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Tab_240CITY AND BOROUGH OF SITKA, ALASKA General Obligation Refunding Bond, 2016 TAX CERTIFICATE In connection with the issuance by the City and Borough of Sitka, Alaska (the "City"), of the City's General Obligation Refunding Bond, 2016, in the principal amount of $2,385,000, which includes the unrefunded December 1, 2016 principal payment (the "Bond"), the City hereby makes the representations of facts and expectations set forth in this Tax Certificate and covenants to comply with the requirements set forth herein. These representations and covenants are in furtherance of the covenants contained in Ordinance 1999-1525 and Resolution No. 2016-365 (collectively, the "Bond Legislation"), and in part are made pursuant to §1.148-2(b)(2) of the Treasury Regulations. 1. GENERAL MATTERS. 1.1 Authorization for Issuance. The undersigned and other City officers and members of the Assembly are charged with the responsibility FOR authorizing the issuance of the Bond. The Bond is issued pursuant to the Constitution and laws of the State of Alaska, and the Bond Legislation. 1.2 Sale of Bond. The Bond is being delivered to the Alaska Municipal Bond Bank (the "Bond Bank") on November 3, 2016, in a refunding by exchange for the Refunded Bond (as defined below). 1.3 Purpose of Bond and Refunding History. The Bond is being sold and delivered for the purpose of (a) currently refunding a portion of the City's General Obligation Refunding Bond, 2007 (the "2007 Bond" and, as so refunded (principal installment payments due on and after December 1, 2017), the "Refunded Bond"), through an exchange of bonds, (b) paying the cost of acquiring a reserve bond surety policy (the "Credit Enhancement"), and (c) paying costs of issuance with respect to the Bond (the "Issuance Costs"). The City covenants to use the proceeds of the Bond solely for the above-described purposes, unless an opinion of Bond Counsel is received permitting uses of proceeds for other purposes. The 2007 Bond was issued (a) to provide funds used to refund and redeem the entire outstanding principal amount of the City's General Obligation Bond, 1999 (the "1999 Bond") through an exchange of the Refunded Bond for the 1999 Bond, and (b) to pay costs of issuance of the 2007 Bond. The 1999 Bond was issued to acquire, construct and equip a portion of the school improvements provided for in Ordinance No. 96-1351 (the "1999 Projects"). The 2007 Bond and the 1999 Bond are together referred to as the "Prior Issues." 1.4 Nature of Issue. All the principal maturities of the Bond are being sold at the same time, have been sold pursuant to the same plan of financing, and are reasonably expected to be paid from substantially the same source of funds. No other governmental obligations which are reasonably expected to be paid from substantially the same source of funds are being sold at substantially the same time and sold pursuant to the same plan of financing as the Bond. 1.5 Purpose of Tax Certificate. The City is executing this Tax Certificate (including all exhibits hereto) with the understanding and acknowledgement that Stradling Yocca Carlson & Rauth, a Professional Corporation ("Bond Counsel"), will rely on the representations and certifications made DOCSSF/133523v2/200663-0019 in this Tax Certificate (including all exhibits hereto) in rendering its opinion that interest on the Bond is excluded from gross income for federal income tax purposes, and the execution of this Tax Certificate is necessary to ensure that interest on the Bond is excluded from gross income for federal income tax purposes. 1.6 Definitions: Capitalized Terms. All capitalized terms used in this Tax Certificate and not specifically defined herein have the meanings given those terms in the Bond Legislation. 2. PRIVATE ACTIVITY. 2.1 Governmental Use of Proceeds. Without first obtaining an opinion of nationally- recognized bond counsel that the exclusion from gross income of interest on the Bond will not be adversely affected for federal income tax purposes, the City will not allow any proceeds of the Bond, or any refinanced obligations or any of the facilities financed or refinanced with such obligations to be used in the trade or business of any nongovernmental persons (other than in their roles as members of the general public) and will not loan any proceeds of the Bond, or any refinanced obligations, to any nongovernmental persons. In furtherance of the foregoing, the City represents the following with respect to the use of proceeds of the Bond and the facilities financed and refinanced therewith. 