Agenda - Council - 12/08/1998 - Laserfiche WebLink

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City of Ramsey, Minnesota December 2, 1998 Federal Treasury Regulations Concerning Tax-Exempt Obligations (a) Bank Quafification (b) Rebate Requirements (c) Bona Fide Debt Service Fund (d) Economic Life Under Federal Tax Law, financial institutions cannot deduct from income for federal income tax purposes, income expense that is allocable to carrying and acquiring tax-exempt bonds. There is an exemption to this for "bank qualified" bonds, which can be so designated if the issuer does not issue more than $10 million of tax exempt bonds in a calendar year. Issues that are bank qualified receive slightly bower interest rates than issues that are not bank qualified. We understand the City does not expect to issue more than $10 million in 1999, therefore the bonds are designated as bank qualified. All tax-exempt issues are subject to the federal arbitrage and rebate requirements, which require all excess earnings created by the financing to be rebated to the U.S. Treasury. The requirements generally cover two categories: bond proceeds and debt sen/ice funds. There are exemptions from rebate in both of these categories. Since the City expects to issue less than $5,000,000 of tax-exempt obligations in 1999, it wilt qualify for the "small issuer" exemption and thus be exempt from rebating earnings on bond proceeds. The City must maintain a bona fide debt service fund for the bonds or be subject to yield restriction or pay back excess investment earnings in the debt service fund to the federal government. A bona fide debt service fund is a fund for which there is an equal matching of revenue to debt sen/ice expense, with carry over permitted equal to the greater of the investment earnings in the fund during that year or 1/12 the debt service of that year. The average life of the bonds cannot exceed 120% of the economic life of the project to be financed. The economic life of buildings is 40-50 years. Therefore, the bonds are within the economic life requirements. I I I I I I I I I I I I ! 10. Continuing Disclosure This issue is subject to the SEC's continuing disclosure requirements. The SEC rules require the City to undertake an annual update of its Official Statement information and report any material events to the I I Page 2