FIN-2.12.01 - Debt Tax Compliance Procedures

CFMP Procedure

I. PURPOSE

The purpose of these procedures is to: advise the City of Portland’s (City) debt-issuing bureaus of their obligation to comply with the United States Treasury, Internal Revenue Service (IRS) Treasury Regulations regarding tax exempt and tax-advantaged debt (Treasury Regulations); to explain the specific requirements of the Treasury Regulations; and to provide for consistent application of these procedures Citywide. Additionally, these procedures suggest supplementary actions that are not required for federal tax compliance but are nonetheless recommended in order to encourage the City’s ability to track continuing tax compliance in the event that uses of a financed project change unexpectedly during the term of a financing.

II. SCOPE AND RESPONSIBILITIES

Treasury Regulations apply to all tax-exempt and tax-advantaged offerings including long-term bonds, bank loans, lines of credit, notes and other applicable borrowing facilities. The obligations under these procedures begin upon initial receipt of debt proceeds and end three years after final payoff of the debt or any refunding debt. The obligations under these procedures pertain to the uses of all financed assets and to amounts in the following funds, all of which are subject to arbitrage rebate:

1. Project funds (includes interest earnings thereon)
2. Debt service funds
3. Costs of issuance funds
4. Refunding escrow funds
5. Reserve funds
6. Transferred proceeds (funds remaining in older debt issues that have been subsequently refunded)
7. Tax-advantaged debt (i.e. Build America Bonds, Qualified Energy Conservation Bonds, etc) and related subsidies

Debt Manager Responsibilities

The following are responsibilities of the Debt Manager:

1. Advise debt-issuing Bureaus of their obligations to comply with applicable Treasury Regulations.
2. Consult with Bureaus regarding the ongoing requirements of these procedures.
3. Perform rebate calculations for each applicable debt issue no later than the fifth Computation Date or any required earlier date as defined in each Tax Certificate.
4. Prepare an annual rebate report of all tax-exempt debt issued by the City that is subject to rebate.
5. Coordinate with Central Accounting, to ensure debt proceeds are recorded in accordance with these procedures.
6. Coordinate with the City’s bond counsel to take any remedial or other actions necessary to preserve the tax-exempt or tax-advantaged status of debt in the event of changes in use of financed assets.
7. Ensure training opportunities are made available to Debt Management staff to support understanding of the tax requirements applicable to debt issued. 

Issuing Bureau Responsibilities

The following are responsibilities of the Issuing Bureau Director or his or her designee (where designee is permitted):

1. Ensure proceeds are spent for the purpose(s) designated in the authorizing Ordinance, Declaration, Official Statement or Ballot Title.
2. Ensure proceeds are spent with due diligence.
3. Monitor spend-down of proceeds and notify Debt Manager of status related to the Temporary Period and if spending exceptions to rebate are not met or are anticipated not to be met.
4. Ensure all expenditure documentation, including contracts, invoices, draw requests and cancelled checks/ACH payments are retained and disposed of in accordance with IRS Code.
5. Ensure the financed capital improvement is used for eligible purpose(s) in compliance with all relevant statutes.
6. Maintain and update annually an asset list of tax-exempt and tax-advantaged debt financed projects which identifies the debt issue, useful life of the asset and final redemption date of the debt.
7. Maintain records that track sales of tax-exempt and tax-advantaged debt financed assets.
8. Route all external inquiries or requests for information from the IRS or other source, whether received in person or by other means, to the Debt Manager.
9. Notify Debt Manager before any planned change in use or sale of an asset financed with tax-exempt and tax-advantaged debt that is still outstanding. Examples include leases to private entities of a floor or building, private management contracts to operate a facility, sale of an asset prior to its useful life expiration, etc.
10. Consult with the Debt Manager prior to making any elections available under the Internal Revenue Code of 1986, as amended (“IRS Code”) (specifically filing form 8038G).
11. Upon issuance of debt, provide director certification that bureau or agency responsible for the financed project will conform to all applicable processes and procedures contained herein.
12. Notify Debt Manager of any concerns that these responsibilities are not being met.

III. DEFINITIONS AND PROCEDURES

The Debt Management Group is primarily responsible for the administration of the procedures contained herein and may update the procedures as necessary. The procedures apply to all tax-exempt or tax-advantaged City indebtedness.

