Res 12-053RESOLUTION NO. 12 -053
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF POWAY, CALIFORNIA,
ADOPTING TAX- ADVANTAGED BONDS
POST - ISSUANCE COMPLIANCE PROCEDURES
WHEREAS, the City of Poway (the "City "), a municipal corporation duly formed
and existing under the laws of the State of California, has issued bonds or otherwise
incurred bonded indebtedness ( "Tax- Exempt Bonds "), the interest on which is excluded
from gross income for owners thereof for federal income tax purposes pursuant to the
Internal Revenue Code of 1986, as amended (the "Code "); and
WHEREAS, the City intends to issue additional Tax - Exempt Bonds from time to
time; and
WHEREAS, the City may also, in the future, issue bonds or incur bonded
indebtedness ( "Tax Credit Bonds," and together with Tax- Exempt Bonds, "Tax -
Advantaged Bonds ") that entitle the City, the owners of the Tax Credit Bonds or another
party to either a credit against federal income tax liability or a refundable credit from the
United States Treasury; and
WHEREAS, issuers of Tax - Advantaged Bonds are required to comply with
certain post issuance requirements in accordance with the Code; and
WHEREAS, as a matter of internal controls, the City desires to adopt the Tax -
Advantaged Bonds Post - Issuance Compliance Procedures (the "Procedures "), as set
forth in Exhibit A hereto;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Poway
as follows:
Section 1. The above recitals, and each of them, are true and correct.
Section 2. The Procedures, as set forth in Exhibit A, are hereby approved and
adopted and shall be made applicable to all Tax - Advantaged Bonds issued by or on
behalf of the City and its related entities (such as the Poway Public Financing Authority
and the Poway Housing Authority).
Section 3. The City Manager, in consultation with bond counsel, is hereby
authorized to amend the Procedures from time to time as necessary or appropriate.
Section 4. The City Manager, the Director of Administrative Services, and all
other officers of the City are hereby authorized and directed, jointly and severally, to do
any and all things, to effectuate the purposes of this Resolution and to implement the
Procedures any such actions previously taken by such officers are hereby ratified and
confirmed.
Resolution No. 12 -053
Page 2
Section 5. This Resolution shall take effect immediately upon adoption.
PASSED, ADOPTED AND APPROVED by the City Council of the City of Poway,
California, at a regular meeting held on the 18th day of September, 2012.
Don Higginson,
ATTEST:
Lin ro n, MMC, City C erk
STATE OF CALIFORNIA )
) SS
COUNTY OF SAN DIEGO )
I, Linda A. Troyan, MMC, City Clerk of the City of Poway, do hereby certify under
penalty of perjury that the foregoing Resolution No. 12 -053 was duly adopted by the
City Council at a meeting of said City Council held on the 18th day of September, 2012,
and that it was so adopted by the following vote:
AYES: BOYACK, GROSCH, MULLIN, CUNNINGHAM, HIGGINSON
NOES: NONE
ABSENT: NONE
DISQUALIFIED:
ATTACHMENT:
Exhibit A
NONE
Li
of F
n, NCNfC, City
Resolution No. 12 -053
Page 3
Exhibit A
TAX- ADVANTAGED BONDS POST - ISSUANCE COMPLIANCE PROCEDURES
1. BACKGROUND AND TRAINING
Bonds that receive preferential treatment under federal law are commonly
referred to by the Internal Revenue Service as "tax- advantaged bonds ". These bonds
are issued by or on behalf of state and local governments, such as the City of Poway
and its related public entities such as the Poway Public Financing Authority, and the
Poway Housing Authority. These bonds are subject to federal tax requirements both at
the time the bonds are issued and for as long as they remain outstanding. An issuer's
(or other party's) failure to comply with any applicable federal tax requirement with
respect to these bonds jeopardizes their preferential treatment.
While compliance with applicable federal tax requirements normally occurs at
closing, other federal tax requirements require on -going monitoring after the issuance of
the bonds. These requirements include filing a Form 8038 information return (8038 -G
for fully tax - exempt bonds, 8038 -GC for fully tax - exempt bonds with an issue price of
less than $100,000, 8038 for tax - exempt ( "qualified ") private activity bonds, 8038 -B for
Build America Bonds, or 8038 -TC for tax credit bonds, such as qualified school
construction bonds) and the issuer having reasonable expectations of on- going, post -
issuance compliance.
