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HomeMy WebLinkAboutFS 2014-08-19 Item 2E - Resolutions - Financial Policies and Debt PolicyTO: City of Tukwila Jim Haggerton, Mayor INFORMATIONAL MEMORANDUM Mayor Haggerton Finance & Safety Committee FROM: Peggy McCarthy, Finance Director BY: Vicky Carlsen, Deputy Finance Director DATE: August 13, 2014 SUBJECT: Resolutions adopting policies related to the debt, the financial planning model, and general financial policies ISSUE Approve Resolution adopting policies related to the financial planning model and other general financial policies. Approve Resolution adopting debt policies. BACKGROUND In September 2005, the City Council approved Resolution No. 1586 adopting policies related to debt, the financial planning model, and policies of a general financial nature. The policies in the resolution are incorporated in the City's budget document and the financial planning model and capital improvement document. In October 2012, the City Council approved Resolution No, 1774 adopting a reserve policy to maintain an adequate fund balance allowing mitigation of risks to revenues. DISCUSSION There are two resolutions the City Council is being asked to approve. Resolution #1 This resolution restates Resolution No. 1586 by removing the policies related to debt and the policy related to fund balances. The debt policies have been rewritten as a stand-alone debt policy and will be approved in the resolution that follows this one. The fund balance policy that is being removed from this resolution was already approved in a new reserve policy adopted by the Council in October 2012 by Resolution No. 1774. Until the remaining financial planning model and general financial policies can be reviewed and updated as needed, they are being restated in this resolution with minor adjustments that update the names of schedules and statements currently utilized by the City for financial planning purposes. The attachment for the resolution is shown in strike-out underline format to easily see the original attachment and the changes that are being recommended. Resolution #2 This resolution will adopt a new debt policy. The policy outlines the purpose, type, and use of debt, responsibilities of certain City officials, methods of bond sales including when refundings could occur, structural elements of debt, and the use of professionals and other service providers for debt related matters. 21 INFORMATIONAL MEMO Page 2 RECOMMENDATION Council is being asked to approve both resolutions and consider these items at the August 25, 2014 Committee of the Whole meeting and subsequent September 2, 2014 Regular Meeting. ATTACHMENTS -Draft Resolution restating financial planning model and other general financial policies -Attachment to resolution restating financial planning model and other general financial policies in strike-through underline format -Draft Resolution adopting debt policy -Draft Debt Policy 22 FT A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, ADOPTING UPDATED POLICIES RELATED TO THE FINANCIAL PLANNING MODEL AND OTHER GENERAL FINANCIAL POLICIES; AND REPEALING RESOLUTION NO. 1586. WHEREAS, the City Council and Mayor are committed to high standards of financial management; and WHEREAS, adopting and periodically updating and revising financial policies are important steps toward ensuring consistent and rational financial management; and WHEREAS, policies related to the Financial Planning Model and other general financial policies are essential components of an overall financial management policy; and WHEREAS, it is the responsibility of the City Council of the City of Tukwila to provide policy direction through the passage of motions and ordinances, adoption of resolutions, and final approval of the budget; and WHEREAS, the City desires to enact the City's Debt Policy as a stand -alone policy; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, HEREBY RESOLVES AS FOLLOWS: Section 1. Financial policies related to the Financial Planning Model and policies of a general nature, as evidenced in Exhibit A, are adopted. Section 2. The financial policies related to the Financial Planning Model and other general financial policies shall be reviewed on a regular basis and updated as necessary. Section 3. Repealer. Resolution No. 1586 is hereby repealed. W: \Word Processing \Financial Planning Model policies and other general financial policies 8 -8 -14 VC:bjs Page 1 of 2 23 PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, at a Regular Meeting thereof this day of , 2014. ATTEST /AUTHENTICATED: Christy O'Flaherty, MMC, City Clerk De'Sean Quinn, Council President APPROVED AS TO FORM BY: Filed with the City Clerk: Passed by the City Council: Resolution Number: Rachel Turpin, Assistant City Attorney Attachment: Exhibit A — Financial Planning Model Policies and Other General Financial Policies W: \Word Processing \Financial Planning Model policies and other general financial policies 8 -8 -14 VC:bjs 24 Page 2 of 2 City of Tukwila Debt Policies •-e . EXHIBIT A - •• • A. Legal Debt Limit The Revised Code of Washington (RCW 39.36) establishes the legal debt limits for cities. Specifically, this —RCW- provides that debt cannot be of the City; 1.5% without a vote of the people; 2.5% with a vote of the people; of 5.0% is for parks or open space development. impact certain projections would have on debt capacity limitations. Policy DP 1 Prior to issuing any long term bonds, the Administration must approved by the City Council. Policy DP 2 Long term debt cannot be issued prior to reviewing the impact on the Six Year Planning Model and its policy guidelines. The impact of other potential bond issues shall be considered. Policy DP 3 Fiscal Policy for large developments. To be determined. C. General Debt Policies .. • _ - •e et".