Tab_69TAX EXEMPTION AND NONARBITRAGE CERTIFICATE
CONCERNING
$17,155,000 GENERAL OBLIGATION REFUNDING BOND, 2016
OF
ALEUTIANS EAST BOROUGH, ALASKA
I, Rick Gifford, on behalf of the Aleutians East Borough, Alaska (the "Borough"), certify
as follows:
General.
1.1 Responsible Officer. I am the Borough Administrator of the Borough and, as
such, am an officer of the Borough responsible for issuing the Borough's $17,155,000 principal
amount General Obligation Refunding Bond, 2016 (the "Bond"). The Bond is dated, delivered
and paid for on the same date as the date of this certificate (the "Issue Date").
1.2 Purpose of Certificate. This certificate is executed to establish the facts, estimates
and circumstances in existence on the Issue Date and the bona fide reasonable expectations of
the Borough on the Issue Date as to future events in connection with the Bond for the purposes
of the applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and
applicable Treasury Regulations under Sections 103, 141 and 148-150 of the Code.
1.3 Reasonable Basis for Expectations. To the best of my knowledge, information and
belief, this certificate accurately summarizes the facts, estimates and circumstances in existence
on the Issue Date, and the expectations of the Borough on the Issue Date about future events in
connection with the Bond are reasonable.
1.4 Defined Terms. Capitalized words used but not otherwise defined in this
certificate have the meaning set forth in Resolution 17-05 of the Borough (the "Bond
Resolution").
2. Purpose of Issuing the Bond.
2.1 Governmental Purpose. The Borough is a local government unit of the State of
Alaska. The Bond is being issued by the Borough to the Alaska Municipal Bond Bank
(the "Bond Bank") to evidence the obligation of the Borough to repay a loan made by the Bond
Bank to the Borough from the portion of the proceeds of the Bond Bank's General Obligation
and Refunding Bonds, 2016 Series Three, allocable to the Borough (the "Bond Bank Bonds").
The Bond Bank is loaning the proceeds of the Bond Bank Bonds to the Borough pursuant to a
third amendatory loan agreement (the "Amendatory Loan Agreement") for the purpose of
providing the funds necessary to currently refund the Borough's outstanding General Obligation
Refunding Bonds, 2007 (the "Refunded 2007 Bonds"). The Refunded 2007 Bonds were issued to
refinance a portion of the cost of capital improvements acquired with proceeds of certain of the
Borough's outstanding General Obligation Harbor Bonds, 1998A, and certain of the Borough's
outstanding School, Marine, and Other Transportation General Obligation Bonds 2003 (the
"Refunded 2003 Bonds," and together with the Refunded 2007 Bonds, the "Refunded Bonds").
The refinancing of the improvements initially funded by the Refunded 2003 Bonds is to be
accomplished by the issuance of the Bond Bank Bonds, the execution by the Bond Bank and the
Borough of the Amendatory Loan Agreement, the loan of the proceeds of the Bond Bank Bonds
to the Borough pursuant to the Amendatory Loan Agreement, the delivery of the Bond by the
Borough to the Bond Bank in exchange for the Refunded 2007 Bonds and the proceeds of the
Bond Bank Bonds, and the use of the proceeds of the Bond Bank Bonds and the Bond to refund
and retire certain outstanding bonds of the Bond Bank (the "Bond Bank Prior Issue") that were
previously issued to finance its purchase of the Refunded 2007 Bonds (the "Refunding"), as
provided by the Bond Resolution. Pursuant to Treasury Regulations Section 1. 15 0-1 (d)(2)(ii)(B),
the Borough is treated as the obligor on the Bond Bank Prior Issue and the Bond Bank Bonds.
