HomeMy WebLinkAboutResolution No. 12-C27RESOLUTION NO. 12-C27
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA
APPROVING AND ADOPTING THE POST -ISSUANCE COMPLIANCE
POLICY FOR BOND ISSUES
WHEREAS, the City of Azusa ("City") has issued tax-exempt bonds and may issue
additional types of bonds in the future ("Bonds"); and
WHEREAS, federal tax law encourages the City to develop issuance and post -issuance
compliance procedures related to the Bonds; and
WHEREAS, various requirements apply under the Internal Revenue Code and Income Tax
Regulations (hereinafter "IRS Requirements") including information filing and other requirements related
to issuance, the proper and timely use of bond, and arbitrage yield restriction and rebate requirements; and
WHEREAS, to comply with the IRS Requirements, the City must ensure that the rules are
met at the time the Bonds are issued and throughout the term of the Bonds; and
WHEREAS, the City desires to adopt written issuance and post -issuance compliance
policy related to the Bonds;
NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE
CITY OF AZUSA DOES HEREBY:
Section 1. Approve and adopt the Post -Issuance Compliance Policy for Bond Issues
attached hereto as Exhibit A;
Section 2. Authorize City staff to take all actions necessary to carry out the Policy.
ADOPTED AND APPROVED this 7°i day of May, 2012.
ZOISEPH R. ROCHA, MAYOR
I HEREBY CERTIFY that the foregoing Resolution No. 12-C27, was duly adopted by the
City Council of the City of Azusa at a regular meeting thereof on the 7th day of May 2012, by the following
vote of City Council Members.
AYES: COUNCIL MEMBERS: GONZALES, CARRILLO, MACIAS, HANKS, ROCHA
NOES: COUNCIL MEMBERS: NONE
ABSTAIN: COUNCIL MEMB S: NONE
ABSENT: COUNCIL M ERS; NONE
VERA MENDOZA, CITY CLERK
EXHIBIT A
POST -ISSUANCE COMPLIANCE POLICY FOR BOND ISSUES
[Attached behind this page]
CITY OF AZUSA, CALIFORNIA
POST -ISSUANCE COMPLIANCE POLICY FOR BOND ISSUES
PURPOSE.
The purpose of this Policy is to ensure that the City of Azusa, California (the "Issuer") complies
with applicable requirements of federal tax law necessary to preserve the tax-exempt status of interest on
tax-exempt obligations issued by the Issuer. This Policy is designed to set forth compliance procedures
so that the Issuer utilizes the proceeds of all issues of bonds, certificates of participation, bond
anticipation notes, and tax and revenue anticipation notes (collectively referred to as "Bonds") in
accordance with applicable federal tax requirements, and complies with all other applicable federal
requirements with respect to outstanding Bonds.
To comply with applicable federal tax requirements, the Issuer must confirm that the
requirements are met at the time each Bond issue is issued and throughout the term of the Bonds (until
maturity or redemption). Generally, compliance should include retention of records relating to the
expenditure of the proceeds of each Bond issue, the investment of the proceeds of each Bond issue, and
any allocations made with respect to the use of the proceeds of each Bond issue, sufficient to establish
compliance with applicable federal tax requirements, including records related to periods before the
Bonds are issued (e.g., in the case of reimbursement of prior expenditures) until six (6) years after the
final maturity or redemption date of any issue of the Bond issue.
PROCEDURES.
A. Responsible Official. The Finance Director of the Issuer will identify the officer or other
employee(s) of the Issuer (the "Bond Compliance Officer") who will be responsible for each of the
procedures listed below, notify the current holder of that office of the responsibilities, and provide that
person a copy of these procedures. Upon employee transitions, the Finance Director of the Issuer will
advise any newly -designated Bond Compliance Officer of his/her responsibilities under these procedures
and will ensure the Bond Compliance Officer understands the importance of these procedures. If
employee positions are restructured or eliminated, the Finance Director of the Issuer will reassign
responsibilities as necessary.
B. Issuance of Bonds.
Bond Counsel. The Issuer will retain a nationally -recognized bond counsel law firm ("Bond
Counsel") to deliver a legal opinion upon issuance of each tax-exempt Bond issue. The opinion of Bond
Counsel will be based in part on covenants and representations set forth in the Issuer's Tax Certificate and
other certificates relating to the Bonds, including covenants and representations concerning compliance
with post -issuance federal tax law requirements that must be satisfied to preserve the tax-exempt status of
interest on the Bonds. As described more fully below, the Issuer will also consult with Bond Counsel and
other legal counsel and advisors, as needed, following issuance of each Bond issue to ensure that
applicable post -issuance requirements in fact are met, so that interest on all Bond issues will be excluded
from gross income for federal income tax purposes so Ion as s any Bonds remain outstanding.