• maintain the highest possible bond rating. Policy DP 5 Assessment Debt (LID) shall be considered as an alternative to General Debt. consequences. Page 1 of 4 25 Financial Planning Model Policies The six -year "Financial Planning Model and Capital Improvement Program" is the primary financial policy document. It represents the culmination of all financial policies. Revenues Policy FP -1: Revenues will be estimated on a conservative basis. Increases greater than inflation in the schedule known as "Attachment A," total- Revenues and Expenditures Governmental Funds, will require additional documentation. Policy FP -2: Major revenue sources will require explanation in the document known as "Attachment A -1," Notes to Revenues, Expenditures and Fund Balance. Operating Expenditures Policy FP -3: Expenditures for the General Fund operations (schedule known as "Attachment B," General Fund Operating ons & Maintenance Expenditures) will only include basic inflationary increases at the beginning of the budget preparation process. Proposed increases in programs or personnel will require an issues and options paper and Council approval before being added to the operating ons & maintenance expenditures estimate. Capital Expenditures Policy FP -4: Project capital grants with local matching requirements can only be applied for with express approval by the City Council. Grant applications shall be made only for projects listed in the six -year Capital Improvement Program. Policy FP -5: If the proposed grants or mitigation are either not funded or are reduced, the respective project will be reevaluated on the basis of its value and priority level placement in the Capital Improvement Program. Policy FP -6: The financing of limited benefit capital improvements (i.e. private development) should be borne by the primary beneficiaries of the improvement. The principle underlying limited benefit is that the property is peculiarly benefited and therefore the owners do not in fact pay anything in excess of what they receive by reason of such improvement. Page 2 of 4 26 Financial Planning Model Policies (continued) Fund Balances .I eel - • ■ Fund" balance that is not included in Attachment A, Total Revenues & Expenditures, flow scenario the Accumulated Totals within the Six Year Planning Model may not recede below the $3,000,000 in Attachment A, Total Revenues & Expenditures. Policy FP 8 If compliance with Policy FP 7 is at risk; the Administration will deferrals for City Council consideration. Enterprise Funds Policy FP-9 7: Each Enterprise Fund shall be reviewed annually and it must have a rate structure adequate to meet its operations and maintenance and long -term capital requirements. Policy FP-1-0 8: Rate increases shall be small, applied frequently, and staggered to avoid an overly burdensome increase and undue impact in any given year. Policy FP-14 9: Rate increases of external agencies (i.e. King County secondary wastewater treatment fees) will be passed through to the users of the utility. Other General Financial Policies Policy GF -1: The City's various user charges and fees shall be reviewed at least every three years for proposed adjustments based on services provided and comparisons with other jurisdictions. Policy GF -2: The Finance Director shall provide a financial status update at least quarterly. Policy GF -3: Budget amendments during the year may be approved by budget motion until the end of the budget year, at which time a formal comprehensive budget amendment is submitted. Page 3 of 4 27 Policy GF-5 4: The City shall, whenever practical and advantageous, take advantage of grants, loans, or other external financial sources. With the exception of capital improvement program grants requiring a local match, staff shall report to and seek the approval of the appropriate Council Committee before finalizing the grant. Page 4 of 4 28 FT A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, ADOPTING A DEBT POLICY AND PROVIDING FOR APPROPRIATE MANAGEMENT OF DEBT ISSUED BY THE CITY OF TUKWILA. WHEREAS, a debt policy and appropriate management of debt issued by the City is an important factor in measuring the City's financial performance and condition; and WHEREAS, proper use and management of borrowing can yield significant advantages; and WHEREAS, the use of debt is a mechanism to equalize costs of needed improvements to both present and future citizens; and WHEREAS, it is the responsibility of the City Council of the City of Tukwila to provide policy direction through the passage of motions and ordinances, adoption of resolutions, and final approval of the budget; and WHEREAS, a debt policy establishes the purpose, type, and use of debt; responsibilities of various City officials; method of sale of bonds; refundings (bonds or notes); structural elements; credit objective; and the use of professional and other service providers; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, HEREBY RESOLVES AS FOLLOWS: Section 1. The debt policy dated August 2014, attached hereto as "Exhibit A," is hereby adopted by this reference as if set forth in full. Section 2. The debt policy shall be reviewed on a regular basis and updated as necessary. W: \Word Processing \Resolutions \Debt policy adopted 8 -5 -14 VC:bjs Page 1 of 2 29 PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, at a Regular Meeting thereof this day of , 2014. ATTEST /AUTHENTICATED: Christy O'Flaherty, MMC, City Clerk De'Sean Quinn, Council President APPROVED AS TO FORM BY: Rachel Turpin, Assistant City Attorney Filed with the City Clerk: Passed by the City Council: Resolution Number: Attachment: Exhibit A, City of Tukwila Debt Policy dated August 2014 W: \Word Processing \Resolutions \Debt policy adopted 8 -5 -14 VC:bjs 30 Page 2 of 2 Exhibit A CITY OF TUKWILA DEBT POLICY A debt policy and appropriate management of debt issued by the City of Tukwila (the "City ") is an important factor in measuring its financial performance and condition. Proper use and management of borrowing can yield significant advantages. From a policy perspective, the City uses debt as a mechanism to equalize the costs of needed improvements to both present and future citizens. SECTION 1. PURPOSE, TYPE AND USE OF DEBT In the issuance and management of debt, the City shall comply with the Washington State constitution and with all other applicable legal requirements imposed by federal, state and local laws, rules and regulations. Approval from the City Council (the "Council ") is required prior to the issuance of all debt. Long -term debt will only be used for improvements that cannot be financed from current revenues or to fulfill the purposes set forth in the first paragraph of this Debt Policy (the "Policy "). Long -term debt will not be issued prior to reviewing the impact on the Six Year Financial Planning Model and its policy guidelines. When both tax exempt and taxable debt is under consideration, priority will be given to issuing the tax exempt debt. Limited Tax General Obligation (LTGO) Bonds. The City is authorized to sell LTGO bonds under RCW 39.36.020, subject to the approval of the Council. LTGO bonds will be issued only if: (1) a project requires funding not available from alternative sources; (2) the project has a useful life longer than five years, and the Council determines it is appropriate to spread the cost over that useful life, to achieve intergenerational equity, so those benefiting will also be the ones paying; (3) matching money is available which may be lost if not applied for in a timely manner; or (4) emergency conditions exist as determined by the Council. LTGO (non- voted) debt of the City shall not exceed an aggregate total of 1.5 percent of the City's assessed value of taxable property within the City. Unlimited Tax General Obligation (UTGO) Bonds. The City is authorized to sell UTGO bonds under RCW 39.36.020, subject to the approval of the Council, and subject to voter approval. UTGO debt will be used for capital purposes when the use of an excess tax levy is necessary for debt service payments. No combination of UTGO (voter approved) debt and LTGO debt of the City shall exceed an aggregate total of: (a) 2.5 percent of the City's assessed value of the taxable property within the City for general purposes; (b) 2.5 percent of the City's assessed value of the taxable property within the City for parks, open spaces and capital facilities associated with economic development; and (c) 2.5 percent of the City's assessed value of the taxable property within the City for utility purposes. Revenue Bonds. The City is authorized to sell revenue bonds under RCW 35.41.030, subject to the approval of the Council. Revenue bonds will be issued to finance the acquisition, construction or improvements to facilities of enterprise systems operated by the City, in accordance with a system and plan of improvements. The enterprise system must be legally authorized for operation by the City. There are no legal limits to the amount of revenue bonds the City can issue, but the City will not incur revenue obligations without first ensuring the ability of an enterprise system to meet all pledges and covenants customarily required by investors in such obligations during the term of the obligation. 