2.2 No Impermissible Private Business Use. The proceeds of the Refunded 2003
Bonds were used to pay the cost of acquiring and constructing school, marine and other
transportation facilities improvements in the Borough (collectively, the "Refinanced
Improvements"). No more than 10% ($2,002,774.41) of the proceeds of the Bond (or of a
corresponding portion of the Refinanced Improvements) will be used for any private business
use to the extent that moorage revenues from the Refinanced Improvements do not exceed the
operating costs of such Refinanced Improvements and are not used for payment of the Bond. No
more than 5% ($1,001,387.21) of the proceeds of the Bond (or of a corresponding portion of the
Refinanced Improvements) will be used either for any private business use that is unrelated to
the governmental purpose of the Bond or for any private business use that is related to a
governmental purpose of the Bond but exceeds the amount of proceeds of the Bond that are
expected to be used for that governmental purpose. No more than 5% of the proceeds of the
Bond will be used directly or indirectly to make or finance loans to any person other than a
governmental unit, except a loan, if any, which enables the borrower to finance a governmental
tax or assessment of general application for a specific essential governmental function, or that
constitutes a nonpurpose investment within the meaning of Section 148 of the Code.
3. Source and Disbursement of Proceeds.
3.1 Purchaser and Purchase Price of the Bond. The Borough has entered into the
Amendatory Loan Agreement with the Bond Bank to secure payment of the sum of $17,155,000
(the "Loan Amount"). Pursuant to the Amendatory Loan Agreement, the Bond Bank will issue
the Bond Bank Bonds at a price equal to the Loan Amount plus original issue premium on the
Bond Bank Bonds of $2,872,744.10, less an underwriter's discount on the Bond Bank Bonds of
$53,220.67.
3.2 Funds Into Which Proceeds From the Issuance and Sale of the Bond and the Bond
Bank Bonds Will Be Deposited. The proceeds received by the Borough from the issuance and
sale of the Bond will be used and applied as follows: (a) $27,500 will be used to pay the
Borough's costs of issuance of the Bond, (b) $49,734.54 will be used to pay an allocable portion
of the Bond Bank's costs of issuance of the Bond Bank Bonds, (c) $11,714.16 will be used to
pay the premium for a debt service reserve surety bond for the Bond Bank Bonds, (d) $2,178.27
representing the contingency amount (an amount less than 1% of the sale proceeds of the Bond)
will be deposited in an account used primarily to achieve a proper matching of revenues of the
Borough with principal and interest payments on the Bond (the "Bond Fund") and used to pay
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interest on the Bond on the first interest payment date, and (e) $19,883,396.46 will be deposited
in the refunding escrow.
4. The Refunding.
4.1 Use of Proceeds and Other Funds. Of the sale proceeds of the Bond deposited in
the refunding escrow, $19,883,395 will be used on the issue date to acquire United States
Treasury Certificates of Indebtedness, Notes, and Bonds--State and Local Government Series
(the "Acquired Obligations"), which, together with a beginning cash balance of $1.46, will be
held in the refunding escrow established to accomplish the Refunding.
4.2 Purpose and Effect of the Refunding.
(a) Interest Cost Savings. The purpose of the Refunding is to accomplish an
interest cost savings to the Borough of $2,857,712.64 with a net present value of $2,464,500.99,
as represented by the difference between debt service on the Bond and debt service on the
Refunded 2007 Bonds discounted to the issue date using the yield on the Bond as the discount
rate.
(b) Required Redemption of Prior Issue. The date on which the Refunded
2007 Bonds will be called for redemption pursuant to the Refunding is the first date on which
that issue may be called for redemption.
5. Payment of Bond.
5.1 Debt Service Structure. The Bond is a general obligation bond of the Borough.
The Bond matures on December 1, 2028. Principal of the Bond is payable annually in
installments on December 1 of each year from 2016 through 2028, inclusive. Interest on the
Bond is payable semiannually on each June 1 and December 1, commencing on December 1,
2016. The principal installment of the Bond due on December 1, 2028, is subject to prepayment,
at the Borough's option, on and after December 1, 2026 in whole or in part, at a prepayment
price of 100% of the principal amount to be prepaid, plus accrued interest to the date fixed for
prepayment.
