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Home My WebLink AboutBernes-Tate Consulting-7/28/2014CITY OF WATERLOO, IOWA CITY CLERK AND FINANCE DEPARTMENT 715 Mulberry Street • Waterloo, IA 50703 • (319) 291-4323 Fax (319) 291-4571 Council Communication City Council Meeting: July 28, 2014 Prepared: July 21, 2014 Dept. Head Signature: Mta.c../4,) (,(4-e- Number of Attachments: None SUBJECT: Arbitrage Testing for GO Bonds Issued in 2007, 2008 and 2009 Submitted by: Michelle Weidner Recommended City Council Action: I recommend that the Council adopt a resolution approving an agreement with Berens -Tate Consulting Group to complete required arbitrage testing for the general obligation bonds issued in 2007, 2008 and 2009 in an amount not to exceed $7,000. Summary Statement: Arbitrage calculations are required when cities issue bonded debt and wish to obtain the special tax-exempt provisions that allow the debt to qualify for lower interest rates. Federal tax law contains special requirements that allow the interest that cities pay on qualifying debt to be tax- exempt for federal tax purposes to the individuals and corporations that purchase the city's bonds. There are several strings attached to obtaining this tax exemption. First of all, the City must file a tax exemption certificate for each bond issue, which states that the tax exempt status will be maintained over the life of the bond. The City is then responsible to ensure that such status is maintained. The City's bond attorney is required to issue an opinion on each issue verifying that the bonds are tax exempt. Before they do that, they typically want assurances that the tax exemption hasn't been lost on prior issues. One of the ways that the tax exemption can be lost is for the bond to be classified as an "arbitrage bond". There are numerous tests that must be completed in order to verify that the bonds are not "arbitrage bonds". Even if these tests are failed, if the issuer timely makes "rebate" payments to the US government, the bonds can avoid being classified as "arbitrage bonds". The calculations that I am requesting be completed at this time will verify that our outstanding bond issues retain their tax-exempt status. Expenditure Required: Not to exceed $7,000 Source of Funds: Bond funds Policy Issue: See above Alternative: If the testing isn't completed, the city has the potential to lose the tax-exempt status of current bonds, making it difficult to sell future bond issues. CITY WEBSITE: www.cityofwaterlooiowa.com WE'RE WORKING FOR YOU! An Equal Opportunity/Affirmative Action Employer BERENS-TATE CONSULTING GROUP SPECIALIZING IN TAX-EXEMPT BOND SERVICES June 16, 2014 Ms. Michelle Weidner City of Waterloo 715 Mulberry Street Waterloo, IA 50703 Dear Michelle: Here is the engagement letter for the arbitrage rebate work. Thanks again for the business! Sincerely, BERENS-TATE CONSULTING GROUP a6 ge‘4,74— Chris D. Berens Enclosure 10050 REGENCY CIRCLE / SUITE 400 OMAHA, NEBRASKA 68114 • (402) 391-6188 • FAX (402) 391-9037 BERENS-TATE CONSULTING GROUP SPECIALIZING IN TAX-EXEMPT BOND SERVICES June 16, 2014 Michelle Weidner City of Waterloo 715 Mulberry Street Waterloo, IA 50703 Dear Ms. Weidner: Thank you for the opportunity to provide arbitrage rebate services to City of Waterloo ("City"). This letter outlines my understanding of the project. SCOPE We will perform an arbitrage rebate calculation for the following bonds: • $19,620,000/$3,675,000 GO Bonds, Series 2007A&B - through when proceeds were spent • $10,000,000 General Obligation Bonds, Series 2008A - through when proceeds were spent • $7,435,000 GO Bonds (Taxable Build America Bonds), Series 2009A - through May 31, 2014, the five-year installment date PROCEDURES We will perform the following procedures: • Review of bond documentation (official statement, arbitrage certificate, investment information, IRS Form 8038, etc.). • Determine the bond yield. • Compute the rebate amount (based upon the net future value of the non -purpose investments or the "cash flow method"). • Work closely with bond counsel to resolve any questions which may arise. • Work with you to determine the appropriate investment strategy for each bond issue/account, as well as the funding of and accounting for any rebate liability which might exist. 10050 REGENCY CIRCLE / SUITE 400 OMAHA, NEBRASKA 68114 • (402) 391-6188 • FAX (402) 391-9037 REPORTS We will prepare the following reports: • Summary report - describes procedures performed and the amount of any rebate owed. • Arbitrage rebate report - includes details of all transactions, sources of information, assumptions, as well as the calculation. • IRS Form 8038-T - prepare the proper IRS Form if any rebate is owed and paid at this time. CITY'S RESPONSIBILITIES The City is responsible for providing the Consulting Group with the documentation necessary to complete the calculation. This would include bond documentation (official statement, arbitrage certificate, 8038, etc.), as well as expenditure and investment information (trust statements/activity summary by fund, investment summary, disposition of bond proceeds, etc.). In determining the rebate amount for the Bonds, we will rely on the information provided by you without independent verification. We will retain copies of the records you have supplied us, along with our work papers for your engagement. However, our work papers and files are not a substitute for the original records of the client. FEES We estimate our fees for the project plus actual out-of-pocket expenses (travel, delivery charges, etc.) will be: Issue Fee 2007A&B Bonds $2,000 2008A Bonds 1,500 2009A Bonds 3,500 This fee is dependent on the availability, quality, and completeness of the records noted above and will be due within 30 days of completion of the project. If unexpected problems arise which are beyond the scope of our work and would affect our fee quote we would discuss these with you and obtain the necessary authorization from you before performing any additional procedures. We look forward to working with the City of Waterloo on this project and appreciate this opportunity to serve you. Sincerely, BERENS-TATE CONSULTING GROUP a6 evuon4- Chris D. Berens If you agree with the services outlined in this letter, please sign in the space provided below and return a copy to me Accepted by: Date: