TO:
Honorable Mayor and Members of the City Council
THROUGH:
Talyn Mirzakhanian, City Manager
FROM:
Libby Bretthauer, Acting Finance Director
Julie Bondarchuk, Financial Controller
Emy-Rose Hanna, Budget & Financial Analyst
SUBJECT:Title
Consideration of a Resolution Approving an Agreement with BLX Group for Arbitrage Rebate Services in Relation to Post-Issuance Debt Compliance (Budgeted) (Acting Finance Director Bretthauer).
ADOPT RESOLUTION NO. 25-0058
Body
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RECOMMENDATION:
Staff recommends that the City Council adopt Resolution No. 25-0058 approving an agreement with BLX Group for arbitrage rebate services in relation to post-issuance debt compliance.
FISCAL IMPLICATIONS:
Sufficient funds are available in the General Fund budget. With six tax-exempt bonds subject to Arbitrage Reporting, the estimated cost for FY 2026 is $21,000 based on a not-to-exceed fee of $3,500 per Report.
BACKGROUND:
Under Internal Revenue Code section 148(f), issuers of tax-exempt municipal bonds are required to complete periodic arbitrage reporting to determine if a rebate/payment is due to the Internal Revenue Service (IRS). Arbitrage is earned when proceeds from a tax-exempt bond are used in investments that earn a yield greater than the yield on the bond issue. If the City earns more from investments than what is paid in interest on the bonds, then the profit is considered arbitrage and may result in a rebate payment due to the IRS.
The IRS allows a tax-exempt issuer to earn arbitrage (interest earnings) only under very certain conditions and sets limits on allowable returns. This regulation prevents issuers from exploiting tax-exempt bonds for profit.
To determine if a payment is due to the IRS, a detailed analysis is performed on these excess amounts to determine if the issuer can apply an exemption or exception to the arbitrage. Any excess earnings that do not fall under an exemption or exception may result in...
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