5.2 Source of Payment. The Bond is payable from the proceeds of taxes levied against
all of the taxable property located within the Borough and other funds available therefor. Those
funds that are expected to be used to pay principal of or interest on the Bond will be deposited in
the Bond Fund and used within 13 months of their deposit in that fund for payment of principal
of or interest on the Bond. The Bond Fund will be used primarily to achieve a proper matching
of tax revenues of the Borough and debt service on the Bond within each bond year. It is
expected that the Bond Fund will be depleted at least once a year (on each December 1), except
for a reasonable carryover amount not expected to exceed the greater of one year's earnings on
that fund or 1/12 of the annual debt service on the Bond.
5.3 Absence of Other Sinking Funds. Except for the Bond Fund, the Borough has not
created or established and does not expect to create or establish any reserve fund, sinking fund or
other similar fund that is reasonably expected to be used directly or indirectly to pay debt service
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on the Bond or any pledged fund with respect to which there is reasonable assurance that money
will be available in that fund to pay debt service on the Bond even if the Borough were to
encounter financial difficulties.
6. Restrictions on Investing Proceeds of the Bond in Higher Yielding Investments.
6.1 Calculation of Yield on Bond. For purposes of this certificate, the yield on the
Bond is deemed to be equal to the yield on the Bond Bank Bonds. The yield on the Bond Bank
Bonds has been calculated as the yield that when used in computing the present worth of all
payments of principal of and interest on the Bond Bank Bonds produces an amount equal to the
issue price of the Bond Bank Bonds. The "issue price" of the Bond Bank Bonds is the initial
offering price of the Bond Bank Bonds (including original issue premium) at which a substantial
amount (at least 10%) of each maturity of the Bond Bank Bonds have been sold to the public
(not including bond houses, brokers or other intermediaries). The yield on the Bond Bank Bonds
has been calculated to be 2.598457%. Such determination as to yield has been made by Western
Financial Group, LLC, attached hereto as Exhibit A, based on representations made by RBC
Capital Markets, LLC, as representative for the underwriters of the Bond Bank Bonds, attached
hereto as Exhibit B. In determining this yield, no adjustments were made for underwriter's
discount or other costs of issuance of the Bond.
6.2 Calculation of Yield on Acquired Obligations. The yield on the Acquired
Obligations has been calculated (using the same method and frequency intervals used in
calculating the yield on the Bond) as the yield that when used in computing the present worth of
all payments of principal of and interest on the Acquired Obligations produces an amount equal
to the purchase price of the Acquired Obligations. The purchase price of the Acquired
Obligations is their subscription price paid on the issue date to the Division of Special
Investments of the United States Bureau of Public Debt, which subscription price is deemed to
be the fair market value of the Acquired Obligations pursuant to Treasury Regulations Section
1.148-5(d)(6)(i). As so determined, the yield on the Acquired Obligations is 0.232301%, which
is 2.366156% less than the yield on the Bond.
6.3 Restrictions on Investment of Proceeds in Higher Yielding Investments.
(a) Proceeds Allocable to Refunding. The proceeds of the Bond will be fully
spent for the redemption of the prior issue not later than the date that is 90 days after the issue
date, and those proceeds may be invested in higher yielding investments for a temporary period
(not exceeding 90 days) from the issue date to the date that the prior issue is redeemed.
(b) Proceeds Used for Costs of Issuance. Proceeds of the Bond to be used to
pay costs of issuance of the Bond and the Bond Bank Bonds are expected to be spent for that
purpose on the Issue Date and not invested.
(c) Bond Fund. Proceeds of the Bond representing the contingency amount
resulting from the Refunding will be deposited in the Bond Fund and other amounts treated as
replacement proceeds of the Bond because they are held in the Bond Fund may be invested in
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higher yielding investments for a temporary period not exceeding 13 months from the date of
their deposit in the Bond Fund.
