HomeMy WebLinkAboutBonds Post-Issuance Compliance Fed Tax LawSouthold Town Board ~ Letter Board Meeting of August 14, 2012
RESOLUTION 2012-631
ADOPTED
Item # 5.14
DOC ID: 8059
THIS 1S TO CERTIFY TItAT THE FOLLOWING RESOLUTION NO. 21}12~631 WAS
ADOPTED AT THE REGULAR MEET1NG OF THE SOUTHOLD TOWN BOARD ON
AUGUST 14, 2012:
WHEREAS Municipalities that borrow money on a tax-exempt basis are now required to report
to the internal Revenue Service whether they have established written procedures to comply with
applicable requirements of federal tax law for all issues of bonds, bond anticipation notes, tax
anticipation notes, revenue anticipation notes, financing leases, energy performance contract
financings, and any other instruments evidencing the borrowing of money (collectively the
"Obligations"), and
WHEREAS said procedures will assist the Town of Southold in meeting the post-issuance
requirements of federal tax law necessary to preserve the tax-exempt status of interest on tax-
exempt Obligations issued by the Town, now therefore be it
RESOLVED that Town Board of the Town of Southold hereby adopts the Procedures for Post-
issuance Compliance with Federal Tax Law dated August 14, 2012.
Elizabeth A. Neville
Southold Town Clerk
RESULT: ADOPTED [UNANIMOUS]
MOVER: Jill Doherty, Councilwoman
SECONDER: William Ruland, Councilman
AYES: Ruland, Talbot, I)oherty, Krupski Jr., Evans, Russell
Generated August 15, 2012 Page 20
TOWN OF SOUTHOLD PROCEDURES FOR POST-ISSUANCE
COMPLIANCE WITH FEDERAL TAX LAW
Municipalities that borrow money on a tax-exempt basis are now required to report to the
Internal Revenue Service whether they have established written procedures to comply with
applicable requirements of federal tax law for all issues of bonds, bond anticipation notes, tax
anticipation notes, revenue anticipation notes, financing leases, energy performance contract
financings, and any other instruments evidencing the borrowing of money (collectively the
"Obligations"). The procedures set forth herein will assist the Town of Southold, Suffolk
County, New York (the "Town") in meeting the post-issuance requirements of federal tax law
necessary to preserve the tax-exempt status of interest on tax-exempt Obligations issued by the
Town.
These procedures address Obligations issued for physical facilities and equipment for the
Town (the "Capital Obligations") and Obligations issued to finance cash-flow operating
requirements of the Town (the "Cash-Flow Obligations").
I. GENERAL PROCEDURES
A. Responsible Official. The Supervisor of the Town (herein referred to as the
"Responsible Official") will identify such officers and employee(s), who will be responsible tbr
each of the procedures listed below, and will notify such officers and employee(s) of the
responsibilities, and provide those persons with a copy of these procedures. Upon employee
transitions, the Responsible Official will advise the new personnel of their responsibilities under
these procedures and will ensure they understand the importance of these procedures. If
employee positions are restructured or eliminated, the Supervisor of the Town will reassign
responsibilities as necessary.
B. Issuance of Obligations.
1. Bond Counsel. The Town will retain a firm of nationally-recognized bond
counsel ("Bond Counsel") to deliver a legal opinion in connection with the issuance of all
Obligations. The Responsible Official will consult with Bond Counsel and other legal counsel
and advisors, as needed, following the issuance of Obligations to ensure that applicable post-
issuance requirements are met, so that interest on each issue of Obligations will be excluded
from gross income for federal income tax pm'poses.
2. Documentation of Tax Requirements. The federal tax requirements relating to
each issue of Obligations will be set forth in an Arbitrage and Use of Proceeds Certificate (the
"Tax Certificate") executed in connection with each issue of Obligations, which will be included
in the closing transcript for each issue of Obligations. The Tax Certificate will contain
certifications, representations, expectations and factual statements relating to the restriction on
use of the facilities financed with Obligations by persons or entities other than the Town,
changes in use of the facilities financed or refinanced with the proceeds of Obligations,
restrictio~s applicable to the investment of the proceeds of any Obligations and other moneys
relating to the Obligations, and arbitrage rebate requirements. The Responsible Official will
review the Tax Certificate prior to the date of issue of each issue of Obligations.
3. Information Reporting. tn connection with each issue of tax-exempt
Obligations, the Town is required to file, or shall cause to be filed by Bond Counsel, an IRS
Form 8038-G (or, if applicable, IRS Form 8038-GC). Any such 1RS Form filed with the IRS,
together with a proof of filing, will be included as part of the closing transcript for each issue of
Obligations, or kept in the records maintained by Bond Counsel related to the appropriate issue
of Obligations. The Responsible Official shall ascertain that such form has been filed in
connection with each issue of Obligations.
