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<br />4-15 <br /> <br />Generally speaking, any arbitrage earned on the investment of tax-exempt bond proceeds must <br />be rebated back to the Internal Revenue Servicc. However, certain exceptions to the requirement <br />are available. The applicable exceptions to the City's upcoming bond issue include the <br />following: <br /> <br />o 6 Month Spend-down Exception: All gross bond proceeds and earnings thereon are spent <br />within six months. <br />o 18 Month Spend-down Exception: All gross bond proceeds and earnings thereon are <br />spent as follows: <br />Within 6 months <br />12 months <br />18 months <br /> <br />15% of the proceeds spent <br />60% <br />100% <br /> <br />o 2 Year Spend-down Exception: Exception applies when at least 75% of available <br />construction proceeds are spent as follows: <br />6 months 10% <br />12 months 45% <br />18 months 75% <br />24 months 100% <br /> <br />Due to the nature of our project, we would be eligible to qualify for the 2-Year Exception. <br />Depending on the construction timeframe, it is possible for the City to avoid arbitrage. Of course <br />the City would also have the discretion of specifically choosing investments that are equal to or <br />less than the borrowing rate itself, thereby avoiding any arbitrage earnings altogether and <br />rendering the issue moot. <br /> <br />The structure of the bond will also have to be decided. The assumption made to date, is that the <br />bonds would be issued with a 15-year payback schedule. Given the current borrowing climate, it <br />may be feasible to payoff the bonds over a 10-year period rather than 15, without dramatically <br />impacting the annual expense to the taxpayers. Staff hopes to have a revised estimate of the <br />annual taxpayer impact for the next Council Meeting. <br /> <br />Council Action Requested <br />No action is requested. For information purposes only. <br />