, Chapter 429, particularly Section 429.091, <br />Subdivision 7a, it is the intent of the City to special assess at least 20% of the <br />costs of each street improvement against benefitted property and to charge <br />net revenues of the municipal water and sewer system sufficient to recover <br />the costs of each utility improvement. <br />Principal payments maturing in 2012 through 2026 are structured to maintain <br />level debt service sufficient to match the tax increment available for their <br />payment in the amount of approximately $160,000 per year. The City <br />reserves the right to increase or decrease any maturity of the Bonds on the <br />day of sale, in increments of $5,000 each to maintain this revenue constraint. <br />The first interest payment on the Bonds will be February 1, 2009, and <br />semiannually thereafter on February 1 and August 1. The projected debt <br />service and flow of funds are attached to this Report. <br />A portion of the bond proceeds is set aside as capitalized interest to <br />provide funds to pay the first interest payment on February I, 2009, <br />August 1, 2009, and February 1, 2010 before the tax increments are <br />collected, beginning on July 1, 2010 and special assessments are collected, <br />beginning on July I, 2009. <br />We have reviewed all outstanding indebtedness for the City and find that <br />there are no immediate refunding opportunities for the City at this time. <br />We will continue to monitor the market and the call dates for the City and <br />alert you to any future opportunities. <br />The City will designate the Bonds as "bank qualified ", which will allow <br />banks to buy the Bonds at slightly lower interest rates. <br />With increasing short -term investment rates, IRS rules regarding the <br />amount of interest that the City may earn on bond proceeds is more of a <br />concern. Because the City is issuing no more than $5,000,000 for the <br />calendar year, the City has three years to spend the proceeds without <br />needing to rebate or repay interest earned that is more than the interest rate <br />on the Bonds. The excess interest earnings are known as "arbitrage ". The <br />City will also need to keep its debt service funds within IRS parameters to <br />avoid penalties on carrying too high of a balance during the life of the <br />Bonds. <br />Prepared by Ehlers - Leaders in Public Finance <br />4 <br />