Post - issuance federal tax requirements generally fall into two categories: (1) the
use of proceeds and the use of bond - financed property; and (2) arbitrage yield
restriction on investments and rebate. Use requirements require monitoring of the
various direct and indirect uses of bond - financed property over the life of the bonds and
calculations of the percentage of nonqualified uses. Arbitrage requirements also require
monitoring over the life of the bonds to determine whether both the yield on investments
acquired with bond proceeds are properly restricted and whether the City must file a
Form 8038 -T to pay a rebate or a yield reduction payment.
Post - issuance compliance procedures will help the City monitor compliance as
long as the bonds remain outstanding and improve the City's ability to identify
noncompliance and prevent violations from occurring, or timely correct identified
violations, to ensure the continued tax - advantaged status of the bonds.
The designated officer or employee (described in Section 2.A, below) and
anyone assigned particular responsibilities in connection with the procedures described
below must read the certificate regarding compliance with certain tax matters
(commonly referred to as the "tax certificate ") that is executed by the City in connection
with each bond issue for a more complete explanation of the matters described in these
Procedures. In addition, the designated officer or employee and anyone assigned
particular responsibilities, should discuss these matters with bond counsel and must
meet with bond counsel for training related to these Procedures.
Resolution No. 12 -053
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2. GENERAL ADMINISTRATION
A. Responsible Officers or Employees. The City Manager will designate the
officer (e.g., the Director of Administrative Services) or employee who will be
responsible for compliance with each of the procedures set forth below. The City
Manager will notify the current holder of that office, or the employee, of the
responsibilities and provide that person a copy of these Procedures. The holder of the
office, or the employee, may in turn designate other officers or employees and assign to
them particular responsibilities for certain of these Procedures. Qualified consultants
may assist in conducting the compliance procedures. The City Manager will be notified
in writing of all such designations and assignments.
B. Reassignment of Responsibilities. Upon the transition of a designated
officer or employee, the City Manager will advise the new officer or employee of the
responsibilities under these procedures. If officer or employee positions are
restructured or eliminated, the City Manager, or his or her designee will reassign
responsibilities as necessary to ensure that all of the procedures listed below have been
appropriately assigned.
C. Periodic Reviews. The designated officer or employee will conduct
periodic reviews of compliance with these procedures and with the terms of any existing
tax certificate relating to outstanding tax - advantaged bonds, such as fully tax - exempt
bonds or Build America Bonds, to determine whether any violations have occurred.
Such periodic reviews will occur at least once every six months. In the event that
violations have occurred, bond counsel will be contacted immediately so that violations
can be remedied through the remedial actions set forth in Section 1.141 -12 of the
Treasury Regulations, the Voluntary Closing Agreement Program described in IRS
Notice 2008 -31, or further guidance as may be provided by the IRS. Where necessary,
violations will be reported to the IRS by submitting a VCAP request within 90 days after
identification of the violation.
D. Changes or Modifications to Bond Terms. If any change or modification to
the terms of tax - advantaged bonds is contemplated, the designated officer or employee
will immediately contact bond counsel (a change or modification could result in a
reissuance, which in the case of BABs, for example, would constitute a refunding of the
BABs and thereby jeopardize their status).
E. Recordkeepinq. For each issue of tax - advantaged bonds, the designated
officer or employee will:
(1) maintain a copy of the transcript of the documents relating to the
bonds.