2.2 In General. No more than 10% of the proceeds of the Bond or the 1999 Projects (based on the cost of the components of the 1999 Projects or, with respect to a unitary structure, on the relative fair rental value of such components) has been or will be used in the aggregate for any activities that constitute a "Private Use" (as that term is defined in Section 2.5 hereof). No more than 10% of the principal of or interest on the Bond, under the terms thereof or any underlying arrangement, has been or will be secured by any interest in property (whether or not the 1999 Projects) used for a Private Use or in payments in respect of property used for a Private Use, or will be derived from payments in respect of property used for a Private Use. 2.3 No Private Loan Financing. No more than the lesser of 5% of the proceeds of the Bond or $5,000,000 of proceeds of the Bond will be used to make or finance loans to any person other than to a state or local governmental unit (other than loans to finance any governmental tax or assessment of general application for a specific essential governmental function or loans that are used to acquire or carry Nonpurpose Investments (as that term is defined below)). 2.4 No Disproportionate or Unrelated Use. No more than 5% of the proceeds of the Bond or the 1999 Projects has been or will be used for a Private Use that is unrelated or disproportionate to the governmental use of the proceeds of the Bond (an "Unrelated or Disproportionate Use"), and no more than 5% of the principal of or interest on the Bond has been or will be, under the terms of the Bond or any underlying arrangement, directly or indirectly, secured by any interest in property used or to be used for a Private Use that is an Unrelated or Disproportionate Use or in payments in respect of property used or to be used for a Private Use that is an Unrelated or Disproportionate Use. 2.5 Definition of Private Use. For purposes of this Tax Certificate, the term "Private Use" means any activity that constitutes a trade or business carried on by persons or entities other than state or local governmental entities. The leasing of property financed or refinanced with proceeds of the Bond or use by or the access of a person or entity other than a state or local 11 DOCSSF/133523v2/200663-001 9 governmental unit to property or services on a basis other than as a member of the general public constitutes a Private Use. 2.6 Management and Service Contracts. The District covenants to consult with Bond Counsel prior to entering into any management or service contracts with respect to any portion of the Project in order to determine whether any such contracts will create Private Use of the Project (or any portion thereof). 2.7 No Volume Cap. No volume cap is required to be allocated to any portion of the Bond under Section 141(b)(5) of the Code, because Section 141 (b)(5)(B) of the Code does not apply to the Bond and because no portion of the 1999 Projects was used for any Private Use. 3. ARBITRAGE CERTIFICATIONS. The following states the expectations of the City with respect to the amount and uses of the proceeds of the Bond: 3.1 Sources and Uses of Funds. The City sold the Bond to the Bond Bank. The Bond Bank allocated a portion of the proceeds of the Bond Bank's General Obligation and Refunding Bonds, 2016 Series Three, issued on November 3, 2016 (the "Bond Bank Bonds"), to acquisition of the Bond. The sale proceeds from the issuance of the Bond in exchange for the Refunded Bond will be deemed to be $1,679,598.51 (representing $1,630,000.00 face amount of the refunding portion of the Bond, plus original issue premium of $52,462.60, less underwriter's discount of $2,864.09) is expected to be needed and fully expended, as follows: 3.1.1 $1,662,944.40 will be deemed to currently refund the Refunded Bond in the manner described in Section 3.2 below; 3.1.2 $15,541.08 of the sale proceeds of the Bond will be deposited with the City and utilized to pay Issuance Costs with respect to the Bond; and 3.1.3 $1,113.03 of the sale proceeds will be used to pay the cost of the Credit Enhancement. 3.2 Purpose of Refunding. The Bond is being issued to provide present value debt service savings to the City. The refunding of the Refunded Bond does not involve a device employed to obtain a material financial advantage, other than the realization of lower interest rates through refinancing the Refunded Bond. 3.3 No Other Money. There are no remaining unspent gross proceeds of either of the Prior Issues. 3.4 Reimbursement. No portion of the proceeds of the Bond are being used to reimburse the City for any expenditures that were incurred and paid thereby prior to the issuance of the Bond. 3.5 Overissuance. The total proceeds to be received by the City from the sale of the Bond, do not exceed the total amount necessary for the governmental purposes described above. 3.6 Working Capital. No operational expenditures of the City or any related entity are to be financed or refinanced directly or indirectly with proceeds derived from the sale of the Bond. DOCSSF/133523v2/200663-0019 3.7 Funds and Accounts. The following represents the flow of funds under the Bond Legislation. 