HomeMy WebLinkAbout12-02-2014 PFA C3 Joint CC-PFA for Bond Issuance Compliance ProceduresCity of San Luis Obispo, Council Agenda Report, Meeting Date, Item Number
City Council/Public Financing Authority
Agenda Item
FROM: Wayne Padilla, Finance and Information Technology Director
SUBJECT: APPROVE THE POST-ISSUANCE COMPLIANCE PROCEDURES FOR
TAX-EXEMPT BONDS
RECOMMENDATION
Approve the proposed compliance procedures for tax exempt bonds.
DISCUSSION
The City’s Public Financing Authority recently issued $7.58 million par value tax-exempt bonds
for the completion of the Los Osos Valley Road Interchange Project. The Internal Revenue
Service (IRS) requires the maintenance of certain records and reports and the creation of policies
that ensure the timely and consistent maintenance of these documents. As a result, staff and
bond counsel have prepared the attached procedure document to fulfill this obligation.
As shown in the procedure document, the City is required to maintain internal reporting
procedures and utilize outside consultants as necessary to accomplish required calculations
related to the determination of excess arbitrage earnings. In addition, staff is required to consult
with bond counsel and others in order to determine the scope of compliance issues that must be
addressed before and following each bond issuance.
Staff recommends the adoption of the Post-Issuance Tax Compliance Procedures for Tax-
Exempt Bonds in order to establish the guidelines for such compliance by the City and Public
Financing Authority, as required by the IRS.
ATTACHMENTS
Post-Issuance Tax Compliance Procedures for Tax-Exempt Bonds document
12/2/14
PFA C3
PFA C3 - 1
Attachment 1
OHSUSA:759357449.1
City of San Luis Obispo/San Luis Obispo Public Financing Authority
Post-Issuance Tax Compliance Procedures
For Tax-Exempt Bonds
December 2, 2014
The purpose of these Post-Issuance Tax Compliance Procedures is to establish policies
and procedures in connection with tax-exempt bonds (“Bonds”), issued by the City of
San Luis Obispo and the San Luis Obispo Public Financing Authority (together, the
“City”) so as to ensure that the City complies with all applicable post-issuance
requirements of federal income tax law needed to preserve the tax-exempt or tax-
advantaged bond status of the Bonds.
General
Responsibility for all matters relating to City financings and refinancings rests with the
City’s Director of Finance & Information Technology (the “Director”).
Post-Issuance Compliance Requirements
External Advisors / Documentation
The Director and other appropriate City personnel shall consult with bond counsel and
other legal counsel and advisors, as needed, throughout the Bond issuance process to
identify requirements and to establish procedures necessary or appropriate so that the
Bonds will continue to qualify for the appropriate tax status. Those requirements and
procedures shall be documented in a City resolution(s), Tax Certificate(s) and / or other
documents finalized at or before issuance of the Bonds. Those requirements and
procedures shall include future compliance with applicable arbitrage rebate requirements
and all other applicable post-issuance requirements of federal tax law throughout (and in
some cases beyond) the term of the Bonds.
The Director and other appropriate City personnel also shall consult with bond counsel
and other legal counsel and advisors, as needed, following issuance of the Bonds to
ensure that all applicable post-issuance requirements in fact are met. This shall include,
without limitation, consultation in connection with future contracts with respect to the use
of Bond-financed assets and future contracts with respect to the use of output or
throughput of Bond-financed assets.
Whenever necessary or appropriate, the City shall engage expert advisors (each a “Rebate
Service Provider”) to assist in the calculation of arbitrage rebate payable in respect of the
investment of Bond proceeds.
PFA C3 - 2
Attachment 1
OHSUSA:759357449.1
Role of the City as Bond Issuer
Unless otherwise provided by City resolutions, unexpended Bond proceeds shall be held
by the City, and the investment of Bond proceeds shall be managed by the Director. The
Director shall maintain records and shall prepare regular, periodic statements to the City
regarding the investments and transactions involving Bond proceeds.
If a City resolution provides for Bond proceeds to be administered by a trustee, the
trustee shall provide regular, periodic (quarterly) statements regarding the investments
and transactions involving Bond proceeds.
Arbitrage Rebate and Yield
Unless a Tax Certificate documents that bond counsel has advised that arbitrage rebate
will not be applicable to an issue of Bonds:
• the City shall engage the services of a Rebate Service Provider, and the City or
the Bond trustee shall deliver periodic statements concerning the investment of Bond
proceeds to the Rebate Service Provider on a prompt basis;
• upon request, the Director and other appropriate City personnel shall provide to
the Rebate Service Provider additional documents and information reasonably requested
by the Rebate Service Provider;
• the Director and other appropriate City personnel shall monitor efforts of the
Rebate Service Provider and assure payment of required rebate amounts, if any, no later
than 60 days after each 5-year anniversary of the issue date of the Bonds, and no later
than 60 days after the last Bond of each issue is redeemed; and
• during the construction period of each capital project financed in whole or in part
by Bonds, the Director and other appropriate City personnel shall monitor the investment
and expenditure of Bond proceeds and shall consult with the Rebate Service Provider to
determine compliance with any applicable exceptions from the arbitrage rebate
requirements during each 6-month spending period up to 6 months, 18 months or 24
months, as applicable, following the issue date of the Bonds.
The City shall retain copies of all arbitrage reports and trustee statements as described
below under “Record Keeping Requirements”.
Use of Bond Proceeds
The Director and other appropriate City personnel shall:
• monitor the use of Bond proceeds, the use of Bond-financed assets (e.g., facilities,
furnishings or equipment) and the use of output or throughput of Bond-financed assets
PFA C3 - 3
Attachment 1
OHSUSA:759357449.1
throughout the term of the Bonds (and in some cases beyond the term of the Bonds) to
ensure compliance with covenants and restrictions set forth in applicable City resolutions
and Tax Certificates;
• maintain records identifying the assets or portion of assets that are financed or
refinanced with proceeds of each issue of Bonds;
• consult with Bond Counsel and other professional expert advisers in the review of
any contracts or arrangements involving use of Bond-financed facilities to ensure
compliance with all covenants and restrictions set forth in applicable City resolutions and
Tax Certificates;
• maintain records for any contracts or arrangements involving the use of Bond-
financed facilities as might be necessary or appropriate to document compliance with all
covenants and restrictions set forth in applicable City resolutions and Tax Certificates;
• meet at least annually with personnel responsible for Bond-financed assets to
identify and discuss any existing or planned use of Bond-financed, assets or output or
throughput of Bond-financed assets, to ensure that those uses are consistent with all
covenants and restrictions set forth in applicable City resolutions and Tax Certificates.
All relevant records and contracts shall be maintained as described below.
Record Keeping Requirements
Unless otherwise specified in applicable City resolutions or Tax Certificates, the City
shall maintain the following documents for the term of each issue of Bonds (including
refunding Bonds, if any) plus at least three years:
• a copy of the Bond closing transcript(s) and other relevant documentation
delivered to the City at or in connection with closing of the issue of Bonds;
• a copy of all material documents relating to capital expenditures financed or
refinanced by Bond proceeds, including (without limitation) construction contracts,
purchase orders, invoices, trustee requisitions and payment records, as well as documents
relating to costs reimbursed with Bond proceeds and records identifying the assets or
portion of assets that are financed or refinanced with Bond proceeds;
• a copy of all contracts and arrangements involving private use of Bond-financed
assets or for the private use of output or throughput of Bond-financed assets; and
• copies of all records of investments, investment agreements, arbitrage reports and
underlying documents, including trustee statements.
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