In the event that an Issuing Bureau discovers a failure to comply with these procedures, the Issuing Bureau will promptly inform the Debt Manager of the failure and consult with the Debt Manager, City Attorney and/or bond counsel (if necessary), to ensure there is no adverse effect on the tax-exempt or tax-advantaged status of the debt issue and, where appropriate, will remedy any violations through appropriate means. Remedies may include making penalty payments, taking a remedial action described in the Treasury Regulations, initiating a settlement with the IRS through its Voluntary Closing Agreement Program (VCAP) described in IRS Notice 2008-31 (or successor guidance), or taking some other action as prescribed by bond counsel in consultation with the City Attorney.

Certain types of tax-advantaged debt, such as Qualified Energy Conservation Bonds, Build America Bonds, etc., are different from tax-exempt debt and have unique tax requirements. As a result, these procedures shall be deemed to include any of the requirements as described in the Tax Certificate executed in connection with that tax-advantaged debt and where these procedures and the Tax Certificate for such tax-advantaged debt conflict, the City shall comply with the requirements and procedures as described in the Tax Certificate.

1. Overview of Arbitrage

The purpose of this Section is to introduce the concept of arbitrage and the procedures the City has in place to monitor the spend-down of proceeds. Because there are exceptions to many of the arbitrage rules, advice from the Debt Manager is required before any related action is taken.

Definitions

"Arbitrage” is the price differential, or profit made, from investing inherently lower yielding taxexempt debt proceeds in higher yielding taxable investments. Arbitrage is the difference between the yield on an issuer's tax-exempt or tax-advantaged debt issue and the investment income earned by investing the proceeds in taxable instruments.

Example:

“Arbitrage Rebate” is the dollar profit earned from positive arbitrage, which must be paid back (rebated) to the federal government.

Example 1: Using the chart below, if tax-exempt debt was issued in March 2002 and proceeds fully spent in March 2004, there would be negative arbitrage rebate earnings and no Arbitrage Rebate due to the federal government.

Example 2: Using the chart below, if tax-exempt debt was issued in March 1999 and proceeds fully spent in March 2001, there would be positive arbitrage earnings and an Arbitrage Rebate payment would be paid to the federal government unless an expenditure exception to rebate was met (see “Exceptions to the Rebate Requirements” below).

“Arbitrage Rebate Consultant” is a consultant, experienced in making arbitrage and rebate calculations required pursuant to Section 148 of the Internal Revenue Code of 1986, retained by the City to make the computations for tax-exempt debt issued by the City.

“Arbitrage Yield” is a calculation of yield on a debt issue, excluding cost of issuance and underwriter’s discount, for purposes of determining compliance with applicable arbitrage regulations.

“Computation Date” is the date defined in the Tax Certificate and identifies the dates by which the rebate computations must be completed.

“Date of Issue” also referred to as the Closing Date, is the date on which the Gross Proceeds are received by the City from the purchaser of the bonds. For lines of credit, it is the date the agreement with the credit provider is signed and the date the first substantial draw (greater than the lesser of 5% of the Gross Proceeds or $50,000) is taken.

“Debt Manager” means the staff of the Debt Management Group or authorized designee.

“Gross Proceeds” is the amount received from the purchaser of the bonds on the Date of Issue or the amount drawn on a line of credit.

“Issuing Bureau” is the bureau, division or agency that will spend the proceeds.

“Minor Portion” means the lesser of $100,000 or 5% of Gross Proceeds (minus any bond reserve funded with Gross Proceeds).

“Negative Arbitrage” means earnings lower than the Arbitrage Yield. Negative arbitrage can be used to offset positive arbitrage during the five year cumulative calculation period.

“Rebate Calendar” is a database managed by the Debt Manager that tracks Computation Dates for all tax-exempt and tax-advantaged debt issued by the City since 1986.

“Reimbursement Declaration” is a declaration of official intent to issue future debt, the proceeds from which will, in whole or in part, reimburse for eligible capital expenditures. A project description and not-to-exceed amount is required. The not-to-exceed amount should include all project costs expected to be financed, which costs can include expenditures incurred no more than 60 days prior to the date it is executed.