(2) maintain records of all facilities and other costs (e.g., issuance
costs, credit enhancement fees and capitalized interest) and uses (e.g., deposits to
project funds and reserve funds) for which bond proceeds were spent or used (in the
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case of a qualified private activity bond, the conduit borrower will be responsible for
providing the City with this information);
(3) maintain records of investments and expenditures of bond
proceeds, rebate exception analyses, rebate calculations, Forms 8038 -T, and rebate
and yield reduction payments, and any other records relevant to compliance with
arbitrage restrictions (in the case of a qualified private activity bond, the borrower will be
responsible for providing the City with this information in the event it is not otherwise
available to the City);
(4) maintain all records described in these Procedures while any bonds
of the issue are outstanding and during the three -year period following the final maturity
or redemption of the bond issue or, if later, while any bonds that refund bonds of that
original issue are outstanding and for the three year period following the final maturity or
redemption date of the latest refunding bond issue; and
(5) maintain copies of all of the following contracts or arrangements
with non - governmental persons or organizations or with the federal government: (a) the
sale of any bond - financed facility; (b) the lease of any bond - financed facility (other than
individual tenant leases in the case of qualified private activity multifamily rental housing
bonds); (c) management or service contracts relating to a bond - financed facility (other
than those entered into in connection with qualified private activity bonds); (d) research
contracts involving research undertaken in a bond - financed facility (other than those
entered into in connection with qualified private activity bonds); and (e) any other
contracts involving "special legal entitlements" (such as naming rights or exclusive
provider arrangements) with respect to a bond - financed facility (other than those
entered into in connection with qualified private activity bonds).
3. IRS INFORMATION RETURN FILING
In cooperation with bond counsel, the designated officer or employee will ensure
that the Form 8038 -G (or other applicable Form 8038) is timely filed (on or before the
15th day of the second calendar month after the end of the quarter in which the bonds
were issued) with respect to each tax - advantaged bond issue, including any required
schedules and attachments.
4. INVESTMENT AND EXPENDITURE OF BOND PROCEEDS AND REBATE
A. Track Investments and Expenditures. The designated officer or employee
will ensure the existence of an established accounting procedure for tracking the
investment and the timely expenditures of bond proceeds, including investment
earnings.
B. Reimbursement. Upon issuance of the bonds, the designated officer or
employee will allocate bond proceeds to reimbursement of prior expenditures (assuming,
if required, an appropriate declaration of intent to reimburse has been adopted). In the
case of qualified private activity bonds, the designated officer or employee shall rely on
information provided by the conduit borrower.
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C. Final Allocations. The designated officer or employee will ensure that a
final allocation of bond proceeds (including investment earnings) to qualifying
expenditures is made if bond proceeds are to be allocated to project expenditures on a
basis other than "direct tracing" (direct tracing means treating the bond proceeds as
spent as shown in the accounting records for bond draws and project expenditures).
This allocation must be made within 18 months after the later of the date the
expenditure was made or the date the project was placed in service, but not later than
the earlier of five years and 60 days after the issuance date of the bonds or 60 days
after the bond issue is retired. In the case of qualified private activity bonds, the
designated officer or employee shall rely on information provided by the conduit
borrower, which shall be required to provide such information within the timeframe
described in the preceding section.
D. Timely Expenditure of Bond Proceeds. Mindful of the expectations
regarding the timing of the expenditures of bond proceeds set forth in the tax certificate,
the designated officer or employee will monitor expenditures of bond proceeds,
including investment earnings, against issuance date expectations for satisfaction of
three -year (or five -year) temporary period from yield restriction on investment of bond
proceeds. In the case of qualified private activity bonds, the conduit borrower shall be
required to comply with this section.
E. Yield. The designated officer or employee will make note of the "yield" of
the bond issue, as shown on the Form 8038 -G, 8038 -B or other applicable Form 8038.
F. Temporary Periods and Yield Restriction. The designated officer or
employee will review the tax certificate to determine the "temporary periods" for the
bond issue, during which periods various categories of gross proceeds of the bond
issue may be invested without restriction as to yield. In the case of qualified private
activity bonds, the conduit borrower shall be required to comply with this section.
G. Investment of Proceeds and Yield Restriction. The designated officer or
employee will ensure that bond proceeds are not invested in investments with a yield
above the bond yield following the end of the applicable temporary period unless yield
reduction payments are to be made. In the case of qualified private activity bonds, the
conduit borrower shall be required to comply with this section.
H. Bidding Requirements. If purchasing investments other than publicly
traded securities for immediate delivery (for example, a guaranteed investment contract
or certificates of deposit), the designated officer or employee will consult with bond
counsel to ensure that investments of bond proceeds satisfy IRS regulatory safe
harbors for establishing fair market value (e.g., through the use of bidding procedures),
and maintain records to demonstrate satisfaction of such safe harbors. In the case of
qualified private activity bonds, the conduit borrower shall be required to comply with
this section.