(d) Investment Earnings. Investment proceeds of the Bond for which no other
temporary period is available may be invested in higher yielding investments for a temporary
period of one year from the date of receipt of those investment earnings.
(e) Restricted Yield Investments. Proceeds (and amounts treated as
replacement proceeds) of the Bond that may not be invested in higher yielding investments will
be invested only in (i) obligations purchased at fair market value in bona fide, arm's length
transactions in an established market for those obligations and having yields not materially
higher than the yield on the Bond when calculated using the same frequency interval of
compounding interest as used for the Bond, (ii) obligations the interest on which is excluded
from gross income under Section 103 of the Code, that are not private activity bonds, under
Section 141 of the Code (or obligations treated as tax exempt obligations under Section 103 of
the Code, e.g., obligations issued by certain qualified regulated investment companies that
invest, to the extent practicable, all of their assets in tax exempt governmental bonds and meet
certain other conditions), or (iii) United States Treasury Obligations—State and Local
Government Series having yields not materially higher than the yield on the Bond.
7. Comnliance With Arbitrage Rebate Requirement.
The Bond Bank Bonds are subject to the rebate requirement imposed by Section 148(f) of
the Code. Because proceeds of the Bond Bank Bonds used pursuant to the Amendatory Loan
Agreement to acquire the Bond from the Borough are not treated as spent until those proceeds
are used to carry out the Refunding, those proceeds continue to be treated as proceeds of the
Bond Bank Bonds until spent for that purpose, and the Borough on behalf of the Bond Bank, in
the manner and to the extent required by that Section, will calculate and rebate to the United
States any investment earnings on gross proceeds of the Bond Bank Bonds and the Bond, plus
any income attributable to such excess earnings. Investment earnings on amounts held in the
Bond Fund will not be taken into account for this purpose at any time, even if the amount earned
is $100,000 or more in a bond year, because the Bond bears interest at fixed rates (i.e., rates that
do not vary during the term of the Bond) and has an average maturity of at least five years. If the
Borough for any reason fails to comply with the rebate requirement to the extent applicable to
the Bond Bank Bonds and the Bond, the Borough, to the extent permitted and required by
Section 148(f)(7) of the Code, will pay any penalty that may be necessary to preserve the tax
exemption for interest on the Bond.
8. Bond Meets Other Arbitrane Requirements.
8.1 No Other Governmental Obligations Part of This Issue. There are no other
obligations of the Borough that are being sold at substantially the same time (less than 15 days
apart) as the Bond pursuant to the same plan of financing and that are reasonably expected to be
paid from substantially the same source of funds.
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8.2 No Replacement of Funds Invested in Higher Yielding Investments. No portion of
the proceeds of the Bond will be used directly or indirectly to replace funds of the Borough
invested in higher yielding investments.
8.3 No Abusive Arbitrage Device. The primary, bona fide governmental purpose of
issuing the Bond is to finance the costs of the Refunding. No action is being taken or will be
taken in connection with the issuance of the Bond that has the effect of (i) enabling the Borough
to exploit the difference between tax-exempt and taxable interest rates to obtain a material
financial advantage by investing any portion of the gross proceeds of the Bond over any period
of time, and (ii) overburdening the tax-exempt bond market as a result of issuing the Bond in a
greater principal amount, issuing the Bond earlier, or allowing the Bond to remain outstanding
longer than is otherwise reasonably necessary to finance the costs of the Refunding.
8.4 No Intent To Earn Impermissible Arbitrage Profit. The Borough will not take any
intentional action to earn any impermissible arbitrage profit from the investment of gross
proceeds of the Bond.
9. Bond Meets Other Requirements for Tax Exemption.
9.1 Bond in Registered Form. The Bond is being issued only in registered form.
9.2 No Federal Guarantee. Except as otherwise permitted by the Code, payment of the
principal of or interest on the Bond is not guaranteed in whole or in part by the United States or
any agency or instrumentality thereof.