“Tax Certificate” is a certification prepared on the date of issuance listing the principal facts and expectations allowing the conclusion that interest on the debt is excludable from gross income under the Treasury Regulations.

“Temporary Period” is the period from the Date of Issue to the third anniversary.

“Unspent Proceeds” means, at any point in time, the proceeds of a bond issue or amounts drawn on a line of credit, plus investment earnings, less all cash payments made for eligible expenditures.

2. Areas of arbitrage compliance that must be addressed:

Section 148 of the IRS Code sets forth general arbitrage and rebate requirements for issuers of taxexempt debt issues. Many of these arbitrage and rebate requirements apply to tax-advantaged debt as well. The general rule is that any arbitrage earned must be determined and reported to the federal government every fifth-year anniversary date after the Date of Issue and as of the final maturity, or as elected. Arbitrage rebate is essentially 100% of investment earnings in excess of the debt issue's Arbitrage Yield.

• Arbitrage Rebate Requirements

The Arbitrage Rebate Requirements identify what must be done with any arbitrage (profits or earnings) above the Arbitrage Yield earned on the investment of the proceeds from a debt issue. All arbitrage on Gross Proceeds must be rebated to the IRS every five years unless the debt issue qualifies for a spending exception (see “Exceptions to the Rebate Requirements” below).

• Yield Restriction Requirements

The Yield Restriction Requirements set forth various investment yield limitations for different categories of proceeds from a debt issue. Generally, if there are Unspent Proceeds at the end of the initial 3-year Temporary Period, the City may no longer invest the remaining proceeds above the Arbitrage Yield without taking corrective action to remedy interest earnings above the materially higher yield. The issuer either yield restricts the proceeds below the materially higher yield, or a yield reduction payment report is required. Yield reduction payments must be made according to the same schedule as the arbitrage rebate requirements, i.e., as of the fifth anniversary from the Date of Issue (or any earlier date selected in the Tax Certificate) and every five years thereafter until the debt issue matures.

3. Purpose of IRS Code and Treasury Regulations Regarding Arbitrage

The IRS Code and Treasury Regulations were put into place to minimize the economic benefits of investing tax-exempt debt proceeds, thus encouraging expenditure of debt proceeds for the governmental purpose identified in the Offering Statement and to remove the incentive to:

• Issue tax-exempt debt earlier than the proceeds are needed
• Leave unspent tax-exempt bond or line of credit proceeds outstanding for a longer period than the project requires
• Issue more tax-exempt debt than necessary for a governmental purpose

4. Type of Debt Funds Subject to Arbitrage Compliance

With the tax code changes that went into effect for governmental debt on August 31, 1986, the following funds of a debt issue are subject to arbitrage compliance:

• Project Funds (including interest earnings thereon)
• Debt Service Funds
• Costs of Issuance Funds
• Refunding Escrow Funds
• Reserve Funds
• Transferred Proceeds (Unspent Proceeds from refunded bonds)
• Tax-advantaged debt (i.e. Build America Bonds) and related subsidies

5. Exceptions to the Rebate Requirements

Exceptions to the rebate requirements for tax-exempt debt are described below. There are additional rebate exceptions that apply to certain types of tax-advantaged debt. The Debt Manager will review the Tax Certificate for any tax-advantaged debt to determine the availability of such additional rebate exceptions. Depending on which exception applies to the particular issue, and if the exceptions are met, all or a portion of the debt issue’s proceeds may not be subject to rebate.

To ensure the City’s ability to monitor the exceptions, if proceeds will be deposited in any account other than the City’s investment portfolio, the Issuing Bureau must consult with the Debt Manager to establish an appropriate investment plan for the proceeds prior to issuance.

The Issuing Bureau is responsible for knowing which expenditure exception applies to the debt being issued and must monitor the expenditure exceptions as the proceeds are spent down. The Debt Manager will provide advice and assistance in performing the calculation, but it is ultimately the Issuing Bureau that is responsible for ensuring the expenditure exceptions are met. The Debt Manager in consultation with the Rebate Consultant will prepare the final assessment to determine whether any exception requirements were met. The following are descriptions of the various exceptions available for tax-exempt debt and will be established prior to issuance and stated in the Tax Certificate:

• 6-Month Spending Exception:

If all Gross Proceeds (including interest earnings, but excluding any debt-funded reserve) of the debt issue are expended within 6 months after the Date of Issue of the debt, the interest earned (but excluding interest on the debt reserve) during that period is not subject to rebate. The debt reserve is subject to the Rebate Requirements and does not quality for exemption through the 6- Month Spending Exception.