3.7.1 Payment of Debt Service, The City and Borough of Sitka General Obligation Bonds, 1999 Fund (the "Bond Fund") serves as a repository for the collection of tax revenues by the City. A portion thereof will be used to pay debt service on the Bond on each semiannual interest or principal payment date on a first-in, first-out basis. This portion will hereinafter be referred to as the "Annual Portion of the Bond Fund." The balance of the Bond Fund, which may accumulate to the extent tax revenues are received in an amount greater than is necessary to pay debt service on the Bond, will hereinafter be referred to as the "Accumulation Portion of the Bond Fund." The Annual Portion of the Bond Fund will be used primarily to achieve a proper matching of revenues of the City and payment of debt service on the Bond within each Bond Year, and amounts deposited to the Annual Portion of the Bond Fund, viewed on a first-in, first-out basis, will be depleted at least once during each Bond Year, except for a reasonable carryover amount, if any, not to exceed the greater of (i) the earnings on the Annual Portion of the Bond Fund for the immediately preceding Bond Year, or (ii) one-twelfth (1/12th) of the principal and interest payments on the Bond for the immediately preceding Bond Year. 3.7.2 Reserve Amount. The Accumulation Portion of the Bond Fund will exist because the tax rate that is established cannot precisely predict non-payment of delinquent taxes. The City expects that the amount on deposit in the Accumulation Portion of the Bond Fund will not exceed the least of (i) 10% of the face amount of the Bond (less original issue discount if in excess of two percent of the stated redemption amount at maturity), (ii) 100% of the maximum annual debt service on the Bond, and (iii) 125% of the average annual debt service on the Bond (the "Tax Reserve Limit"). 3.7.3 No Negative Pledges. There are no amounts held under any agreement to maintain amounts at a particular level for the direct or indirect benefit of the holders of the Bond or guarantor of the Bond, if any, excluding for this purpose amounts in which the City (or a substantial beneficiary) may grant rights that are superior to the rights of the holders of the Bond or guarantor of the Bond, if any, and amounts that do not exceed reasonable needs for which they are maintained and as to which the required level is tested no more frequently than once every six months and that may be spent without any substantial restriction other than a requirement to replenish the amount by the next testing date. 3.8 No Other Gross Proceeds. Other than the Bond Fund, there are no funds or accounts of the City established under the Bond Legislation, or otherwise, that are reasonably expected to be used for the payment of principal of and interest on the Bond, or that are pledged as collateral for the Bond and for which there is a reasonable assurance that amounts on deposit therein will be available for the payment of principal of and interest on the Bond if the City encounters financial difficulties. 3.9 No Replacement Proceeds. The term of the Bond is not longer than is reasonably necessary for the governmental purpose of the issue, and the weighted average maturity of the Bond does not exceed 120 percent of the average reasonably expected economic life of the facilities financed and refinanced thereby. 3.10 Reserved. 4 DOCSSF1133523v2/200663-001 9 3.11 Arbitrage Investment Restrictions. The proceeds derived from the sale of the Bond and the amounts on deposit in the aforementioned funds and accounts may be invested as follows: 3.11.1 Proceeds derived from the sale of the Bond to pay Issuance Costs may be invested at an unrestricted yield for thirteen months following the date hereof. 3.11.2 Amounts in the Accumulation Portion of the Bond Fund, to the extent not in excess of the Tax Reserve Limit, may be invested at an unrestricted yield. Amounts in excess of the Tax Reserve Limit will be invested at a yield not in excess of the yield on the Bond or in Tax- Exempt Obligations. 3.11.3 Amounts deposited in the Bond Fund that represent and are allocable to the Annual Portion of the Bond Fund may be invested at an unrestricted yield for a period not to exceed thirteen months following the date of deposit of those amounts in the Bond Fund. Earnings on those amounts that are retained in the Bond Fund may be invested at an unrestricted yield for a period not to exceed one year following the date of receipt of the amount earned. Amounts described in this subparagraph that may not be invested at an unrestricted yield pursuant to this subparagraph shall be invested either at a yield not in excess of the yield on the Bond or in Tax-Exempt Obligations. 3.11.4 Proceeds from the Bond that will be used to refund the Refunded Bond will be invested at a yield that is less than the yield on the Bond. 3.12 Yield. 