I. Credit Enhancement and Hedging Transactions. The designated officer or
employee will consult with bond counsel before engaging in credit enhancement or
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hedging transactions with respect to a bond issue. The designated officer or employee
will maintain copies of all contracts and certificates relating to credit enhancement and
hedging transactions.
J. Debt Service Fund. After all proceeds of a bond issue have been spent,
the designated officer or employee will ensure that the debt service fund meets the
requirements of a "bona fide debt service fund," i.e., one used primarily to achieve a
proper matching of revenues with debt service that is depleted at least once each bond
year, except for a reasonable carryover amount not to exceed the greater of (i) the
investment earnings on the fund for the immediately preceding bond year; or (ii) one -
twelfth of the debt service on the bond issue for the immediately preceding bond year.
To the extent that a debt service fund qualifies as a bona fide debt service fund for a
given bond year, the investment of amounts held in that fund is not subject to yield
restriction for that year. The designated officer or employee will consult with bond
counsel before creating separate additional funds that are expected to be used to pay
debt service on the bonds. In the case of qualified private activity bonds, the conduit
borrower shall be required to comply with this section.
K. Reserve Fund. The designated officer or employee will ensure that
amounts of bond proceeds invested in any reasonably required reserve fund do not
exceed the least of (each determined at the time of issuance of the bonds): (i) ten
percent of the stated principal amount of the bonds (or the sale proceeds of the bond
issue if the bond issue has original issue discount or original issue premium that
exceeds two percent of the stated principal of the bond issue plus, in the case of
premium, reasonable underwriter's compensation); (ii) maximum annual debt service on
the bond issue; or (iii) 125 percent of average annual debt service on the bond issue. In
the case of qualified private activity bonds, the conduit borrower shall be required to
comply with this section.
L. Escrow Fund. For an advance refunding escrow (where the escrow is
established 90 or more days before the refunded bonds are to be redeemed) funded
with taxable open market securities earning yields higher than the yield of the advance
refunding bonds, assure that all or part of the escrow is invested in zero interest rate
SLGS issued by the U.S. Treasury Department if needed to blend down the yield.
M. Gifts for Bond - Financed Projects. Before beginning a campaign that may
result in gifts that will be restricted for use relating to a bond - financed facility (or, in the
absence of such a campaign, upon the receipt of such restricted gifts), the designated
officer or employee will consult with bond counsel to determine whether replacement
proceeds may result.
N. Performance of Rebate Calculations. Subject to the small issuer
exception and the exceptions described in the tax certificate, investment earnings on
bond proceeds at a yield in excess of the bond yield generally must be rebated to the
United States. The designated officer or employee will ensure that rebate calculations
will be timely performed and payment of rebate amounts, if any, will be timely made.
Rebate payments are generally due 60 days after the fifth anniversary of the issuance
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date of the bond issue, then in succeeding installments every five years. The final
rebate payment is due 60 days after retirement (or early redemption) of the last bond of
the issue. In the case of qualified private activity bonds, the conduit borrower shall be
required to comply with this section.
O. Rebate Consultant. The designated officer or employee will engage the
services of an experienced rebate consultant to undertake rebate calculations described
above for each bond issue. In the case of qualified private activity bonds, the conduit
borrower shall be required to comply with this section.
P. Spending Exceptions. If the six - month, 18- month, or 24 -month spending
exceptions from the rebate requirement (as described in the tax certificate) apply to the
bond issue, the designated officer or employee will ensure that the spending of bond
proceeds is monitored prior to semi - annual spending dates for the applicable exception.
Q. Follow -up on Rebate. After all bond proceeds have been spent, the
designated officer or employee will ensure compliance with rebate requirements for any
reserve fund and any debt service fund that is not exempt from the rebate requirement.
In the case of qualified private activity bonds, the conduit borrower shall be required to
comply with this section.
R. Filing of 8038 -T. The designated officer or employee will make rebate and
yield reduction payments timely and file Form 8038 -T.
