HomeMy WebLinkAboutBond Financing Post Issuance Compliance 2018-03-09 THE CITY OF GRAPEVINE, TEXAS
PROCEDURES FOR POST-ISSUANCE COMPLIANCE
Accepted as of this 9th day of March 2018.
L GENERAL
These Procedures for Post-Issuance Compliance (the "Procedures") are for maintaining
and evidencing compliance with the federal tax requirements that apply to the bond financings of
the City of Grapevine (the "City"). In furtherance of such purposes the City has adopted these
Procedures with respect to the following:
General Recordkeeping & Record Retention
• Timely return filings
• Proper and timely use of bond proceeds and proper use of bond-financed property
• Arbitrage - yield restriction and rebate
• Reissuance requirements
Corrective Action
These Procedures apply to any obligations to which Sections 103 and 141 through 150 of the
Internal Revenue Code of 1986 (the "Code") are applicable, whether such obligations are in fact
tax-exempt. For example, these Procedures will be followed with respect to any issue of tax
credit bonds to which such sections of the Code apply. It is the intention of the City to modify or
amend these Procedures in the future to comply with any requirements set forth in subsequent
rulings and other advice published by the Internal Revenue Service (the "Service" or the "IRS"),
as such authorities may apply to the City and its obligations.
II. RESPONSIBLE PARTIES
The City acknowledges that as the issuer of debt obligations subject to the Code, it is responsible
for post-issuance compliance with respect to such debt obligations. The Chief Financial Officer
"CFO" of the City has general oversight of the post-issuance compliance of bond financings. In
addition, the following parties are responsible for the duties listed next to their title:
The "CFO"—oversees all financial functions of the City
The Managing Finance Director—responsible for all accounting functions of the City
The Controller - responsible for banking, cash management, investment, and certain debt
administration activities of the City
Finance Department — responsible for the cataloguing and storage of various financial
records of the City
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Bracewell LLP provides legal counsel involving all aspects of the issuance of obligations
and post-issuance compliance
Hillwood Securities - responsible for all aspects of arbitrage rebate compliance activity on
behalf of the City
Parties responsible for the financing aspects and the operations aspects of bond-financed
facilities will coordinate efforts to ensure that any actions taken with respect to a bond-financed
facility will be in compliance with the requirements of the Code. The City will provide training
and/or make available educational materials regarding compliance requirements (e.g., private use
requirements)to the parties responsible for the oversight of bond-financed facilities.
III. GENERAL RECORDKEEPING & RECORD RETENTION
General record retention duties are the responsibility of the Finance Department.
The Finance Department will maintain a copy of the following documents on file at all times:
• Audited Financial Statements
• Reports of any examinations by the Internal Revenue Service of the City's
financings
With respect to each issue of obligations, the Finance Department will retain the following for
the life of the obligations (including the life of any obligations issued to refund the original debt)
plus three years:
• Bond transcript, including authorizing documents, offering document, the federal
tax certificate and certificates regarding issue price
• Minutes and resolution(s) authorizing the issue
• Any formal elections (e.g., election to employ an accounting methodology other
than specific tracing)
• Records relating to the payment of debt service (including credit enhancement)
• Documentation relating to investments and arbitrage compliance, as described in
"Arbitrage—Yield Restriction and Rebate - Recordkeeping" below
• Documentary evidence of when and for what purpose the bond proceeds were
expended, as described in "Expenditures of Bond Proceeds - Recordkeeping"
below
• Any grant requests or fundraising materials and documentation of grants or
fundraising receipts relating to projects that also may be financed, in whole or in
part, with bond proceeds
• Any agreement of a type described in "Private Business Use — Special Legal
Entitlements"that relates to a bond-financed facility
• Bond paying agent/trustee statements
• Rebate compliance reports
• Related IRS filings (e.g. Form 8038-T Rebate)
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• IRS correspondence regarding such issue
• Other documentation (including written advice of Bond Counsel) material to the
particular requirements that are applicable to the tax status of the financing
Documents may be retained as hard copies or in an electronic format (in accordance with
Revenue Procedure 97-22, 1997-1 C.B. 652), so long as such documents are retained in
organized, accessible format that preserves the accuracy of such documents.
IV. RETURN FILINGS
Bracewell (Bond Counsel) will be responsible for the timely filing of the Form 8038-G
information report (or such other series 8038 form as may be applicable to a specific issue of
bonds) with the Service, which filing may be completed by bond counsel after the issuance of the
obligations. The City must file a separate Form 8038-G for each issue of bonds not later than the
15'h day of the second calendar month after the close of the calendar quarter in which the bonds
are issued.
