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• • CITY COUNCIL AGENDA ITEM 2B STAFF ORIGINATOR: Al Rolek MEETING DATE: October 22, 2012 TOPIC: Consider Resolution No. 12 -106 Approving Post - Issuance Compliance Procedure And Policy For Tax- Exempt Governmental Bonds VOTE REQUIRED: 3/5 INTRODUCTION The City's Bond Counsel has determined that for purposes of reporting bond sale information to the Internal Revenue Service (IRS) and for ongoing reporting requirements it would be prudent for the City to adopt a formal post- issuance compliance procedure and policy for city- issued tax exempt bonds. BACKGROUND In order for the Series 2012A Bonds to retain their tax - exempt status, the City is required to comply with various rules after the bonds have closed. In a letter to staff, Bond Counsel Steve Bubul of Kennedy and Graven points out two key rules as follows: 1. Issuers must ensure that the facilities financed with proceeds of the bonds continue to be used for public purposes. If the use is later change to a private use (or certain other things happen that would render the bonds taxable), the issuer must take a "remedial action" to prevent the bonds from losing their tax- exempt status. Usually, this means all or a portion of the bonds must be redeemed or defeased. 2. Issuer must also ensure that proceeds of the bonds are used in a way that complies with complex rules under Section 148 of the Code governing "arbitrage." Arbitrage is the term for what happens if the City invests proceeds of tax- exempt bonds at a higher rate than the interest payable on the bonds. In some cases, the City may in fact earn this arbitrage, but still must rebate the amounts earned to the federal government. While the City is not technically required to have written procedures on these matters, the new IRS Form 8038 -G provides strong incentive to adopt such procedures, as it will not be in the City's interest to file the new form without checking "yes" in these two boxes. The procedures help show the IRS that the City has a strategy for compliance with the rules described above. The draft Policy responds to the IRS concerns. It generally designates the Finance Director as the City staff person responsible to oversee compliance with the various post - issuance rules. The Policy recognizes that the City's financial advisor and bond counsel will play significant roles in 410219v1 SJB LN140 -108