C. Record Retention.
1. General. Copies of all relevant documents and records sufficient to support that
the tax requirements relating to all Obligations have been satisfied, including the following
documents and records, should be maintained by the Town:
(a) Closing transcript;
(b) All records of investments, arbitrage reports, returns filed with the IRS
and underlying documents;
(c) Construction contracts, pm'chase orders, invoices and expenditure and
payment records;
(d) Documents relating to costs reimbursed with the proceeds of Capital
Obligations;
(e) All contracts and arrangements involving Private Use of the property
financed with Capital Obligations;
(f) All reports relating to the allocation of the proceeds of Obligations and
Private Use of property financed with Capital Obligations;
(g) Itemization of property financed with the proceeds of Capital Obligations;
and
(h) In connection with Cash-Flow Obligations, information regarding the
Town's revenue, expenditures and available balances sufficient to support the Town's
prospective and actual maximum cumulative cash-flow deficit calculations.
2. Duration of Record Retention. All of the foregoing documents and records
should be retained for the term of the Obligations, plus six (6) years.
D. Capital Obligations.
1. Timely Expenditure of Proceeds of Capital Obligations. At the time of
issuance of Capital Obligations issued to fund original expenditures, the Town must reasonably
expect to spend at least 85% of all proceeds within three (3) years of the date of issuance of the
Obligations. In addition, for Capital Obligations, the Town must have incurred or expect to incur
within six months after issuance original expenditures of not less than 5% of the amount of such
proceeds, and must expect to complete the project financed with Capital Obligations (the
"Project") and expend the proceeds of such Capital Obligations to pay Project costs with due
diligence. Satisfaction of these requirements allows the proceeds of Capital Obligations issued
for the Project to be invested at an unrestricted yield lbr three (3) years. Failure to satisfy these
requirements could subject the Town to rebate of investment income, and other penalties. The
Responsible Official will monitor the appropriate capital project accounts to ensure that the
proceeds of Capital Obligations are spent within the time period(s) required under federal tax
law.
Capital Obligations issued to refinance outstanding Capital Obligations are subject to
separate expenditure requirements, which shall be outlined in the Tax Certificate relating to such
Obligations. In connection with the issuance of any Capital Obligations issued to refinance
outstanding Capital Obligations, the Responsible Official will confirm that any rebate obligation
due with respect to the original issue and any subsequent refinancing thereof has been met.
2. Use of Proceeds of Capital Obligations. In general, proceeds (including
investment income on original sale proceeds) of Capital Obligations, other than proceeds used to
pay costs of issuance, should be spent on capital expenditures. For this purpose, capital
expenditures generally mean costs to acquire, construct, or improve property (land, buildings and
equipment). Capital Expenditures include design and planning costs related to the Project, and
include architectural, engineering, surveying, soil testing, environmental, and other similar costs
incurred in the process of acquiring, constructing, improving or adapting the property. Capital
Expenditures do not include operating expenses of the Project.
3. Use of Facilities Financed with Capital Obligations. For the life of all Capital
Obligations, the Project must be owned and operated by the Town. At all times while Capital
Obligations issued for a Project are outstanding, no more than 5% of the proceeds of such
Capital Obligations may used, directly or indirectly, in a trade or business cmTied on by a person
other than a state or local governmental unit ("Private Use"). Generally, Private Use consists of
any contract or other arrangement, including leases, management contracts (for example,
contracts relating to the operation of Town water and sewer facilities, docks, recreational areas or
concessions in Town parks), operating agreements and guarantee contracts which provides for
use of the facilities financed with Capital Obligations by a person who is not a state or local
government on a basis different than the general public. The Project may be used by any person
or entity, including any person or entity carrying on any trade or business, if such use constitutes
"General Public Use". General Public Use is any arrangement providing for use that is available
to the general public at either no charge or on the basis of rates that are generally applicable and
uniformly applied.
4. Management or Operating Agreements tbr Facilities Financed with C_apital
Obligations. Any management, operating or service contracts whereby a non-exempt entity is
using facilities financed or refinanced with the proceeds of Capital Obligations must relate to
portions of the Project that fit within the above-mentioned 5% allo~vable Private Use, or the
contracts must meet the 1RS safe harbor for management contracts (Rev. Proc. 97-13). Any
renewals of or changes to such contracts should be reviewed by Bond Counsel. The Responsible
Official shall contact Bond Counsel if there may be a lease, sale, disposition or other change in
use of facilities financed or refinanced with the proceeds of Capital Obligations.
E. Cash-Flow Obligations.
1. Proper Sizing of Cash-Flow Obligations.
(a) If the Town is not subject the small issuer exemption from rebate, at the time
of issuance of Cash-Flow Obligations, the Town must anticipate that it will incur an actual
maximmn cumulative cash-flow deficit on a date on or before the close of the six-month period
commencing on the issue date of the Cash-Flow Obligations equal to at least 90% of the issue
price of the Cash-Flow Obligations.
(b) If the Town is subject to the small issuer exemption from rebate, at the time
of issuance of Cash-Flow Obligations, the Town must anticipate that it will incur an actual
maximum cumulative cash-fiow deficit on a date on or before the close of the twelve-month
period commencing on the issue date of the Cash-Flow Obligations equal to at least 100% of the
issue price of the Cash-Flow Obligations (which may include taking into account the Town's
"reasonably required working capital reserve").