V. EXPENDITURE OF BOND PROCEEDS
General
The "CFO" is responsible for oversight of the expenditure of bond proceeds, including
monitoring whether such expenditures are made in a timely manner for the purposes for which
the bonds were authorized in order to qualify for rebate exceptions set forth in the Code and
Regulations and whether investments of unexpended Bond proceeds continue to qualify for
temporary period exceptions to yield-restriction requirements. Bond Counsel may be consulted
regarding allocation of expenditures between each Bond issue to ensure timely expenditure of
Bond proceeds.
Additionally, the "CFO" will monitor compliance with the requirement of the Regulations that
proceeds of a bond issue are to be allocated to expenditures by the later of 18 months after the
expenditure was made or the date the project is placed in service (and in no event, later than 60
days after (i) the fifth anniversary of the issue date or(ii) retirement of the issue).
With respect to the reimbursement of any expenditure paid prior to the date of issue of the bonds,
the "CFO" will monitor compliance with the requirement of the Regulations that such
reimbursement allocation to bond proceeds is made not later than 18 months after the later of(i)
the date the original expenditure is made or (ii) the date the project is placed in service, but in no
event more than three years after the original expenditure is paid. Furthermore, the "CFO" will
monitor compliance with the requirement of the Regulations that such reimbursement allocation
is for the reimbursement of expenditures paid on or after 60 days prior to the date of a
reimbursement resolution (including for this purpose a bond order).
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Recordkeeping
With respect to each issue of obligations, the City will retain the following for the life of the
obligations plus three years:
• Documentation of allocation of bond proceeds to expenditures (e.g., allocation of
bond proceeds for expenditures for the construction, renovation or purchase of
facilities)
• Documentation of allocations of bond proceeds to bond issuance costs
Copies of all requisitions, draw schedules, draw requests, invoices, bills, and
cancelled checks related to bond proceeds spent during the construction period
Copies of all contracts entered into for the construction, renovation or purchase of
bond-financed facilities
• Records of expenditure reimbursements incurred prior to issuing bonds for bond-
financed facilities
• List or schedule of all bond-financed facilities or equipment
• Depreciation schedules, if any, for bond-financed depreciable property
• Documentation of any purchase or sale of bond-financed assets
Documents may be retained as hard copies or in an electronic format (in accordance with
Revenue Procedure 97-22, 1997-1 C.B. 652), so long as such documents are retained in
organized, accessible format that preserves the accuracy of such documents.
VI. PRIVATE BUSINESS USE
General
To confirm that the Bonds serve governmental purposes rather than providing proscribed
benefits to nongovernmental persons engaged in "private business" activity, it must be
determined whether the City expects that there will be any private business use of the proceeds
of the bonds. Private business use exists if more than five percent(and, in certain circumstances,
ten percent) of the proceeds of the issue or the property to be financed by the bond proceeds are
used directly or indirectly by any nongovernmental person in that person's trade or business. In
addition, no more than five percent(and, in certain circumstances, ten percent) of the proceeds of
an issue may be secured directly or indirectly by property or payments derived from private
business use under the "private security or payment test." Private business use may occur due to
arrangements (typically contractual) that give nongovernmental persons special legal
entitlements with respect to the use of bond-financed property (including a sale or other transfer
of bond-financed property to a nongovernmental person). Finally, no more than five percent of
the proceeds of an issue of bonds may be used to make loans or in an arrangement that allows a
nongovernmental person to defer payments that it is obligated to make with respect to the
financed property or the bonds.
The City's finance team will coordinate with the parties responsible for the use and operation of
a bond-financed facility by communicating the private business use restrictions to such parties
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and requiring that all activity that may give rise to such use be communicated to the users in
advance of such use. The Finance Department is responsible for tracking trade or business
activity by third parties as it relates to each issue of obligations and will monitor such activity no
less frequently than yearly and, in any event, upon being notified of any new activity that will
give rise to a significant amount of trade or business activity by a third party.
