HomeMy WebLinkAboutItem 13 - Arbitrage Rebate ServicesMEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: BRUNO RUMBELOW, CITY MANAGER 0
MEETING DATE: NOVEMBER 15, 2011
SUBJECT: APPROVAL TO EXECUTE AN AGREEMENT FOR ARBITRAGE
REBATE SERVICES WITH FIRST SOUTHWEST ASSET
MANAGEMENT
RECOMMENDATION:
City Council to consider approval authorizing the City Manager to execute an agreement
with First Southwest Asset Management, Inc., for arbitrage rebate services for a five -
year period.
FUNDING SOURCE:
Fees will be paid from the various bond accounts, interest earnings on bonds being
analyzed.
BACKGROUND:
The City's Arbitrage Rebate Services Agreement with First Southwest Asset
Management, Inc. expired in April 2011. First Southwest has been providing arbitrage
rebate services to the City since November 1995. The agreement with First Southwest
is for a five -year term and specifies the responsibilities for maintaining compliance with
the arbitrage regulations. A copy of the agreement and associated fees is included lin
your packet.
Arbitrage is interest earnings on tax exempt bond proceeds which exceed earnings rates
allowed by Federal regulations. If such earnings occur, the excess earnings must be
rebated to the Federal Government. If, for example, the City issues General Obligation
bonds which cost us 4% and we invest the bond proceeds before the bonds are spent
and earn a rate greater than 4 %, we must send our "excess" earnings to the Federal
Government. As with most things to do with the Federal Government, the concept is
simple, but the application is complex. First Southwest Asset Management reviews all
our bonds, investments, etc. on an annual basis to determine if any rebate is owed to
the Federal Government, as we are required by law to do. In a typical year, the fee runs
about $35,000.
Staff recommends approval.
APPENDIX A - FEES
The Obligations to be covered initially under this contract include all issues of tax- exempt obligations delivered subsequent to th",
effective dates of the rebate requirements, under the Code, except as set forth in Section I of the Agreement.
The fee for any Obligations under this contract shall only be payable if a computation is required under Section 148(f)(2) of the
Code. In the event that any of the Obligations fall within an exclusion to the computation requirement as refined by Section 148
of the Code or related regulations and no calculations were required by First Southwest to make that determination, no fee will be
charged for such issue. For example, certain obligations are excluded from the rebate computation requirement if the proceeds
are spent within specific time periods. In the event a particular issue of Obligations fulfills the exclusion requirements of the Code
or related regulations, the specified fee will be waived by First Southwest if no calculations viere required to make the
determination.
First Southwest's fee for arbitrage rebate services is based upon a fixed annual fee per issue. The annual fee is charged based
upon the number of years that proceeds exist subject to rebate from the delivery date of the issue to the computation date.
First Southwest's fees are payable upon delivery of the report. The first report will be made following one year from the date of
delivery of the Obligations and on each computation date thereafter during the term of the Agreement. The fees for computations
of the Arbitrage Amount which encompass more, or less, than one Computation Year shall be prorated to reflect the longer, or
shorter, period of work performed during that period.
The fee for each of the Obligations included in this contract shall be based on the table below.
Additionally, due to significant time saving efficiencies realized when investment information is submitted in an
electronic format, First Southwest passes the savings to its clients by offering a 10% reduction in its fees if
information is provided in a spreadsheet or electronic text file format.
Description � Annual Fee
ANNUAL FEE $1,200
COMPREHENSIVE ARBITRAGE COMPLIANCE SERVICES INCL UDE:
• Commingled Funds Analysis & Calculations
Spending Exception Analysis & Calculations
Yield Restriction Analysis & Calculations
(for yield restricted Project Funds, Reserve Funds, Escrow Funds, etc.)
Parity Reserve Fund Allocations
Transferred Proceeds Calculations
Universal Cap Calculations
Debt Service Fund Calculations (including earnings test when required)
INCLUDED
Preparation of all Required IRS Paperwork for Making a Rebate Payment / Yield Reduction
Payment
Retention of Records Provided for Arbitrage Computations
IRS Audit Assistance
Delivery of Rebate Calculations Each Year That Meets the Timing Requirements of the Audit
Schedule
On -Site Meetings, as Appropriate, to Discuss Calculation Results / Subsequent Planning Items
k
OTHER SERVICES AVAILABLE:
IRS Refund Request — Update calculation, prepare refund request package, and assist issuer as necessary
in responding to subsequent IRS Information Requests
$750
Commercial Paper s — issue � Commercial Calculations Per allocated i
$] 600 t
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