9.3 Information Return To Be Filed. The Borough will cause a Form 8038-G
Information Return respecting the Bond to be timely filed with the Internal Revenue Service.
9.4 Bond Not a Hedge Bond. On the date of issue of each prior issue of Refunded
Bonds (or, if any prior issue also was a refunding issue, on the date of issue of the original new
money obligations being refunded with proceeds of such prior issue --the "original new money
obligations"), the Borough reasonably expected that (i) at least 85% of the spendable proceeds of
each prior issue of Refunded Bonds or original new money obligations would be used to carry
out the governmental purposes of such prior issue or original new money obligations within the
3-year period beginning on their respective dates of issue, and (ii) not more than 50% of the
proceeds of each prior issue of Refunded Bonds or original new money obligations would be
invested in nonpurpose investments having a substantially guaranteed yield for 4 years or more.
9.5 Post-Issuance Compliance Procedures, The Borough Administrator on behalf of
the Borough has adopted and will implement in respect of the Bond the "Post-Issuance
Compliance Procedures for Tax-Exempt Bonds" in substantially the form as that attached hereto
as Exhibit C to facilitate compliance by the Borough with the applicable requirements of the
Code that must be satisfied after the issue date to maintain the tax exemption for interest on the
Bond after the issue date.
[Signature page follows]
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10. Bond Tax Exempt and Not an Arbitrage Bond.
The Borough expects that bond counsel to the Borough will rely upon the foregoing facts,
estimates and circumstances in existence on the Issue Date and the reasonable expectations of the
Borough as to future events respecting the Bond to enable them to conclude that it is not
expected that proceeds of the Bond will be used in any manner that would cause the Bond to be
an arbitrage bond and to provide their opinion that the Bond is a governmental obligation the
interest on which is excluded from gross income for federal income tax purposes under
Section 103 of the Code.
Dated November 3, 2016.
ALEUTIANS EAST BOROUGH, ALASKA
Rick Gifford, Borough Administrator
Exhibit A: Certificate of Western Financial Group, LLC
Exhibit B: Certificate of RBC Capital Markets, LLC
Exhibit C: Post-Issuance Compliance Procedures for Tax-Exempt Bonds
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EXHIBITLI
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1. Purpose. The purpose of these post-issuance compliance policies and
procedures ("Compliance Policy") for tax-exempt bonds, build America bonds, recovery
zone economic development bonds and other bonds issued by the Aleutians East
Borough (the "Borough") for which a federal tax advantage is provided by the Internal
Revenue Code of 1986, as amended (the "Code"), is to ensure that the Borough will be
in compliance with requirements of the Code that must be satisfied with respect to such
bonds or other obligations (collectively, the "bonds" or the "tax-advantaged bonds") after
the bonds are issued.
2. Responsibility for Monitoring Post-Issuance Tax Compliance. The
Borough Assembly has the overall, final responsibility for monitoring whether the
Borough is in compliance with post-issuance federal tax requirements for the Borough's
tax-advantaged bonds. However, the Borough Assembly assigns to the Finance
Director of the Borough the primary operating responsibility to monitor the Borough's
compliance with post-issuance federal tax requirements for the Borough's bonds.
