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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 2 51562469,2 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 3 51562469.2 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 51562469.2 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. 5 51562469.2 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] 6 51562469.2 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 51562469.2 EXHIBITLI I asi Ifit%Th Ii I (SII1 DI liii 1 DI1 IIE:I iI:I.) .1uIc] :wt yII1 Ic . :.ii .1 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; 51095352,1 (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 2 51095352.1 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 3 51095352.1 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. 4 51095352.1 (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; 5 51095352.1 (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. 6 M953521