3.12.1 General. For purposes of this Tax Certificate, yield is calculated as set forth in Section 148 of the Code and §1.148-4 and 1.148-5 of the Treasury Regulations. Yield with respect to the investments allocable to gross proceeds of the Bond is that discount rate, which when used in computing the present value of the payments of principal and interest, on such investments produces an amount equal to the issue price of the Bond. 3.12.2 Yield on the Bond. The Bond is a tax-exempt bond that would be a purpose investment allocable to the Purchaser's Bonds absent Section 148(b)(3)(A) of the Code; accordingly, the yield on the Bond is equal to the yield on the Purchaser's Bonds. The yield on the Purchaser's Bonds has been calculated to be 2.5984%. 3.13 Investment Contracts and Certificates of Deposit. The City has not invested any gross proceeds of the Bond in a guaranteed investment contract (within the meaning of §1.148-1(b) of the Treasury Regulations) or a certificate of deposit. If the City acquires an investment contract or a certificate of deposit with any of the gross proceeds of the Bond, the City and the provider of the investment contract or the certificate of deposit, as applicable, will make certain representations in compliance with §§ 1 .1 48-5(d)(6)(iii) and 1.1 48-5(d)(6)(ii), respectively, of the Treasury Regulations. 3.14 Yield Reduction Payments. Notwithstanding the provisions of Section 3.11 above that require the City to invest gross proceeds and investment earnings thereon at a yield not in excess of the yield on the Bond, the yield on certain nonpurpose investments acquired with proceeds of the Bond will not be considered to be higher than the applicable yield limitation described in Section 3.11 above if the City makes "yield reduction payments" to the United States Treasury at the time and in the amounts described in §1.148-5(c) of the Treasury Regulations. The City covenants to DOCSSF/133523v2/200663-0019 retain and consult with Bond Counsel prior to making any "yield reduction payments" pursuant to § 1.148-5(c) of the Treasury Regulations. 3.15 No Artifice or Device. The Bond is not and will not be part of a transaction or series of transactions (i) that attempts to circumvent the provisions of Section 148 of the Code, or any successor thereto, and the regulations promulgated thereunder or under any predecessor thereto, enabling the City or any related person to exploit the difference between tax-exempt and taxable interest rates to gain a material financial advantage, and (ii) that increases the burden on the market for tax-exempt obligations in any manner, including, without limitation, by selling a Bond that would not otherwise be sold, or selling the Bond in a greater amount, or issuing Bond sooner, or allowing Bond to remain outstanding longer, than otherwise would be necessary. 4. REBATE COMPLIANCE. 4.1 Covenants. The City hereby covenants to comply with the rebate requirements of Section 148(f) of the Code. The City acknowledges that the United States Department of the Treasury has issued certain regulations with respect to certain requirements relating to compliance with Section 148(f) of the Code. The City covenants that it will determine precisely what is required with respect to Section 148(f) of the Code and will comply with any requirements applicable to the Bond. As of the issue date of the Bond, the City does not expect that any gross proceeds of the Bond will be subject to the Rebate Requirement. However, in the event that any amounts are held or invested in a manner that become subject to the Rebate Requirement, the City will comply in all respects with the Rebate Requirement, as applicable to the Bond. MISCELLANEOUS. 5.1 Federal Guarantee. The City will not invest any of the proceeds of the Bond in a manner that would result in the Bond being considered "federally guaranteed" within the meaning of Section 149(b) of the Code, except as permitted therein (i.e., will not cause interest on the Bond to be included in gross income for federal income tax purposes). 5.2 Current Refunding. The Refunded Bond is being redeemed on the date hereof, a date that is within 90 days of the issue date of the Bond. 5.3 Information Reporting. Attached as Exhibit A is a copy of the Form 8038-G filed with respect to the Bond. The City will file or cause to be filed such reports or other documents with the Internal Revenue Service as is required by the Code. 5.4 No Pooling. The City does not expect to use and will not use the proceeds of the Bond to make or finance loans to two or more ultimate borrowers. 