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City of St. Anthony, Minnesota <br /> February 4, 1998 <br /> 8. Credit Rating Comments We recommend the City apply to Moody's <br /> • Investors Service for a rating on these <br /> Bonds. <br /> 9. Federal Treasury Regulations Concerning <br /> Tax-Exempt Obligations <br /> (a) Bank Qualification Under Federal Tax Law, financial institutions <br /> cannot deduct from income for federal <br /> income tax purposes, income expense that <br /> is allocable to carrying and acquiring tax- <br /> exempt bonds. There is an exemption to <br /> this for"bank qualified" bonds, which can be <br /> so designated if the issuer does not issue <br /> more than $10 million of tax exempt bonds <br /> in a calendar year. Issues that are bank <br /> qualified receive slightly lower interest rates <br /> than issues that are not bank qualified. We <br /> understand the City does not expect to issue <br /> more than $10 million in 1998, therefore the <br /> Bonds are designated as bank qualified. <br /> (b) Rebate Requirements All tax-exempt issues are subject to the <br /> federal rebate requirements. However, <br /> since the City will issue less than $5 million <br /> in tax-exempt financings in 1998, it may <br /> • exempt itself from rebating arbitrage <br /> earnings to the federal government. <br /> (c) Bona Fide Debt Service Fund The City must maintain a bona fide debt <br /> service fund for the Bonds or be subject to <br /> yield restriction or pay back excess <br /> investment earnings in the debt service fund <br /> to the federal government. A bona fide debt <br /> service fund is a fund for which there is an <br /> equal matching of revenue to debt service <br /> expense, with carry over permitted equal to <br /> the greater of the investment earnings in the <br /> fund during that year or 1/12 the debt <br /> service of that year. <br /> (d) Economic Life The average life of the Bonds cannot <br /> exceed 120% of the economic life of the <br /> projects to be financed. The economic life <br /> of the improvements is 20 years. Therefore, <br /> this issue is within the economic life <br /> requirements. <br /> Page 2 <br />