• 18-Month Spending Exception:

If a debt issue does not qualify as a “Construction” Issue (75% of Gross Proceeds are spent on actual construction as defined in the IRS regulations), then the debt issue is eligible for the 18- Month Spending Exception, but not the 2-Year Spending Exception. If all Gross Proceeds (including interest earnings, but excluding any debt-funded reserve) and actual and expected earnings are spent within 18 months, according to a strict timetable, the interest earned during that period is not subject to the Rebate Requirements. Intermediate expenditure requirements must be met: 15% spent within 6 months; 60% spent within 12 months; and 100% spent within 18 months, with a 5% de minimis carryover amount permitted for one additional year for punch list items only. Reserve funds are subject to the Rebate Requirements and do not qualify for exemption under the 18-Month Spending Exception.

• 2-Year Spending Exception:

If a debt issue does qualify as a “construction issue” (75% of Gross Proceeds are spent on actual construction) and all Gross Proceeds (excluding any debt funded reserve) and actual and expected earnings are spent within 2 years according to a strict timetable, then interest earned during that period is not subject to the Rebate Requirements. Intermediate expenditure requirements must be met: 10% spent within 6 months; 45% spent within 12 months; 75% spent within 18 months; and 100% spent within 2 years, with a 5% de minimis carryover amount permitted for one additional year for punch list items.

• Small Issuer Exception:

The City does not qualify for the Small Issuer Exception since the City issues more than $5 million in a calendar year.

B. Control over Debt Issues

The Debt Manager will assign a unique control number for each issue and one or more sub-funds where the Unspent Proceeds will be deposited. These sub-funds allow the City to keep Unspent Proceeds segregated from other resources and allow interest earnings thereon to be tracked for arbitrage reporting purposes. Control numbers are assigned in the order the IRS 8038G form (or other applicable IRS 8038 form) is filed with the IRS. Sub-fund(s) are assigned upon issuance of the debt and are the next sequential sub-fund of the type xxx5xx of the parent fund from which the proceeds will be spent.

C. Documentation and Financial Transaction Retention

1. Transcript Bond

Counsel shall provide a transcript for the debt issue to the Debt Manager. If an entire transcript is not available, then copies of the following documents will be forwarded or made available to the Debt Manger. These documents are required for Arbitrage Rebate computations and to comply with City and IRS archive requirements. Documents required (as applicable), if not included in the Transcript, are:

• Bond Counsel Opinion
• Final Official Statement or Private Placement Memorandum for the Debt Issue
• Debt Insurance Documents
• Council Certificate for Ordinance
• Copy of Ordinance Authorizing Debt Issuance
• IRS Form 8038-G or other applicable IRS Form 8038
• CPA Verification Report (for applicable refundings only)
• Non-Arbitrage Tax Certificate or similar document
• All Debt Service Schedules not included in the Official Statement
• Letter of Credit Agreement (generally for variable rate debt issues only)
• The Winning Bid Form (for competitively issued debt issues)
• Trust Indenture (i.e. declaration, ordinance, credit agreement, etc.)
• Closing Memorandum

2. Information to be Retained by the Debt Manager

A hardcopy file displaying the complete name of the issue and issue control number as the label will be set up for each debt issue. In it will be placed documentation related to spend-down, investment, debt service balances, reserve balances, and any notes to the file describing relevant post-issuance facts. These hardcopy folder jackets will be maintained in the offices of Debt Management with access restricted to persons authorized by the Debt Manager.