The Bond Compliance Officer and/or other designated Issuer personnel will consult with Bond
Counsel and other legal counsel and advisors, as needed, throughout the Bond issuance process to identify
requirements and to establish procedures necessary or appropriate so that interest on the Bonds will
continue to qualify for federal tax-exempt status. Those requirements and procedures shall be
documented in a Tax Certificate and other certificates and/or other documents finalized at or before
issuance of the Bonds. Those requirements and procedures shall include future compliance with
applicable arbitrage rebate requirements and all other applicable post -issuance requirements of federal tax
law throughout (and in some cases beyond) the term of the Bonds.
Documentation of Tax Requirements. The federal tax requirements relating to each Bond issue
will be set forth in the Tax Certificate executed in connection with the Bond issue, which will be included
in the closing transcript. The certifications, representations, expectations, covenants and factual
statements in the Tax Certificate relate primarily to the restriction on use of the Bond -financed facilities
by persons or entities other than the Issuer, changes in use of assets financed or refinanced with Bond
proceeds, restrictions applicable to the investment of Bond proceeds and other moneys relating to the
Bonds, arbitrage rebate requirements, and economic life of the Bond -financed assets.
Information Reporting. The Bond Compliance Officer and/or other designated Issuer personnel
will assure filing of information returns on IRS Form 8038-G, no later than the 15" day of the second
calendar month in the calendar quarter following the calendar quarter in which issue of Bonds is issued.
The Issuer will confirm that the IRS Form 8038-G is accurate and is filed in a timely manner with respect
to all Bond issues, including any required schedules and attachments. The Form 8038-G filed with the
IRS, together with an acknowledgement copy (if available) or IRS Notice CPI 52, will be included as part
of the closing transcript for each Bond issue, or kept in the records related to the appropriate issue of
Bonds.
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shall:
C. Application of Bond Proceeds.
Use of Bond Proceeds. The Bond Compliance Officer and/or other designated Issuer personnel
* monitor the use of Bond proceeds and the use of the Bond -financed assets
(e.g., facilities, furnishings or equipment) throughout the term of the Bonds (and in some
cases beyond the term of the Bonds) to ensure compliance with covenants and restrictions
set forth in the applicable Tax Certificate;
* maintain records identifying the assets or portion of assets that were financed or
refinanced with proceeds of each issue of Bonds;
* consult with Bond Counsel and other legal counsel as needed in the review of
any contracts or arrangements involving use of Bond -financed facilities to ensure
compliance with all covenants and restrictions set forth in the applicable Tax Certificate;
* maintain records for any contracts or arrangements involving the use of Bond -
financed facilities as might be necessary or appropriate to document compliance with all
covenants and restrictions set forth in the applicable Tax Certificate; and
* communicate as necessary and appropriate with personnel responsible for the
Bond -financed assets to identify and discuss any existing or planned use of the Bond -
financed assets, to ensure that those uses are consistent with all covenants and restrictions
set forth in the applicable Tax Certificate.
Timely Expenditure of Bond Proceeds. At the time of issuance of any Bonds issued to fund
original expenditures, the Issuer must reasonably expect to spend at least 85% of all proceeds expected to
be used to finance such expenditures (which proceeds would exclude proceeds in a reasonably required
reserve fund) within three (3) years after issuance of such Bonds.' In addition, for such Bonds, the Issuer
must have incurred or expect to incur within six months after issuance original expenditures of not less
than 5% of such amount of proceeds, and must expect to complete the Bond -financed project (the
In the case of short-term working capital financings (e.g., TRANs), the Issuer's actual maximum cumulative cash flow
deficit as of the close of the six-month period commencing on the issue date must be at least equal to 100% of the issue price of
the notes (under the six-month rebate exception, excluding the reasonable working capital reserve) or 90% of the issue price of
the notes (under the statutory safe harbor exception) in order for the notes to be exempt from the rebate requirements.
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"Project") and allocate Bond proceeds to costs with due diligence.2 Satisfaction of these requirements
allows Project -related Bond proceeds to be invested at an unrestricted yield for three (3) years.3 Bonds
issued to refinance outstanding obligations are subject to separate expenditure requirements, which shall
be outlined in the Tax Certificate relating to such Bonds. The Issuer's finance staff will monitor the
appropriate capital project accounts (and, to the extent applicable, working capital expenditures and/or
refunding escrow accounts) and ensure that Bond proceeds are spent within the applicable time period(s)
required under federal tax law.
