Laserfiche WebLink
Rf- <br />MEQUEST FOR COUNCIL ACTION <br />Date.- 11/14�/1 1 <br />Item No..- 13. a <br />City Manager Approval <br />Item Description.- Discussion on Fire Station and Park Improvement Bond Allocation <br />BACKGROUND <br />2 At the October 24�,, 2011 City Council meeting, the Council authorized the issuance of $,10 million in <br />3 general obligation bonds to finance the construction of a new fire station and various park improvements. <br />4 The bonds are part of a larger $,27 million funding package that is scheduled to be fully implemented by <br />5 2013. <br />"7 City Staff had recommended that $,8 million be allocated for the fire station, and $,2 million for the park <br />8 improvements. This recommendation was based on IRS Regulations that pertain to City-issued tax exempt <br />9 bonds and is consistent with the City's cash flow needs. City Staff further recommended that a subsequent <br />'10 bond be issued in 2012 and again in 2013 to complete the funding package. <br />12 While the Council has discretion to determine the eventual bond allocation package, Staff felt it was <br />13 important for the Council to understand the various factors that led to Staffs recommendation. These <br />14 guiding factors are addressed in greater detail below. <br />1 1 Overview of Applicable IRS Regulations <br />1 7 The United States Internal Revenue Code establishes regulations to govern the issuance of tax exempt <br />1 ,,, bonds by governmental agencies including municipalities. The tax exemption is essentially a federal <br />'19 subsidy and over time was increasingly abused. To counter this, regulations were put in place in 1986 to <br />2o discourage issuers from.- <br />21 <br />22 1) Issuing more bonds than were needed <br />23 2) Issuing bonds before they were needed <br />24 3) Leaving bonds outstanding longer than needed <br />25 <br />26 These regulations became known as 'Arbitrage and Rebate Regulations'. In essence, municipalities face <br />27 financial penalties and added regulatory costs if they fail compliance. With regard to the proposed bond <br />28 financing for a new fire station and park improvements, only the second bullet point will come into play. <br />29 <br />30 Specifically, the City must spend down a certain percentage of the bond proceeds at various intervals over a <br />3,1 2-year period. Failure to meet these spend-down requirements will trigger potential penalties and added <br />32 regulatory costs. <br />33 <br />wp,f� <br />