5. PRIVATE BUSINESS USE
A. Private Business Use. Use of bond proceeds or bond - financed property
by a nongovernmental person (including the federal government) in furtherance of a
trade or business activity is considered private business use. Any activity carried on by
other than a natural person (individual acting as a member of the general public) is
treated as a trade or business. Indirect uses of bond proceeds must also be considered
in determining whether more than ten percent of the proceeds of a bond issue will be for
a private business use. For example, a facility is treated as being used for a private
business use if it is sold or leased to a nongovernmental person and the
nongovernmental person's use is in a trade or business. The designated officer or
employee will analyze any private business use of bond - financed facilities and, for each
issue of bonds, determine whether the ten percent limit on private business use (five
percent in the case of "unrelated or disproportionate" private business use) is exceeded
and immediately contact bond counsel if either of these limits is exceeded. This section
shall not apply to qualified private activity bonds.
B. Management and Service Agreements. Management contracts between
governmental entities and certain private parties under which private parties receive
compensation for services provided with respect to a bond - financed facility may result in
private business use. Before entering into any new management agreement or service
agreement relating to bond - financed facilities, the designated officer or employee will
immediately contact bond counsel to review any such agreement to determine whether
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it may result in private business use. This section shall not apply to qualified private
activity bonds.
C. Special Legal Entitlements. Before entering into any agreement providing
special legal entitlements relating to a bond - financing facility, the designated officer or
employee will immediately contact bond counsel to review such agreement. This section
shall not apply to qualified private activity bonds.
6. PROCEDURES RELATING ONLY TO BUILD AMERICA BONDS AND TAX
CREDIT BONDS
A. Limit on Premium. The designated officer or employee will consult with
the financial advisor to ensure that the premium on each maturity (stated as a
percentage of principal amount) does not exceed one - quarter of one - percent multiplied
by the number of complete years to the earlier of the final maturity or, generally, the
earliest optional redemption date for the bonds.
B. Two Percent Costs of Issuance Limitation. The designated officer or
employee will consult with the financial advisor to ensure that the excess of the issue
price (i.e., the stated principal amount of the bonds plus the original issue premium or
less the original issue discount) over the price at which the bond issue is sold to the
investors at the initial bond offering, when combined with other issuance costs paid from
bond proceeds, does not exceed two percent of the sale proceeds.
C. Review of Market Availability. The designated officer or employee will
ensure that the financial advisor reviews the market trading activity after their sale date
but before their issuance date to determine whether the market pricing is consistent with
the issue price reported by the underwriter or original purchaser as of their sale date.
Market trading information is generally available through the Municipal Securities
Rulemaking Board's Electronic Municipal Market Access System (EMMA)
(http: / /www.emma.msrb.org). A record of such determination, including copies of the
market trading information, will be maintained.
D. Monitor Interest for Refundable Credit. In the case of BABs or tax credit
bonds, the designated officer or employee will monitor the amount of interest payable
on each interest payment date to ensure that the proper amount of direct payment
(refundable credit) is requested on each Form 8038 -CP.
E. Filing of 8038 -CP. In the case of BABs or tax credit bonds, the designated
officer or employee will ensure that IRS Form 8038 -CP is timely filed with respect to
each interest payment date (or each quarter in the case of certain variable rate bond
issues).
F. Refundable Credit Payments to Proper Person. In the case of BABs or
tax credit bonds, if the direct payments (refundable credits) to be made by the federal
government with respect to the bonds will be paid to a person other than the issuer (e.g.,
the bond trustee or the state or local government entity on whose behalf an authority
issued the bonds, such as the California Statewide Communities Development
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Authority), the designated officer or employee will obtain and record the contact
information of that person, and ensure that it is properly shown on Form 8038 -CP so
that the direct payment (refundable credit) will be made to the proper person.
G. Follow -up on Two Percent Costs of Issuance Limitation. In the case of
BABs or tax credit bonds, in cooperation with the financial advisor, the designated
officer or employee will ensure that no more than two percent of the sale proceeds are
used to pay issuance costs.
H. Available Project Proceeds. In the case of BABs or tax credit bonds, the
designated officer or employee will ensure that all of the sale proceeds and investment
earnings, other than (i) sale proceeds used to pay issuance costs (up to the two percent
limit described above) or (ii) deposited in a reasonably required reserve fund, are
allocated to capital expenditures.