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City of Elk River, Minnesota <br />May 6, 1996 <br /> <br />7. Arbitrage Rebate Requirements <br /> <br />8. Bona Fide Debt Service Fund <br /> <br />9. Economic Life <br /> <br />10. Federal Reimbursement Regulations <br /> <br />11. Continuing Disclosure <br /> <br />The bonds are subject to the federal <br />arbitrage requirements. However, the City <br />does not expect to issue more than <br />$5,000,000 of tax-exempt debt in 1996. <br />Therefore, the City will be exempt from <br />reporting and rebating arbitrage earnings to <br />the federal government as a small issuer. <br />Springsted provides arbitrage rebate <br />services under separate contract, copies of <br />which have been provided to your staff. A <br />summary of the arbitrage rules has been <br />provided to your staff for informational <br />purposes. <br /> <br />The City must maintain a bona fide debt <br />service fund for each of the issues or be <br />subject to yield restriction. See the <br />summary of arbitrage rules for an <br />explanation. <br /> <br />The average life of the bonds cannot exceed <br />120% of the economic life of the projects to <br />be financed. The economic life of the <br />wastewater treatment plant is 40 to 50 <br />years, and the economic life of the street <br />improvements is 20 years. The bonds are <br />therefore within the economic life <br />requirements. <br /> <br />Federal reimbursement regulations require <br />the City to make a declaration, within 60 <br />days of the actual payment, of its intent to <br />reimburse itself from expenses paid prior to <br />the receipt of bond proceeds. It is our <br />understanding the City has taken whatever <br />actions are necessary to comply with the <br />federal reimbursement regulations. <br /> <br />These issues are the City's first issues <br />subject to the new continuing disclosure <br />requirements. The new SEC rules require <br />the City to undertake an annual update of its <br />Official Statement information and report any <br />material events to the national repositories. <br />Springsted provides continuing disclosure <br />services under separate contract, copies of <br />which have been provided to your staff. ^ <br />summary of the SEC's continuing disclosure <br />requirements has been provided to your staff <br />for informational purposes. <br /> <br />Page 2 <br /> <br /> <br />