• In addition to the transcript and/or above documents, the following information (as applicable) will be retained in either the hardcopy control folder, electronically in SAP or other suitable electronic storage: All prior rebate calculation reports and yield restriction reports
• Copy of accounting journal entries posting the debt issue sale and receipt of debt issue proceeds and the related supporting documentation
• Any relevant correspondence with the Arbitrage Consultant, Bond Counsel or others
• All investment and expenditure information to include:
  1) Schedule of letter of credit fees paid and dates and copy of respective invoices 
  2) Swap statements (if any) 
  3) Investment contract information as follows: (a) Evidence of the purchase price paid for each investment contract (b) Detailed documentation of the investment contract bid process (c) Certification by the investment contract provider of fees paid for each contract (d) All bid solicitation forms

3. Record Retention

Currently IRS record retention requirements are to keep all records, data and documents associated with a tax exempt or tax-advantaged debt issue in hard copy for three years past the final maturity date for the debt issue; if an issue is refunded, records are required to be maintained for three years past the final maturity of both debt issues. In accordance with these IRS retention guidelines, Bureaus are to retain the debt documentation highlighted above under “Issuing Bureau Responsibilities”, which includes: contracts invoices, draw requests, cancelled checks/wire/ACH payment records and any other pertinent documentation related to the uses of the financed assets for the same period. Such documentation would include, but may not be limited to, any leases with third parties, management contracts with third parties and any sales agreements related to the sale of financed assets.

It is the City’s record retention policy to treat debt issue transcripts and information in the control folder jacket as a permanent record of the City.

• Documentation may be stored in electronic format in lieu of hard copy if certain requirements are satisfied, for example:
  1) The system must ensure an accurate and complete transfer of the hard copy documents and records to the electronic storage system and contain a retrieval system that indexes, stores, preserves, retrieves, and reproduces all transferred information.
  2) The system must include reasonable controls and quality assurance programs.
  3) The information maintained in the system must be cross-referenced with the documents and records in a manner that provides an audit trail to the source documents.
  4) Upon request by the IRS, the issuer must retrieve and reproduce hard copies of all electronically stored records.
   
• Financial/accounting transactions provided as support for reimbursement requests (see “Debt Financial Activity and Rules” below for reimbursement request explanation) submitted to the Debt Manager will be retained by the responsible bureau in accordance with the certification made by the Bureau Director on the request for reimbursement. Any disposition of those records must be in compliance with the disposition criteria above.
  It is recommended that if there are eligible expenditures beyond those supporting the reimbursement requests, the records supporting those expenditures should be retained under the same retention and disposition criteria described herein.
   
• All documentation supporting a change in use of tax-exempt debt financed assets must be retained in accordance with the disposition criteria above.
   
• Investment Information Requirements for Outside Escrow Accounts The following investment information must be made available to the Debt Manager, at a daily transaction level detail, when proceeds are deposited into an escrow account held by an escrow agent:
  1) Trust statements (or equivalent) with detailed investment activity for the entire computation period for each fund/account in which proceeds of the debt issue were held. This information is required to compute the yield on the investments and to comply with archive requirements. Investment activity details should include such items as: (a) Type of investment (b) Date of purchase and purchase price (c) Interest rate (d) Maturity date (e) Interest payment dates (f) Interest calculation methodology (g) Date of sale and sales price
  2) Expenditure descriptions and amounts

D. Debt Financial Activity and Rules

The Debt Manager will ensure that transactions related to debt issuance, debt service, service fees and refundings identify the debt issue by either the control number or full legal name of the debt issue.

There should be a clear audit trail to the supporting documents for all debt related accounting transactions recorded in the general ledger. The Debt Manager, in consultation with Central Accounting, will ensure compliance with applicable accounting rules and approve journal entries recording the issuance and any rebatable arbitrage.

1. Bond Proceeds

Bond Proceeds will be deposited into a sub-fund of the legal fund where the capital expenditures will be paid. To access the bond proceeds, the responsible bureau must file with the Debt Manager a Request For Reimbursement From Bond Proceeds form (see Exhibit A) signed by the responsible Bureau Director. The requirements for filing bond reimbursement requests with the Debt Manager are as follows:

• Reimbursement requests must be submitted on a timely and consistent basis (at least monthly unless other arrangements have been made with the Debt Manager).
• Reimbursement requests may only be filed for a current outlay of cash. A “current outlay of cash” is an outlay reasonably expected to occur within five banking days after the date of an allocation. In cases where the payment is made by check, the outlay is the date the check is placed in the mail by the City or cleared by the bank (dates must be consistently applied). Accruals and noncash transactions do not constitute an outlay of cash. Payments to other City bureaus or PDC do not constitute an outlay of cash unless evidence has been provided by the recipient to the Issuing Bureau that an actual current outlay of cash has been incurred.
• Reimbursement requests may only be submitted for allowable governmental purposes in accordance with the authorization defined in the authorizing Ordinance or bond declaration. Permissible uses for tax-exempt bond proceeds are limited to capital expenditures, debt service payment or issuance costs only.
• To the extent that expenditures made before the bonds were issued are included in the reimbursement request, such costs must qualify for reimbursement under the tax-exempt debt limitations in accordance with any applicable Reimbursement Declaration.

