05-11-2015 Council Packet - Laserfiche WebLink

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LINO LAKES ECONOMIC DEVELOPMENT AUTHORITY AGENDA ITEM 4A(ii) STAFF ORIGINATOR: MEETING DATE: TOPIC: VOTE REQUIRED: INTRODUCTION Al Rolek May 11, 2015 Consider Resolution 15-03 Approving Post -Issuance Compliance Procedure and Policy for Tax -Exempt Governmental Bonds Simple Majority The EDA'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 EDA to adopt a formal post -issuance compliance procedure and policy for Authority -issued tax exempt bonds. This policy is identical to the policy adopted by the Lino Lakes City Council on October 22, 2012. BACKGROUND In order for the EDA Lease -Revenue Series 2015 Bonds to retain their tax-exempt status, the EDA is required to comply with various rules after the bonds have closed. In a letter to staff, Bond Counsel Julie Eddington 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 changed 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 EDA 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 Authority'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.