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BRIGGS :AND M O R G A N 2200iDS Center 80 South 8th Street Minneapolis MN 55402-2157 tel 612.977.8400 fax 612.977.8650 MEMORANDUM TO: Diana Lund and Patrick Brama, City of Ramsey FROM: Mary Ippel and Catherine J. Courtney DATE: July 24, 2014 RE: City of Ramsey - Private Use Analysis of Lease of Space in City Hall The City of Ramsey (the "City") has a bond -financed governmental facility with excess space. It intends to seek out other entities to lease that excess space, which could include governmental entities, 501(c)(3) organizations, or private, for -profit entities. Under Section 141(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), a "private activity bond" is defined as a bond issue that satisfies both of the private business use test and the private security or payment test. The private business use test is met if more than 10% (or 5% in certain cases (see below)) of the bond proceeds are to be used, directly or indirectly, in the trade or business of a person other than a state or local unit of government. In situations similar to the City's, use is often measured based on square footage and/or time of usage. The private payment test is met if payment of the principal of, or the interest on, more than 10% of the proceeds of the bond issue is directly or indirectly derived from payments (whether or not to the issuer) in respect of property, or borrowed money, used or to be used for a private business use. In determining whether the payment is more than 10%, the present value of any payments or property taken into account is compared to the present value of the debt service to be paid over the term of the bond issue. Thus, generally speaking (and subject to the exception below), with respect to the City's proposed use of a portion of its facility by a private, 501(c)(3) entity or a for -profit entity, if the City expects that less than 10% of the facility will be used by such entity, the calculation of the amount of the payment related to that use will not be necessary. If the City expects that at least 10% of the facility will be used by a private entity, then the calculation of the amount of the payment related to such use will be determinative of whether the private business test has been met. If the payment is calculated to be more than 10%, then the test will be met. If the payment is calculated to be less than 10%, then the test will not be met. 6377563v1 Briggs and Morgan, Professional Association Minneapolis I St. Paul I www.briggs.com Member - Lex Mundi, a Global Association of Independent Law Firms