3 Arbitrage Yield Restriction and Rebate Requirements. This portion of the
Compliance Policy applies to tax-exempt bonds, build America bonds and recovery
zone economic development bonds. The Finance Director shall maintain or cause to be
maintained records of:
(a) purchases and sales of investments made with bond proceeds (including
amounts treated as "gross proceeds" of bonds under Section 148 of the Code) and
receipts of earnings on those investments;
(b) expenditures made with bond proceeds (including investment earnings on
bond proceeds) in a timely and diligent manner for the governmental purposes of the
bonds, such as for the costs of purchasing, constructing and/or renovating property and
facilities;
(c) information showing, where applicable for a particular calendar year, that
the Borough was eligible to be treated as a "small issuer" in respect of bonds issued in
that calendar year because the Borough did not reasonably expect to issue more than
$5,000,000 of tax-advantaged bonds in that calendar year;
(d) calculations that will be sufficient to demonstrate to the Internal Revenue
Service ("IRS") upon an audit of a bond issue that, where applicable, the Borough has
complied with an available spending exception to the arbitrage rebate requirement in
respect of that bond issue;
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(e) calculations that will be sufficient to demonstrate to the IRS upon an audit
of a bond issue for which no exception to the arbitrage rebate requirement was
applicable, that the rebate amount, if any, that was payable to the United States of
America in respect of investments made with gross proceeds of that bond issue was
calculated and timely paid with Form 8038-1 timely filed with the IRS; and
(f) information and records showing that investments held in yield-restricted
advance refunding or defeasance escrows for bonds, and investments made with
unspent bond proceeds after the expiration of the applicable temporary period, were not
invested in higher-yielding investments.
4. Restrictions on Private Business Use and Private Loans. This portion of
the Compliance Policy applies to tax-exempt bonds, build America bonds and recovery
zone economic development bonds. The Finance Director shall adopt procedures that
are calculated to educate and inform the principal operating officials of those
departments, including utility departments, if any, of the Borough (the "users") for which
land, buildings, faOilities and equipment ("property") are financed with proceeds of tax-
advantaged bonds about the restrictions on private business use that apply to that
property after the bonds have been issued, and of the restriction on the use of proceeds
of tax-advantaged bonds to make or finance any loan to any person other than a state
or local government unit.
In particular, following the issuance of bonds for the financing of property, the
Finance Director shall provide to the users of the property a copy of this Compliance
Policy and other appropriate written guidance advising that:
(a) "private business use" means use by any person other than a state or
local government unit, including business corporations, partnerships, limited liability
companies, associations, nonprofit corporations, natural persons engaged in trade or
business activity, and the United States of America and any federal agency, as a result
of ownership of the property or use of the property under a lease, management or
service contract (except for certain "qualified" management or service contracts), output
contract for the purchase of electricity or water, privately sponsored research contract
(except for certain "qualified" research contracts), "naming rights" contract, "public-
private partnership" arrangement, or any similar use arrangement that provides special
legal entitlements for the use of the bond-financed property;
(b) under Section 141 of the Code, no more than 10% of the proceeds of any
tax-advantaged bond issue (including the property financed with the bonds) may be
used for private business use, of which no more than 5% of the proceeds of the tax-
advantaged bond issue (including the property financed with the bonds) may be used
for any "unrelated" private business use—that is, generally, a private business use that
is not functionally related to the governmental purposes of the bonds; and no more than
the lesser of $5,000,000 or 5% of the proceeds of a tax-advantaged bond issue may be
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used to make or finance a loan to any person other than a state or local government
unit;
(c) before entering into any special use arrangement with a nongovernmental
person that involves the use of bond-financed property, the user must consult with the
Finance Director, provide the Finance Director with a description of the proposed
nongovernmental use arrangement, and determine whether that use arrangement, if put
into effect, will be consistent with the restrictions on private business use of the bond-
financed property;
(d) in connection with the evaluation of any proposed nongovernmental use
arrangement, the Finance Director should consult with nationally recognized bond
counsel to the Borough as may be necessary to obtain federal tax advice on whether
that use arrangement, if put into effect, will be consistent with the restrictions on private
business use of the bond-financed property, and, if not, whether any "remedial action"
permitted under Section 141 of the Code may be taken by the Borough as a means of
enabling that use arrangement to be put into effect without adversely affecting the tax-
advantaged status of the bonds that financed the property; and
(e) the Finance Director and the user of the property shall maintain records of
such nongovernmental uses, if any, of bond-financed property, including copies of the
pertinent leases, contracts or other documentation, and the related determination that
those nongovernmental uses are not inconsistent with the tax-advantaged status of the
bonds that financed the property.
