Management Report and Recommendations 12/31/1989

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City of Lino Lakes, Minnesota Management Report, Page 27 1988 Temnorary Improvement Bonds The City issued these bonds to finance Erickson's 2nd Addition, Phase 2 and South Reshanau Phase 2 Improvements. 1989 Tenmorary Improvement Bonds The City issued these bonds to finance Reshanau Phase 2B and 3A, West Central Sewer and Water Trunk, Sunrise Meadows, and Carlson Improvements. Arbitrage Regulations Federal law prohibits excess earnings on bond proceeds maintained in construction or debt service funds. The regulations are complex and for "large issuers" (over $5 million of bonds issued in one year) there are rebate requirements. If the City of Lino lakes issues over $5 million of bonds in one year, they will be required to comply with arbitrage regulations. • Measuring investment interest earned on tax exempt bond proceeds. • Determining the yield of such investment earnings. • Comparing the yield earned with the yield of the tax exempt bonds. • Calculating the amount (if any) of excess earnings. • Reporting the excess earnings to the Internal Revenue Service annually. • Rebating such excess earnings at least every five years. Our firm has assisted another Minnesota city in seeking a ruling request from the Internal Revenue Service which will reduce the administrative complexities of complying with the arbitrage regulations.We recommend that the City continue efforts to monitor arbitrage compliance.