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CITY OF ST. ANTHONY, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 2008 B. LITIGATION The City attorney has indicated that existing and pending lawsuits, claims and other actions in which the City is a defendant are either covered by insurance; of an immaterial amount; or, in the judgment of the City attorney, remotely recoverable by plaintiffs. C. FEDERAL AND STATE FUNDS The City receives financial assistance from federal and state governmental agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with the terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the applicable fund. However, in the opinion of management, any such disallowed claims will not have a material effect on any of the financial statements included herein or on the overall financial position of the City at December 31, 2008. D. TAX INCREMENT DISTRICTS The City's tax increment districts are subject to review by the State of Minnesota Office of the State Auditor (OSA). Any disallowed claims or misuse of tax increments could become a liability of the applicable fund. Management has indicated that they are not aware of any instances of noncompliance which would have a material effect on the financial statements. E. PAY-AS-YOU-GO TAX INCREMENT The City has one tax increment pay-as-you-go agreement. The agreement is not a general obligation of the City and is payable solely from available tax increments. Accordingly, this agreement is not reflected in the financial statements of the City. Details of the pay-as-you-go are as follows: TIF District #3-5, Landings at Silver Lake Village: ` The pay-as-you-go agreement for TIF District #3-5 provides for the payment of 90% of all tax increment received in the prior six months. The payment reimburses the developer for street, utilities, right-of-way, land acquisition, and other public improvements. Principal and interest payment will be completed February 1, 2032. F. ARBITRAGE The City issued greater than $5 million of bonds in the years 2003, 2006 and 2007 and therefore is required to rebate excess investment income relating to these issues to the federal government. The City calculates arbitrage rebate every five years as permitted by arbitrage regulations. The extent of the City's liability for arbitrage rebates for bond issues not currently requiring five year rebate calculations is not determinable at this time. However, in the opinion of management, any such liability would be immaterial. 73 L