Capital Expenditures. In general, proceeds (including earnings on original sale proceeds) of
Bonds issued to fund original expenditures, other than proceeds deposited in a reasonably required
reserve fund or 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), or to adapt the property to a new or different use. The property financed or refinanced must
have a useful life longer than one (1) year. 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 or incidental or routine repair or
maintenance of the Project, even if the repair or maintenance will have a useful life longer than one (1)
year.
D. Use of Bond -Financed Assets.
Ownership and Use of Proiect. For the life of the Bond issue, the Project must be owned and
operated by the Issuer (or another state or local governmental entity). At all times while the Bond issue is
outstanding, no more than 10% (or $15,000,000, if less) of the Bond proceeds or the Project may used,
directly or indirectly, in a trade or business carried on by a person other than a state or local governmental
unit ("Private Use").5 In addition, not more than 5% (or $5 million, if less) of the proceeds of any Bond
issue may be used, directly or indirectly, to make a loan to any person other than governmental persons.
1 These requirements do not apply to short-term working capital financings (e.g., TRANs).
3 Proceeds of working capital financings (e.g.. TRANs) may be invested at an unrestricted yield for thirteen (13)
months..
Proceeds of working capital financings (e.g., TRANs) need not be spent for capital expenditures.
This 10% limitation is limited to 5% in cases in which the Private Use is either unrelated or disproportionate to the
governmental use of the financed facility.
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Generally, Private Use consists of any contract or other arrangement, including leases, management
contracts, operating agreements, guarantee contracts, take or pay contracts, output contracts or research
contracts, which provides for use 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.
Management or Operating Agreements. Any management, operating or service contracts
whereby a non-exempt entity is using assets financed or refinanced with Bond proceeds (such as
bookstore, cafeteria or dining facility, externally -managed parking facilities, gift shops, etc.) must relate
to portions of the Project that fit within the allowable private use limitations or the contracts must meet
the IRS safe harbor for management contracts. Any replacements of or changes to such contracts relating
to Bond -financed assets or facilities, or leases of such assets or facilities, should be reviewed by Bond
Counsel. The Bond Compliance Officer shall contact Bond Counsel if there may be a lease, sale,
disposition or other change in use of assets financed or refinanced with Bond proceeds.
Useful Life Limitation. The weighted average maturity of the Bond issue cannot exceed 120% of
the weighted average economic life of the Bond -financed assets. In other words, the weighted average
economic life of the Project must be at least 80% of the weighted average maturity of the Bond issue.
E. Investment Restrictions Arbitrage Yield Calculations; Rebate.
Investment Restrictions. Investment restrictions relating to Bond proceeds and other moneys
relating to the Bonds are set forth in the Tax Certificate. The Issuer's finance staff will monitor the
investment of Bond proceeds to ensure compliance with applicable yield restriction rules.
Use and Control of Bond Proceeds. Unless otherwise provided, unexpended Bond proceeds
(including reserves) are typically held by the trustee for the Bond issue under an indenture or trust
agreement. The investment of Bond proceeds shall be managed by the Issuer. The Issuer shall maintain
appropriate records regarding investments and transactions involving Bond proceeds. The trustee shall
provide regular statements to the Issuer regarding investments and transactions involving Bond proceeds.
Arbitrage Yield Calculations. Investment earnings on Bond proceeds should be tracked and
monitored to comply with applicable yield restrictions and/or rebate requirements. Any funds of the
Issuer set aside or otherwise pledged or earmarked to pay debt service on Bonds should be analyzed to
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assure compliance with the tax law rules on arbitrage, invested sinking funds and pledged funds
(including gifts or donations linked or earmarked to the Bond -financed assets).
Rebate. The Issuer is responsible for calculating (or causing the calculation of) rebate liability for
each Bond issue, and for making any required rebate payments. The Issuer will retain an arbitrage rebate
consultant to perform rebate calculations that may be required to be made from time to time with respect
to any Bond issue. The Issuer is responsible for providing 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 are intended to assure
compliance with rebate requirements, which require the Issuer to make rebate payments, if any, no later
than the fifth (5`h) anniversary date and each fifth (51h) anniversary date thereafter through the final
maturity or redemption date of a Bond issue. A final rebate payment must be made within sixty (60) days
of the final maturity or redemption date of a Bond issue.