5.5 Hedge Bond. 5.5.1 As of the date of issuance of the 1999 Bond, the City reasonably expected to spend at least 85% of the spendable proceeds of the 1999 Bond on the costs of new money capital expenditures for the 1999 Projects within three years of the date of issuance of the 1999 Bond. Not more than 50% of the proceeds of the 1999 Bond were invested at a guaranteed rate of return for a term of four years or more. Accordingly, the 1999 Bond was not a hedge Bond within the meaning of Section 149(g) of the Code. 6 DOCSSF/33523v2/2OO663-OO1 5.5.2 Based on the City's representations in the tax documents relating to the Prior Issues and in Section 5.5.1 above, the Bond is not a hedge Bond within the meaning of Section 149(g) of the Code, by operation of Section 149(g)(3)(C)(i) of the Code. 5.6 No Hedging Transaction. The City has not engaged, and will not engage, in any qualified hedging transaction (as that term is defined in § 1.1 48-4(h)(2) of the Treasury Regulations) with respect to the Bond. 5.7 Post-Issuance Compliance. Attached as Exhibit B hereto is a copy of post-issuance compliance procedures adopted by the City. 6. CONCLUDING MATTERS. 6.1 Reliance. The expectations of the City concerning certain uses of proceeds derived from the sale of the Bond and certain other money described herein and other matters are based in whole or in part upon representations of the Bond Bank and other parties set forth in this Tax Certificate and in the exhibits hereto. The City is not aware of any facts or circumstances that would cause it to question the accuracy or reasonableness of any representation made in this Tax Certificate or in the exhibits hereto, including those representations made by the Underwriter. 6.2 Authorization. The undersigned is an authorized representative of the City, and is acting for and on behalf of the City in executing this Tax Certificate. To the best of the knowledge and belief of the undersigned, there are no other facts, estimates or circumstances that would materially change the expectations as set forth herein, and said expectations are reasonable. 7 DOCSSF/133523v2/200663-0019 6.3 Amendment. Notwithstanding any provision of this Tax Certificate, the City may amend this Tax Certificate and thereby alter any actions allowed or required by this Tax Certificate if the amendment is based on an opinion of nationally-recognized bond counsel that the exclusion from gross income of interest on the Bond will not be adversely affected. Dated: November 3, 2016 CITY AND BOROUGH OF SITKA, ALASKA By: Chief Finance and Administrative Officer S-I $1,630,000 CITY AND BOROUGH OF SITKA, ALASKA General Obligation Refunding Bond, 2016 INFORMATION REPORTING FORM 8038-G (See Under Tab #16) A-i DOCSSF/33523v2/2OO663-OO19 10.14 no I I :iMI:l $1,630,000 CITY AND BOROUGH OF SITKA, ALASKA General Obligation Refunding Bond, 2016 POST-ISSUANCE COMPLIANCE The City understands that post-issuance compliance with the restrictions contained in the attached Tax Certificate is required to ensure that interest on the Bond remains excluded from gross income for federal income tax purposes. The City understands that the attached Tax Certificate, together with this exhibit, contains written post-issuance procedures of the City to effectuate post issuance compliance. In furtherance thereof, the City hereby agrees to: 1. Assign responsible personnel of the City to monitor and ensure compliance with the restrictions contained in the attached Tax Certificate. 2. Provide adequate training to responsible City personnel to effectuate the purposes of this exhibit. 3. Have City personnel regularly review the restrictions of the Tax Certificate and establish adequate record retention and calendaring mechanisms internally to ensure that the City will be able to establish post-issuance compliance with the restrictions of the attached Tax Certificate. In particular, the City will maintain records detailing the investment and expenditures of Bond proceeds, as provided in the Tax Certificate, The City will seek expert advice regarding compliance with the arbitrage rebate and yield restriction provisions of the Tax Certificate, and carefully monitor and calendar the dates by which Bond proceeds should be expended to comply with yield restriction and rebate exceptions and the dates rebate must be paid. 4. Regularly consult with Bond Counsel and other City advisors regarding any issues that arise regarding post-issuance compliance with the attached Tax Certificate (including any failure or anticipated failure to expend Bond proceeds during the periods described in the attached Tax Certificate or any changes in use of the 1999 Projects). The City understands that the use of the 1999 Projects financed by the Bond must be monitored throughout the term to maturity of the Bond, and records must be retained regarding any contracts or other arrangements relating to that use as provided in the Tax Certificate. All terms not defined herein have the meanings given them in the attached Tax Certificate. Dated: November 3, 2016 CITY AND BOROUGH OF SITKA, ALASKA By: hn P. Sweeney, III, Chief Finance and Administrative Officer 1011151