2. Line of Credit Proceeds

Line of credit draws are done on a reimbursement basis only. A Request For Reimbursement From Line of Credit form (see Exhibit B) must be filed after cash payments are made. The requirements for filing line of credit reimbursement requests with the Debt Manager are as follows:

• LOC Requests must be submitted on a timely basis and in accordance with the credit facility.
• Reimbursement requests may only be filed for a current outlay of cash as described above.
• Reimbursement requests may only be submitted for allowable governmental purposes in accordance with the authorizing documents, including the Ordinance, credit agreement or other documents provided in the transcript. Permissible uses for tax-exempt bond proceeds are limited to capital expenditures, debt service payment or issuance costs.
• To the extent that expenditures made before the line of credit was issued are included in the reimbursement request, such costs must qualify for reimbursement under the tax-exempt debt limitations in accordance with any applicable Reimbursement Declaration.

3. Tax Anticipation Notes

Proceeds of tax anticipation notes will be deposited into a sub-fund or designated legal fund set up to monitor the expenditure of note proceeds. The following are tax law requirements related to tax anticipation notes:

• Debt service on the notes must reasonably be expected to be paid from tax levies of a single fiscal year.
• Proceeds of the notes must be fully spent within a thirteen month period, where proceeds of the notes are considered “last spent” and investment earnings on the proceeds must be counted as bond proceeds and spent as an available resource.
• Any investment earnings above the note yield are subject to rebate unless the cumulative cash flow deficit within six months after issuance equals at least 90% of the note proceeds. This calculation must include investment earnings on the proceeds.

4. Bond Anticipation Notes

Bond anticipation notes will be treated the same as bond proceeds (see “Expenditure of Bond Proceeds” above).

5. Debt Service Reserves

Cash funded debt service reserves are subject to rebate whether they are funded with debt proceeds or other sources. A sub-fund of the fund the debt service is paid from will be setup to hold the reserve and track interest earnings. Any increase or decrease in the reserve fund balance must be done in consultation with the Debt Manager and in accordance with debt covenants.

6. Investments

The City Treasurer directs all of the City’s cash management and investment portfolio activity. All monies coming into the City including tax-exempt and tax-advantaged debt proceeds, debt reserves, taxes, fees, charges and other miscellaneous revenues, are commingled and invested in the City’s investment portfolio.

City cash assets are invested in accordance with the City's Investment Policy and all applicable statutes. Interest earned on the City's investment portfolio is accrued daily and distributed to each City fund based on each fund’s average daily balance. The daily investment portfolio yield represents the annualized yield paid to each fund on each day’s average daily balance.

Accounting for the investment and spend-down of tax-exempt or tax-advantaged debt proceeds is provided through the City’s Debt Managed Cash accounting system. This system is designed to provide specific accounting for proceeds of tax-exempt or tax-advantaged bonds subject to arbitrage rebate. This accounting system segregates cash balances and interest earnings thereon, preventing bond proceeds from being commingled with other city resources. The information extracted from Debt Managed Cash system is provided to the City’s rebate consultant to compute the arbitrage rebate liability as required by the IRS.

7. Reimbursement Declaration

Reimbursement Declarations may be filed by the Debt Manager at the request of an Issuing Bureau. The bureau will be responsible for providing a description of the project and the estimated amount of reimbursement for eligible capital project expenses. The Reimbursement Declaration will be dated no earlier than the date the Debt Manager receives the request from the bureau along with any necessary backup documentation used by the bureau to estimate the amount. Except as otherwise described in this paragraph, capital expenditures made more than 60 days prior to the date of the Reimbursement Declaration are not eligible for reimbursement. Capital expenditures made more than 60 days prior to the date of the Reimbursement Declaration can be reimbursed only if such expenditures are “preliminary expenditures,” such as architectural, engineering, surveying, soil testing, and similar costs. The costs of land acquisition, site preparation and similar costs incident to commencement of construction are not considered preliminary expenditures.