The Issuer will confer and consult with the arbitrage rebate consultant to determine whether any
rebate spending exceptions may be met. Rebate spending exceptions are available for periods of 6
months, 18 months and 2 years. The Issuer will review the Tax Certificate and/or consult with the
arbitrage rebate consultant or Bond Counsel for more details regarding the rebate spending exceptions.
In the case of short-term working capital financings, such as tax and revenue anticipation notes, if
there is concern as to whether or not the Issuer has met its requisite maximum cumulative cash flow
deficit with respect to its short-term working capital notes, the services of a rebate analyst should be
engaged to determine whether either the six-month spending exception or the statutory safe harbor
exception to the rebate rules is met (in which case no rebate would be owed) or whether the proceeds of
the notes are subject, in whole or in part, to rebate.
Copies of all arbitrage rebate reports, related return filings with the IRS (i.e., IRS Form 8038-T),
copies of cancelled checks with respect to any rebate payments, and information statements must be
retained as described below. The responsible official of the Issuer described in Subsection A of this Part
II will follow the procedures set forth in the Tax Certificate entered into with respect to any Bond issue
that relate to compliance with the rebate requirements.
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F. Record Retention.
Allocation of Bond Proceeds to Expenditures. The Issuer shall allocate Bond proceeds to
expenditures for assets, and shall trace and keep track of the use of Bond proceeds and property financed
or refinanced therewith.
Record Keephig Requirements. Copies of all relevant documents and records sufficient to
support an assertion that the tax requirements relating to a Bond issue have been satisfied will be
maintained by the Issuer for the term of a Bond issue (including refunding Bonds, if any) plus six (6)
years, including the following documents and records:
• Bond closing transcripts;
• Copies of records of investments, investment agreements, credit enhancement
transactions, financial derivatives (e.g., an interest rate swap), arbitrage reports and
underlying documents, including trustee statements;
• Copies of material documents relating to capital expenditures financed or refinanced by
Bond proceeds, including (without limitation) purchase orders, invoices, trustee
requisitions and payment records, as well as documents relating to costs reimbursed with
Bond proceeds and records identifying the assets or portion of assets that are financed or
refinanced with Bond proceeds;
• All contracts and arrangements involving private use, or changes in use, of the Bond -
financed property;
• All reports and documents relating to the allocation of Bond proceeds and private use of
Bond -financed property; and
• Itemization of property financed with Bond proceeds, including placed in service dates.
• In the case of short-term working capital financings, such as tax and revenue anticipation
notes, information regarding the Issuer's revenue, expenditures and available balances
sufficient to support the Issuer's maximum cumulative cash flow deficit.
Ill.
POST -ISSUANCE COMPLIANCE.
A. In General. The Issuer will conduct periodic reviews of compliance with these
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 or
modifications to the terms or provisions of a Bond issue are contemplated, the Issuer will consult Bond
Counsel. The Issuer recognizes and acknowledges that such modifications could result in a "reissuance"
of the Bonds for federal tax purposes (i.e., a deemed refunding) and thereby jeopardize the tax-exempt
status of interest on the Bonds after the modifications.
The Bond Compliance Officer and/or other designated Issuer personnel will consult with Bond
Counsel and other legal counsel and advisors, as needed, following issuance of each issue of the Bonds to
ensure that all applicable post -issuance requirements in fact are met, so that interest on the Bonds will be
excluded from gross income for federal income tax purposes so long as any Bonds remain outstanding.
This will include, without limitation, consultation in connection with future contracts with respect to the
use of Bond -financed assets and future contracts with respect to the use of output or throughput of Bond -
financed assets.
Whenever necessary or appropriate, the Issuer will engage an expert advisor as arbitrage rebate
consultant to assist in the calculation of arbitrage rebate payable in respect of the investment of Bond
proceeds.
B. Private Use. The Issuer will maintain records identifying the assets or portion of assets
that are financed or refinanced with proceeds of a Bond issue, including the uses and the users thereof
(including terms of use and type of use). Such records may be kept in any combination of paper or
electronic form. In the event the use of Bond proceeds or the assets financed or refinanced with Bond
proceeds is different from the covenants, representations or factual statements in the Tax Certificate, the
Issuer will promptly contact and consult with Bond Counsel to ensure that there is no adverse effect on
the tax-exempt status of the Bond issue 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 IRS Notice 2008-31 (or successor guidance), or as otherwise prescribed by Bond
Counsel.
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