(c) The Responsible Official will determine the appropriate amount of Cash-Flow
Obligations to issue.
(d) With respect to Towns not subject to the small issuer exemption from rebate,
the Responsible Official shall determine whether or not the Town has met its requisite maximum
cumulative cash-flow deficit within six months following the date of issuance of the Cash-Flow
Obligations, and shall, to the extent necessary, obtain assistance from the Arbitrage Rebate
Consultant, referred to below.
F. Investment Restrictions; Arbitrage Yield Calculation; Rebate.
1. Investment Restrictions. Investment restrictions relating to the proceeds of
Obligations and other moneys relating to the Obligations are set forth in the 'Fax Certificate. The
Responsible Official will monitor the investment of the proceeds of Obligations to ensure
compliance with yield restriction rules.
2. Arbitrage Yield Calculation. Investment earnings on the proceeds of
Obligations should be tracked and monitored to comply with applicable yield restrictions and/or
rebate requirements. The Town is responsible for calculating (or causing the calculation of)
rebate liability for each issue of Obligations, and for making any required rebate payments. Any
funds of the Town set aside or otherwise pledged or earmarked to pay debt service on the
Obligations should be analyzed to assure compliance with the tax law rules on arbitrage, invested
sinking funds and pledged funds (including gifts or donations linked to facilities financed with
Capital Obligations). The Responsible Official will consult with Bond Counsel to confirm that
all relevant arbitrage yield requirements are met,
3. Rebate. On or before the date of any required rebate payment (see below), the
Town will retain a nationally recognized arbitrage rebate consultant (the "Arbitrage Rebate
Consultant") to perform rebate calculations that may be required to be made from time to time
with respect to any issue of Obligations. The Responsible Official shall provide the Arbitrage
Rebate Consultant with requested documents and information on a prompt basis, reviewing
applicable rebate reports and other calculations and generally interacting with the Arbitrage
Rebate Consultant to ensure the timely preparation of rebate reports and payment of any rebate.
The reports and calculations provided by the Arbitrage Rebate Consultant will assure
compliance with rebate requirements, which require the Town to make rebate payments, if any,
no later than the fifth (5~h) anniversary date and each filth (5th) anniversary date thereafter
through the final maturity or redemption date of a Capital Obligation. A final rebate payment, if
due, must be made within sixty (60) days of the final maturity or redemption date of all
Obligations.
Rebate spending exceptions for Capital Obligations are available for periods of 6 months,
18 months and 2 years. The Responsible Official will confer and consult with the Arbitrage
Rebate Consultant to determine whether any rebate spending exception ,nay be met.
In the case of Cash-Flow Obligations, within 60 days of the maturity date of such Cash-
Flow Obligations, if there is concern as to whether the Town has met its requisite maximum
cumulative cash-flow deficit, a rebate analyst should be promptly engaged to determine whether
either the six-month spending exception or the statutory safe harbor exception to the rebate rules
was met (in which case no rebate would be owed) or whether the investment income derived
from the proceeds of the Cash-Flow Obligations is subject, in whole or in part, to rebate.
Copies of ail arbitrage rebate reports, related return filings with the IRS (i.e., 1RS Form
8038-T), copies of cancelled checks with respect to any rebate payments, and information
statements must be retained as described above. The Responsible Official will tbllow the
procedures set forth in the Tax Certificate that relate to compliance with the rebate requirements
with respect to any Obligations.
lh ADDITIONAL PROCEDURES.
A. Periodic Monitoring. The Responsible Official will conduct periodic reviews of
compliance with the foregoing procedures to determine whether any violations have occurred so
that such violations can be remedied through the "remedial action" regulations (Treas. Reg.
Section 1.141-12) or the Voluntary Closing Agreement Program (VCAP) described in IRS
Notice 2008-31 (or successor guidance). If any changes to the terms or provisions of any
Obligations are contemplated, the Responsible Official will consult with Bond Counsel, because
such modifications could jeopardize the tax-exempt status of interest on the Obligations after
they are modified.
B. Uso of Facilities. The Responsible Official will maintain records identifying any
Private Use of the facilities or portion of facilities that are financed or refinanced with proceeds
of Capital Obligations. Such records may be kept in any combination of paper or electronic form.
In the event the use of the proceeds of Capital Obligations of the facilities financed or refinanced
with the proceeds of Capital Obligations differs from the representations or factual statements in
the Tax Certificate, the Responsible Official will promptly contact and consult with Bond
Counsel to ensure that there is no adverse effect on the tax-exempt status of the Capital
Obligations and, where appropriate, will remedy any violations through the "remedial action"
regulations (Treas. Reg. Section 1.141-12), the Voluntary Closing Agreement Program (VCAP)
described in 1RS Notice 2008-31 (or successor guidance), or as otherwise prescribed by Bond
Counsel.