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3.5. EDSR 02-13-2012REQUEST FOR ACTION TO ITEM NUMBER Economic Develo went Authori AGENDA SECTION MEETING DATE PREPARED BY Consent Februa 13, 2012 Tim Simon, Finance Director ITEM DESCRIPTION REVIEWED By Post-Issuance Debt Compliance Policy REVIEWED BY ACTION REQUESTED The Economic Development Authority is requested to approve the Post-Issuance Debt Compliance Policy BACKGROUND/DISCUSSION All issuers of tax-exempt bonds are required to file Internal Revenue Service (IRS) Form 8038-G (see sample attached). Last September, the IRS added three additional lines (43, 44, and 45 A&B). The most significant change was asking if issuers have written procedures to ensure compliance with the Internal Revenue Code. The IRS expects issuers and beneficiaries of these obligations to adopt and implement a post-issuance debt compliance policy and procedures to safeguard against post-issuance violations. These are procedures the city and Economic Development Authority (EDA) have been doing but is now asked to be in writing. Many governmental entities are currently adopting a policy. The attached policy has been reviewed by Ehlers and our bond attorney. As Finance Director, I will have to maintain a checklist on all the bond issues. The EDA will need to adopt this policy since on occasion the EDA issues bonds and may in the future. The current outstanding EDA bonds are the YMCA referendum bonds. The City Council passed a similar policy on February 6, 2012. The Post-Issuance Debt Compliance Procedures will address the following: 1. General post-issuance compliance 2. Proper and timely use of bond proceeds and bond-financed property; 3. Arbitrage yield restriction and rebate; 4. Timely filings and other general requirements, 5. Additional undertakings or activities that support points 1 through 4 above; 6. Other requirements that become necessary in the future FINANCIAL IMPACT No additional financial impact since all required post-compliance debt procedures will be completed by finance staff. ATTACHMENTS ^ Post-Issuance Debt Compliance Policy ^ Sample IRS form 8038-G (Information Return for Tax-Exempt Governmental Obligations) PQMfEflE9 'r N:APublic Bodies\City Counci]\Finance\Tim\2012\EDAPosCissuancedebtcompliancepolicy.docx ~~~~ Action Motion by Second by Vote Follow Up N:APublic Bodies\City Counci]\I^inanceV'Tim\2912\EDAPostissuancedebteompliancepolicy.docx Economic Development Authority City of Elk River, Minnesota Post-Issuance Debt Compliance Policy The Board of Commissioners (the "Board") of the Economic Development Authority for the City of Elk River, Minnesota (the "EDA") has chosen, by policy, to take steps to help ensure that all obligations will be in compliance with all applicable state and federal regulations. This policy may be amended, as necessary, in the future. Background The Internal Revenue Service (IRS) is responsible for enforcing compliance with the Internal Revenue Code (the "Code") and related regulations governing certain obligations (for example: tax-exempt obligations, Build America Bonds, Recovery Zone Development Bonds and various "Tax Credit" Bonds). The IRS expects issuers and beneficiaries of these obligations to adopt and implement apost-issuance debt compliance policy and procedures to safeguard against post-issuance violations. Post-Issuance Debt Compliance Policy Objective The EDA desires to monitor these obligations to ensure compliance with the IRS Code and related regulations governing such obligations. To help ensure compliance, the EDA has developed the following policy (the "Post-Issuance Debt Compliance Policy"). The Post- Issuance Debt Compliance Policy shall apply to the obligations mentioned above, including bonds, notes, loans, lease purchase contracts, lines of credit, commercial paper or any other. form of debt that is subject to compliance. Post-Issuance Debt Compliance Policy The Finance Director of the City is designated as the EDA's agent who is responsible for post-issuance compliance of these obligations. The Finance Director shall assemble all relevant documentation, records and activities required to ensure post-issuance debt compliance as further detailed in corresponding procedures (the "Post-Issuance Debt Compliance Procedures"). At a minimum, the Post- Issuance Debt Compliance Procedures for each qualifying obligation will address the following: 1. General post-issuance compliance; 2. Proper and timely use of bond proceeds and bond-financed property; 3. Arbitrage yield restriction and rebate; 4. Timely filings and other general requirements; 5. Additional undertakings or activities that support points 