8. IRS Audit

In the event a City debt issue is audited by the IRS, the Debt Manager will be the lead contact. The Issuing Bureau will be required to gather any necessary information requested by the IRS at the direction of the Debt Manager. The Issuing Bureau will be required to cooperate in a timely manner with the audit and pay penalties (if any), legal fees and any other costs as a result of the audit.

E. Sending Information to the Arbitrage Consultant

The Debt Manager will work with the Arbitrage Rebate Consultant to identify, accumulate and send all information required to perform the computations on time. The Debt Manager will capture transaction information provided by the responsible bureau required for the arbitrage computation.

F. Payment to the IRS

The authority to remit payment to the IRS for arbitrage rebate or yield restriction, if any, will be included within the ordinance authorizing each debt issue. All payments made will be approved by the Debt Manager and recorded in the Rebate Calendar and in the control folder. The Debt Manager will be the designated official to prepare and sign any required IRS forms that must accompany the payment. Currently the form submitted with a rebate remittance is Form 8038-T. The Issuing Bureau is responsible for any rebate payments made to the IRS, fees of the rebate consultant or tax counsel and any other costs incurred.

1. Detail of IRS Filing Dates for Arbitrage Rebate Calculations:

• First Rebate Installment calculation:
  1) Within 60 days after the fifth year anniversary of the Date of Issue unless stated otherwise in the Tax Certificate
  2) Rebate Installment payment is considered paid on the date that the Form 8038-T and accompanying check is postmarked to IRS
• Subsequent Rebate installment calculations(s) occur every five years after the end of the fifth bond year or earlier if all the bonds are redeemed
• Final Rebate Calculation is due 60 days after all the bonds have matured, retired or have been redeemed

2. Yield Restriction Calculations:

• The yield restriction calculation allows for the carry forward of the Minor Portion.
• Yield restriction calculations begin three years from the Date of Issue, are calculated at the same time as the rebate report and continue until construction proceeds have dropped below the Minor Portion.
• Payment deadlines to the IRS for yield restriction payments are the same as those for the rebate payments.

All arbitrage rebate, yield restriction or any other reports prepared by the Arbitrage Rebate Consultant will be routed to the Debt Manager. The Arbitrage Rebate Consultant’s report will show the amount payable to the IRS. The Debt Manager will prepare a check request charged to the issuing bureau. The check and any required forms will be sent via certified mail. The executed IRS form, the signed proofof-mailing receipt and a copy of the paid check (front and back) will be filed in the debt issue folder and a copy of each will be sent to the Arbitrage Rebate Consultant. The Debt Manager will be the designated official to sign any required IRS forms that must accompany the payment.

G. Annual Rebate Report

The Debt Manager will prepare an Annual Rebate Report as of June 30 of each fiscal year. The report will include at a minimum the following information with additional information provided at the discretion of the Debt Manager:

• Master list of all debt issued by the City where an IRS 8038-G form (or other applicable IRS 8038 form) has been filed
• Listing of all active rebate files and control numbers
• Required calculations due in the next 12 months
• Any exceptions where rebate calculations were not performed e. Listing of any defeased bonds held in escrow
• Listing of bond issues held in the Debt Managed Cash accounts along with any potential rebate liability (whether negative or positive).
• Issues that have reached the final computation
• All private activity bonds outstanding. The Debt manager will retain the annual rebate reports, but information contained within will be made available upon request.

IV. PROCEDURES FOR TAXABLE DEBT

Federally taxable debt is not specifically covered by these procedures. However, while specific compliance is not required, it may be advisable to maintain comparable documentation for taxable financings in some circumstances. For example, adequate documentation of the expenditure of federally taxable bonds may assist future information gathering efforts in the event of changes of use of a financed asset, or during an audit of taxexempt or tax-advantaged debt issue that also includes a taxable debt component or a potential “private use” component. Prior to issuance of taxable debt, it is recommended that issuing Bureaus – in consultation with the Debt Manager – determine whether specific taxable borrowings may benefit from enhanced document retention.

See Related Documents:

Exhibit A: Request for Reimbursement from Bond Proceeds

Exhibit B: Request for Reimbursement from Line of Credit