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City of Lino Lakes, Minnesota <br />October 21, 2003 <br />(c) Bona Fide Debt Service Fund <br />• <br />(d) Economic Life <br />(e) Federal Reimbursement <br />Regulations <br />• <br />There is an exemption from rebate for a <br />municipality that issues $5 million or Tess of <br />tax - exempt obligations in a calendar year. <br />Since the City does not expect to issue more <br />than $5 million of tax - exempt obligations in <br />2003, this Issue will be exempt from rebate. <br />Although exempt from rebate, the City must <br />still comply with the arbitrage regulations <br />which require yield restriction of proceeds <br />remaining in a project fund after the three -year <br />temporary period. <br />The City must maintain a bona fide debt <br />service fund for the Bonds or be subject to <br />yield restriction. This requires restricting the <br />investments held in the debt service fund to <br />the yield on the Bonds and /or paying back <br />excess investment earnings in the debt <br />service fund to the federal government. A <br />bona fide debt service fund is a fund for which <br />there is an equal matching of revenue to debt <br />service expense, with carry over permitted <br />equal to the greater of the investment <br />earnings in the fund during that year or 1/12 <br />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 />Springsted currently provides arbitrage rebate <br />services for the City under a separate <br />contract. An amendment to that contract <br />adding this Issue has been provided to the <br />City. <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 <br />improvements exceeds 20 years. The <br />average life of the Bonds is 5.030 years; <br />therefore the Issue is within the economic life <br />requirements. <br />Federal reimbursement regulations require the <br />City to make a declaration, within 60 days of <br />the actual payment, of its intent to reimburse <br />itself from expenses paid prior to the receipt of <br />Bond proceeds. It is our understanding the <br />City has taken whatever actions are <br />necessary to comply with the federal <br />reimbursement regulations in regards to the <br />Bonds. <br />Page 3 <br />