5. Special Compliance Policies and Procedures for Build America Bonds and
Recovery Zone Economic Development Bonds. This portion of the Compliance Policy
applies to build America bonds and recovery zone economic development bonds.
(a) The Borough, in consultation with its bond counsel and underwriter, will
structure the initial sale and issuance of any issue of build America bonds and recovery
zone economic development bonds in a manner such that the following requirements
will be met:
(i) No more than 2% of the sale proceeds of the issue will be used to
pay costs of issuance of the issue.
(ii) The amount of sale proceeds of the issue used to fund a debt
service reserve, if any, for the issue will not exceed the amount of a "reasonable
required reserve fund" permitted by Section 148 of the Code and also will not
exceed 10% of sale proceeds of the issue.
(iii) The amount of original issue premium on any maturity of the issue
will not exceed a de minimis amount equal to 0.25% of the principal amount of
that maturity multiplied by the number of complete years to the earlier of the
maturity date or first optional redemption date for that maturity. The Borough's
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bond purchase contract (or official notice of sale for an issue that is sold
competitively) will specify that the issue price of any maturity shall not include
any original issue premium in excess the permitted de minim/s amount. The
underwriter (or winning bidder in a competitive sale) will be required to certify to
the Borough on the issue date of the bonds the first price at which a substantial
amount (at least 10%) of each maturity of the bonds were reasonably expected
on the sale date to be sold to the general public, not including bond houses,
brokers, or similar persons acting in the capacity of underwriters or wholesalers.
If a substantial amount (at least 10%) of any maturity of the bonds was not
actually sold to the general public at the reoffering price that was reasonably
expected for that maturity on the sale date, the underwriter (or winning bidder in
a competitive sale) will be required to explain the facts and circumstances that
led to the nonconformity.
(iv) An Internal Revenue Service Form 8038-B will be prepared (and
signed as paid preparer) by bond counsel, signed by an authorized
representative of the Borough, and timely filed on behalf of the Borough by bond
counsel with the Internal Revenue Service. As required by the Instructions for
Form 8038-B, a complete debt service schedule, including the date and amount
of each interest payment and the expected, associated federal credit payment,
will be attached to the Form 8038-B that is filed for each fixed rate issue.
(b) After the issue date of the bonds, the Borough will prepare and sign, and
the Borough (or the Borough's designated paying agent for the bonds) will timely file
Internal Revenue Service Form 8038-CP in order to receive the federal credit payment
with respect to each interest payment as shown on Form 8038-B. Form 8038-CP will
be filed no earlier than (but promptly following) the 90th day prior to each interest
payment date and no later than the 45th day prior to each interest payment date for the
bonds. The Borough will provide on Form 8038-CP the information required for the
federal credit payments to be made by direct deposit to an account for the benefit of the
Borough.
(c) Both prior to and after the issue date of the bonds, the Finance Director
will consult with, advise and inform the principal operating officials of those
departments, including utility departments, if any, of the Borough that are expected to
receive and spend available project proceeds of the issue of the requirements set forth
below. This may be accomplished by providing a copy of this Compliance Policy to
those officials.
(i) The "available project proceeds" of the bonds means 100% of the
excess of the sale proceeds of the issue over the amount (not exceeding 2%) of
sale proceeds used to pay costs of issuance of the issue and sale proceeds
deposited in a reasonably required reserve, if any, for the bonds, plus investment
earnings on that excess.
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(ii) 100% of available project proceeds must be spent, in the case of
build America bonds, for capital expenditures within the meaning of general
federal income tax principles, and, in the case of recovery zone economic
development bonds, for qualified economic development purposes—that is, for
(A) capital expenditures with respect to property located in a designated recovery
zone, and/or (B) expenditures for public infrastructure and construction of public
facilities reasonably expected to promote development or other economic activity
in a designated recovery zone.