Special Legal Entitlements that Can Create Private Business Use
A special legal entitlement that can create private business use can arise from arrangements that
convey ownership rights, leasehold rights or management rights (e.g., priority rights to use the
facility) or other similar rights. Recognizing that a special legal entitlement may give rise to
private business use, each time the City intends to enter into one of the following, the City will
determine if such agreement relates to any bond -financed facility:
• Management and other service contracts
• Research agreements
Naming rights contracts
Ownership
• Leases
Subleases
• Leasehold improvement contracts
Joint venture arrangements
• Limited liability corporation arrangements
• Partnership agreements
Non-contractual use of bond-financed office space and/or parking facilities by any
nongovernmental person
• Any other contract conferring a special legal entitlement or special economic
benefit that are comparable to ownership
If such an agreement will be with respect to a bond-financed facility, the City will take measures
designed to preserve the intended federal income tax status of that issue of Bonds. Such
measures may include ensuring that such agreement falls into an applicable exception under the
private business use rules, making a determination that private use will not exceed the applicable
limit or such other action as may be recommended by bond counsel, including taking remedial
actions with respect to the issue of Bonds whose federal tax status is implicated.
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VII. PAYMENTS ON THE BONDS
The trustee/paying agent for the bonds shall determine the amount of principal and interest
payable on each payment date for the bonds. Periodically, and no less frequently than annually,
the Financial Advisor "Hilltop Securities" will review the amount of the interest payments to
verify that proper payments of interest have been made.
VIII. ARBITRAGE—YIELD RESTRICTION & REBATE
General
The Financial Advisor Hilltop Securities is responsible for monitoring the City's compliance
with the yield restriction requirements of section 148(a) of the Code and the rebate requirements
of section 148(f) of the Code. Such monitoring includes, but is not limited to:
• Tracking the allocation of bond proceeds to expenditures for compliance with any
temporary period and spending exceptions, no less frequently than yearly
• Ensuring that any forms required to be filed with the IRS relating to arbitrage and
any payments required pursuant thereto are filed in a timely manner
• Ensuring that "fair market value" is used with respect to the purchase and sale of
investments
Additionally, the City will hire a rebate analyst to monitor compliance with rebate and yield
restriction rules on a yearly basis.
Compliance with the investment rules will require that the City be able to account for, in terms of
dates and amounts, all uses (including disbursements and investment activity) of particular
categories of bond-related money. The Financial Advisor will account for all of the following
disbursements: monies in the project fund, debt service fund and any other fund into which
proceed of the obligations have been deposited, including any reserve fund. In doing so, the
Financial Advisor, Hilltop Securities will use any reasonable consistently applied accounting
method to account for gross proceeds, investments and expenditures of an issue.
Recordkeeping
With respect to each issue of obligations, the City will retain the following for the life of the
obligations plus three years:
• Documentation of allocations of investments and calculations of investment
earnings
• Documentation for investments of the bond proceeds related to:
a) Investment contracts (e.g., guaranteed investment contracts)
b) Credit enhancement transactions (e.g., bond insurance contracts)
C) Financial derivatives (e.g., swaps, caps, etc.)
d) Bidding of financial products
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• Documentation regarding arbitrage compliance, including:
a) Computation of bond yield
b) Computation of rebate and yield reduction payments
C) Form 8038-T, Arbitrage Rebate, Yield Reduction and Penalty in Lieu of
Arbitrage Rebate
d) Form 8038-R, Request for Recovery of Overpayments Under Arbitrage
Rebate Provisions
Documents may be retained as hard copies or in an electronic format (in accordance with
Revenue Procedure 97-22, 1997-1 C.B. 652), so long as such documents are retained in
organized, accessible format that preserves the accuracy of such documents.
IX. REISSUANCE
Prior to making any changes to the terms of an obligation, including its underlying security, the
City will consult with bond counsel to determine whether such change will result in the
reissuance of such obligation for federal tax law purposes. If it is determined that a change will
result in a reissuance, the City will take such action, including the recalculation of yield, the
filing of a new form 8038-G and the payment of rebate obligations, as is necessary to maintain
the tax status of the bonds.
X. CORRECTIVE ACTION
Reports regarding the aforementioned compliance policies with respect to any issue of bonds
will be made by the party given responsibility for such area to the "CFO" no less frequently than
annually. At such time, the "CFO" will determine whether any corrective action is required with
respect to the applicable issue.
A corrective action may be required if, for example, it is determined that bond proceeds were not
timely or properly expended, the City is not in compliance with the arbitrage requirements
imposed by the Code or the City has taken a deliberation action that results in impermissible
private business use (e.g., sale of bond-financed property). If the City determines or is advised
that corrective action is necessary with respect to any issue of its obligations, the City will, as
may be applicable, in a timely manner:
seek to enter into a closing agreement under the Tax-Exempt Bonds Voluntary
Closing Agreement Program described in Notice 2008-31 (or any successor notice
thereto)
take remedial action described under Section 1.141-12 of the Code
take such other action as recommended by bond counsel
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