6.4A & 6.4B SR 11-07-1994 - Laserfiche WebLink

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e e e City of Elk River, Minnesota November 3, 1994 A debt service fund can lose its bona fide status when the issuer accumulates excess investment eamings or special assessment prepayments in the case of the Improvement Bonds. It is important to monitor the funds to assure compliance with the new regulations. Economic Life of Financed Proiects The 1993 "final" arbitrage regulations brought all tax-exempt issues into the calculation of "economic life." Previously, this requirement was only for private activity bonds. The intent of this requirement is that the U.S. Treasury does not want tax-exempt debt outstanding longer than is necessary 1 thus creating more tax-exempt obligations in the marketplace than are needed. The general safe harbor for assuring that the issues comply with the regulations is if the average maturity of the bonds does not exceed 120% of the economic life of the financed projects. The I mprovement Bonds and the Water Revenue Bonds are being issued for improvements which, under the Treasury guidelines, have an economic life of 20 years. The average maturity of these issues doesn't exceed 10 years, so both issues are in compliance with this regulation. Bank Qualification In 1986 tax provisions enacted by the U.S. Treasury reduced the ability of banks and other financial institutions to use tax-exempt interest as an offset against other interest expense. This made tax-exempt obligations less attractive to these financial institutions since they did not get the full benefit of the tax exemption. There is an exclusion from this provision for issuers who will not sell more than $10,000,000 of tax-exempt obligations in a calendar year. It is our understanding that the previously issued Series 1994A, Band C plus these issues, Series 19940 and E do not exceed $10,000,000; and that the City will not issue in excess of $10,000,000 of tax-exempt obligations in 1994. Therefore, these issues can be designated "bank qualified." Typically, bank qualified issues receive rates lower than issues which are not bank qualified. We have taken this into consideration in our interest rate estimates. Federal Reimbursement Regl,.llations The U.S. Treasury has enacted reimbursement regulations to regulate issuers who wish to issue tax-exempt obligations to recover costs of prior expenditures. The reimbursement regulations require that if the issuer proposes to reimburse itself for expenses they paid prior. to the receipt of proceeds, it must have made a declaration of that intent within 60 days of the actual payment of the expense. There are exemptions for architectural and engineering fees and miscellaneous start-up costs. It is our understanding the City is aware of these regulations and has taken whatever action .is necessary to comply with the federal reimbursement regulations in regard to these issues. Bond Sale E'rqcedures Proposals for these issues will be received on Monday, November 28, 1994, at 11 :30 A.M. in the offices of Springsted Incorporated, at which time they will be verified and checked for accuracy. A representative of Springsted will then present our recommendations as to the acceptability of proposals received to the City Council at its meeting that evening at 6:00 P.M. Your bond proceeds should be available in late December. Respectfully submitted, .L~'l~d~Mf.~~~- SPRINGSTED Incorporated rlw Pace 5