(iii) A reasonable allocation method must be used to allocate available
project proceeds of the issue to expenditures, and these allocations need to be
made in writing and retained with the books and records of the Borough. A final
allocation may be made no later than the first to occur of (A) 18 months following
the completion of construction or acquisition of the projects financed with
available project proceeds of the issue or (B) the first computation date for the
rebate amount, if any, with respect to the issue (not later than the fifth
anniversary of the issue date of the issue). If funds from different sources are
allocated to capital expenditures for the same project, the Borough generally
expects to use an allocation method that allocates available project proceeds to
expenditures before allocating other funds to expenditures for the same project,
and to use a first-in, first-out method to account for expenditures from separate
issues of tax-advantaged bonds. In any event, available project proceeds of the
bonds shall be allocated only to capital expenditures.
6. Records to be Maintained for Tax-Advantaged Bonds. It is the policy of
the Borough that, unless otherwise permitted by future IRS regulations or other
guidance, written records (which may be in electronic form) will be maintained with
respect to each bond issue for as long as those bonds remain outstanding, plus three
years. For this purpose, the bonds include refunding bonds that refund the original
bonds and thereby refinance the property that was financed by the original bonds.
The records to be maintained are to include:
(a) the official Transcript of Proceedings for the original issuance of the
(b) records showing how the bond proceeds were invested, as described in
3(a) above;
(c) records showing how the bond proceeds were spent, as described in 3(b)
and 5(c) above, including purchase contracts, construction contracts, progress payment
requests, invoices, cancelled checks, payment of bond issuance costs, and records of
"allocations" of bond proceeds to make reimbursement for project expenditures made
before the bonds were actually issued;
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(d) information, records and calculations showing that, with respect to each
bond issue, the Borough was eligible for the "small issuer" exception or one of the
spending exceptions to the arbitrage rebate requirement or, if not, that the rebate
amount, if any, that was payable to the United States of America in respect of
investments made with gross proceeds of that bond issue was calculated and timely
paid with Form 8038-T timely filed with the IRS, as described in 3(c), (d) and (e) above;
and
(e) records showing that special use arrangements, if any, affecting bond-
financed property made by the Borough with nongovernmental persons, if any, are
consistent with applicable restrictions on private business use of property financed with
proceeds of tax-advantaged bonds and restrictions on the use of proceeds of tax-
advantaged bonds to make or finance loans to any person other than a state or local
government unit, as described in 4 above.
The basic purpose of the foregoing record retention policy for the Borough's tax-
advantaged bonds is to enable the Borough to readily demonstrate to the IRS upon an
audit of any tax-advantaged bond issue that the Borough has fully complied with all
federal tax requirements that must be satisfied after the issue date of the bonds so that
those bonds continue to be eligible for the applicable tax advantage under the Code.
7. Identification and Remediation of Potential Violations of Federal Tax
Requirements for Tax-Advantaged Bonds. If at any time during the life of an issue of
tax-advantaged bonds, the Borough discovers that a violation of federal tax
requirements applicable to that issue may have occurred, the Finance Director will
consult with bond counsel to determine whether any such violation actually has
occurred and, if so, take prompt action to accomplish an available remedial action under
applicable Internal Revenue Service regulations or to enter into a closing agreement
with the Internal Revenue Service under the Voluntary Closing Agreement Program
described under Notice 2008-31 or other future published guidance.
8. Education Policy With Respect to Federal Tax Requirements for Tax-
Advantaged Bonds. It is the policy of the Borough that the Finance Director and his or
her staff, as well as the principal operating officials of those departments of the Borough
for which property is financed with proceeds of tax-advantaged bonds, should be
provided with education and training on federal tax requirements applicable to tax-
advantaged bonds, The Borough recognizes that such education and training is vital as
a means of helping to ensure that the Borough remains in compliance with those federal
tax requirements in respect of its bonds. The Borough therefore will enable and
encourage those personnel to attend and participate in educational and training
programs offered by, among others, the Alaska Government Finance Officers
Association with regard to the federal tax requirements applicable to tax-advantaged
bonds.
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