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City of Lino Lakes, Minnesota <br />May 7, 2002 <br />(c) Bona Fide Debt Service Fund <br />(d) Economic Life <br />(e) Federal Reimbursement <br />Regulations <br />10. Continuing Disclosure <br />Since the City expects to issue Tess than <br />$5 million of tax exempt obligations in 2002, the <br />City qualifies as a "small issuer' and will be <br />exempt from rebating excess earnings on Bond <br />proceeds to the federal govemment. <br />The City must maintain a bona fide debt service <br />fund for the Bonds or be subject to yield <br />restriction. This requires restricting the <br />investments held in the debt service fund to the <br />yield on the Bonds and/or paying back excess <br />investment earnings in the debt service fund to <br />the federal government. A bona fide debt <br />service fund is a fund for which there is an equal <br />matching of revenue to debt service expense, <br />with carry over permitted equal to the greater of <br />the investment earnings in the fund during that <br />year or 1/12 the debt service of that year. <br />With improvement bonds, such as this issue, <br />additional diligence should be exercised in <br />monitoring the debt service fund due to the <br />potential accumulation of assessment <br />prepayments which could cause the fund to <br />become non -bona fide. <br />The average life of the Bonds cannot exceed <br />120% of the economic life of the projects to be <br />financed. The economic life of the improvements <br />exceeds 20 years. The average life of the Bonds <br />is 5.983 years; therefore the issue is within the <br />economic fife requirements. <br />Federal reimbursement regulations require the <br />City to make a declaration, within 60 days of the <br />actual payment, of its intent to reimburse itself <br />from expenses paid prior to the receipt of Bond <br />proceeds. It is our understanding the City has <br />taken whatever actions are necessary to comply <br />with the federal reimbursement regulations in <br />regards to the Bonds. <br />The Bonds are subject to continuing disclosure <br />requirements set forth by the Securities and <br />Exchange Commission. The SEC rules require <br />the City to undertake an annual update of certain <br />Official Statement information and report any <br />material events to the national repositories. <br />Springsted currently provides continuing <br />disclosure services for the City under a separate <br />contract. An amendment to that contract adding <br />this issue has been provided to City staff. <br />Page 3 <br />