1 through 4 above; 6. Other requirements that become necessary in the future. The Finance Director shall apply the Post-Issuance Debt Compliance Procedures to each qualifying obligation and maintain a record of the results. Further, the Finance Director will ensure that the Post-Issuance Debt Compliance Policy and Procedures are updated on a regular and as needed basis. The Finance Director or any other individuals responsible for assisting the Finance Director in maintaining records needed to ensure post-issuance debt compliance, are authorized to expend funds as needed to attend training or secure use of other educational resources for ensuring compliance such as consulting, publications, and compliance assistance. Most of the provisions of this Post-Issuance Debt Compliance Policy are not applicable to governmental bonds the interest on which is includable in gross income for federal income tax purposes. On the other hand, if an issue of taxable governmental bonds is later refunded with the proceeds of an issue oftax-exempt governmental refunding bonds, then the uses of the proceeds of the taxable governmental bonds and the uses of the facilities financed with the proceeds of the taxable governmental bonds will be relevant to the tax- exempt status of the governmental refunding bonds. Therefore, if there is any reasonable possibility that an issue of taxable governmental bonds may be refunded, in whole or in part, with the proceeds of an issue oftax-exempt governmental bonds then, for purposes of this Post-Issuance Debt Compliance Policy, the Finance Director shall treat the issue of taxable governmental bonds as if such issue were an issue oftax-exempt governmental bonds and shall carry out and comply with the requirements of this Post-Issuance Debt Compliance Policy with respect to such taxable governmental bonds. The Finance Director shall seek the advice of bond counsel and its financial advisor as to whether there is any reasonable possibility of issuing tax-exempt governmental bonds to refund an issue of taxable governmental bonds. If the EDA issues bonds to finance a facility to be owned by the EDA but which may be used, in whole or in substantial part, by a nongovernmental organization that is exempt from federal income taxation under Section 501(a) of the Code. as a result of the application of Section 501(c)(3) of the Code (the "501(c)(3) Organization"), the EDA may elect to issue the bonds as "qualified 501(c)(3) bonds" the interest on which is exempt from federal income taxation under Sections 103 and 145 of the Code and applicable Treasury Regulations. Although such qualified 501(c)(3) bonds are not governmental bonds, at the election of the Finance Director, for purposes of this Post-Issuance Debt Compliance Policy, the Finance Director shall treat such issue of qualified 501(c)(3) bonds as if such issue were an issue oftax-exempt governmental bonds and shall carry out and comply with the requirements of this Post-Issuance Debt Compliance Policy with respect to such qualified 501(c)(3) bonds. Alternatively, in cases where compliance activities are reasonably within the control of the relevant 501(c)(3) Organization, the Finance Director may determine that all or some portion of compliance responsibilities described in this Post-Issuance Debt Compliance Policy shall be assigned to the relevant organization. The EDA may also issue tax-exempt bonds, the proceeds of which are loaned to certain private entities, including qualified 501(c)(3) organizations (referred to as "conduit bonds"). The EDA will require, as part of approval of any conduit bonds that the borrower assumes the duties of post-issuance debt compliance as described in this Post-Issuance Debt Compliance Policy, including provisions for reporting to the EDA. Adopted this date by the Board of Commissioners of the Economic Development Authority for the City of Elk River, Minnesota Form 8038-G Information Return for Tax-Exempt Governmental Obligations (Rev. September tot t} - Under Internal Revenue Code section 149(e) OMB No, 1545-0720 - See separate instructions. Department of the Treasury Caution: If the issue price !s under $100,000, use Form 8038-GG. internal Revenue Service - . _ ~........+:.,., n:.+~,,,,.,+,. If Amended Return.. check here - [~ iiirY~ie~._.~--r__Y,_~ -- r - - __ _ ,- ,....... 1 Issuer's name ._____ 2 Issuer's employer identification number (EIN} 3a Name of person {other than issuer) with whom the IRS may communicate about this return (see instructions) w... 3b Telephone number of other person shown on 3a _.. -....._. _ ._ 4 Number and street (or P,O, box if mail is not delivered to street address) Room/suite y) 5 Report number (For 1R5 Use Onl ~~ ~~ ~ d....:~L... 6 City, town, or post office state, and ZIP code 7 Date of issue 8 Name of issue 9 CUSIPhumber 10a Name and title of officer or other employee of the issuer whom the IRS may call for more information (sae tOb Telephone number of officer or other instructions) employee shown on 10a • Type of Issue (erfter the issue rice .See the instructions and attach schedule. w _ __ _ .._.... _ 11 ..~ , , Education 11 ~~ 12 . Health and hospital _ . . . _ 12 ~ 13 Transportation , , , _ 13 •• __ 14 Public safety . 14 ~ 15 Environment (including sewage bonds) - . 15 .,,_~. ~ ._ _. i6 Housing , , , , 16 17 Utilities , , , 17 18 Other. Describe - 18 19 If ob-igations are TANs or RANs, check only box 19a If obligations are BANs, check only box 19b , - ^ 20 if obligations are in the form of a lease or installment sale, check box , , - ^ Description of Obligations. Comlete for the entire issue for which this form is being ffted__. a Final maturit date (b) Issue rice (c) Stated redemption (d) Weighted (e} Yield I J Y p ~ price at maturity average maturity Uses of proceeds z~f and Is~de lnclu~liif~g underwriters' discount} 22 _M~. Proceeds used for accrued interest , , 22 23 Issue price of entire issue (enter amount from line 21, column (b)) , 23 24 Proceeds used for bond issuance costs (including underwriters' discount} . 24 _ 25 Proceeds used for credit enhancement 25 _ .~ 26 Proceeds allocated to reasonably required reserve or replacement fund 26 27 Proceeds used to currently refund prior issues 27 28 Proceeds used to advance refund prior issues 28 __ 29 Total (add lines 24 through 28j , 29 30 Nonrefunding proceeds of the issue (subtract line 29 from line 23 and enter amount h$r$) . 30 • . Description of Refunded Bonds. Complete this zrt only for refunding bonds, ~...... 31 32 33 34 Enter the remaining weighted average maturity of the bonds to be currently refunded . - Enter the remaining weighted average maturity of the bonds to be advance refunded , - Enter the last date on which the refunded bonds will be called (MM/DD/YYYY) , _ ~" Enter the date s the refunded bonds were. issued - ~1~vYxY} ears _____~years,_, ,_„4_,, ~ .~.,.,.-e. - For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 637735 Form 8038-G (Rev. 9-2011) Form 9038-G (Rev, 9-2011) Page ~ Miscellaneous 35 Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) 35 36a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract (GIC) {see instructions) 36a ~- b Enter the fins( maturity date of the GIC - c Enter the name of the GIC provider - ._...._._.__.~..._....._.-...~..__..~_~......._.~ ~_._,~n~~.~.._._.a... 37 Pooled financings: Enter the amount of the proceeds of this Issue that are to be used to make loans to other governmental units 37 38a If this issue is a loan made from the proceeds of another tax-exempt issue, check box - ^ and enter the following information: b Enter the date of the master pool obligation - „~~,~,_ . ~ ___ c Enter the EIN of the issuer of the master pool obligation - d Enter the name of the issuer of the master pool obligation - _ 39 If the issuer has designated the issue under section 265{b){3}{B){i)(III) (small issuer exception), check box - ^ 4t3 If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box - ^ 41a If the issuer has identified a hedge, check here - ^ and enter the following information: b Name of hedge provider- c Type of hedge - __ d Term of hedge - 42 If the issuer has superintegrated the hedge, check box . - ^ 43 If the issuer has established written procedures to ensure that all nonqualified bonds of this issue are remediated according to the requirements under the Code and Regulations (see instructions), check box - ^ 44 If the issuer has established written procedures to monitor the requirements of section 148, check box . - ^ 46a If some portion of the proceeds was used to reimburse expenditures, check here - ^ and enter the amount of reimbursement . - b Enter the date the official intent was adopted - Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge Signature and belief, they are true, correct, and complete. I further declare that I consent to the IRS's disclosure of the issuer's return information, as necessary to and process this return, to the person that I have authorized above. Consent - ~ Signature of issuer's authorized representative Date ~ 7ajpa or print name and title Paid Printlrype preparer's name Preparer's signature Date ,Check [~ if PTIN Plr@parBC ~ self-employed _.-.__ _ _ _ _. , _ _ ___ ~..m _- _-_.-. ..._..,.,~... . Use Only Firm s name - Firm's EIN - ~;,~,•,~ atSdrxAaa - Phone rw. Form$038-G (Rev. 9-2011)