1 August 2014 31 SECTION 1. PURPOSE, TYPE AND USE OF DEBT (continued) Local Improvement District Bonds. The City is authorized to sell local improvement district (special assessment) bonds ( "LID bonds ") under RCW 35.45.010, subject to the approval of the Council. LID bonds are issued to finance projects that will provide special benefit to certain property owners. The specially benefiting property owners are levied an assessment, based upon a formula developed to fairly reflect the benefit received by each property owner in the local improvement district. After consideration and review, the City may form local improvement districts upon petition of benefiting property owner(s), unless the Council determines to establish such districts by resolution, pursuant to statutory authority. LIDs for utility improvements may be authorized as ULIDs, which may be financed through issuance of Revenue Bonds. Lease Purchase Financing. Lease purchase financing may be used when the cost of borrowing or other factors make it in the City's best interest. Short -Term Debt. The City is authorized to incur short-term debt under chapter 39.50 RCW, subject to the approval of the Council. Short-term debt may be issued to meet: (1) the immediate financing needs of a project for which long -term financing has been identified and assured or secured but not yet received; or (2) cash flow needs within authorized budgets and anticipated receipts for the budget year. The Finance Director is authorized to make loans from one City fund to another City fund for periods not exceeding twelve months. The Finance Director or designee is required to assure that the loaning fund will have adequate cash balances to continue to meet current expenses after the loan is made and until repayment from the receiving fund. All interfund short-term borrowing will bear interest based upon prevailing Local Government Investment Pool rates. SECTION 2. RESPONSIBILITIES The primary responsibility for debt management rests with the City's Finance Director. The Finance Director shall (or shall cause the following to occur): • Provide for the issuance of debt at the lowest cost and risk. • Determine the available debt capacity. • Provide for the issuance of debt at appropriate intervals and in reasonable amounts as required to fund approved projects. • Recommend to the Council the manner of sale of debt. • Monitor opportunities to refund debt and recommend such refunding as appropriate. • Comply with all Internal Revenue Service (IRS), Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB) rules and regulations governing the issuance of debt pursuant to the City's Post Issuance Compliance Policy. • Provide information for and participate in the preparation and review of bond offering or disclosure documents. • Comply with all terms, conditions and disclosures required by ordinances governing the debt issued. • Submit to the Council all recommendations to issue debt. • Distribute to appropriate repositories, such as the EMMA repository managed by the Municipal Securities Rulemaking Board, information regarding financial condition and affairs at such times and in the form required by contract, regulation and general practice, including Rule 15c2 -12 regarding continuing disclosure. 2 August 2014 32 SECTION 2. RESPONSIBILITIES (continued) • Provide for the distribution of pertinent information to rating agencies. • Coordinate and lead presentations to rating agencies, when appropriate. • Maintain a database with all outstanding debt. • Apply and promote prudent fiscal practices. • Select a qualified financial advisor with experience in municipal finance in Washington, and registered with the SEC and MSRB as a "municipal advisor." • Account for and pay all bonded indebtedness for the City, by specifically providing for the timely payment of principal of and interest on all debt; and ensuring that the fiscal agent receives funds for payment of debt service on or before the payment date. The Council shall: • Approve the Debt Policy. • Approve indebtedness. • Approve budgets sufficient to provide for the timely payment of principal and interest on debt. • Determine the most appropriate financing plan for proposed debt, based on recommendation from the Finance Director, upon advice of the City's financial advisor. • By ordinance, delegate broad or limited authority to the Finance Director relative to execution of a financing plan approved by the Council. SECTION 3: METHOD OF SALE OF BONDS Competitive Sale. The Finance Director may, upon the advice of the City's financial advisor, submit to the Council a recommendation to sell debt on a competitive bid basis. City debt issued on a competitive bid basis will be sold to the bidder proposing the lowest true interest cost to the City. Such bid may take the form of electronically transmitted offers to purchase the bonds. Negotiated Sale. The Finance Director may, upon the advice of the City's financial advisor, submit to the Council a recommendation to sell debt on a negotiated basis. If debt is sold on a negotiated basis, the negotiations of terms and conditions shall include, but not be limited to, prices, interest rates, redemption provisions and underwriting compensation. The Finance Director, with the assistance of its financial advisor, shall evaluate the terms offered by the underwriter including comparison of terms with prevailing terms and conditions in the marketplace for comparable issues. If more than one underwriter is included in the negotiated sale of debt, the Finance Director shall establish appropriate levels of liability, participation and priority of orders and, with the assistance of its financial advisor, oversee the bond allocation process. Private or Direct Placement. When deemed appropriate to minimize the direct or indirect costs and risks of a debt issue, the Finance Director will, upon the advice of the City's financial advisor, submit to the Council a request to incur debt issue through a private placement or direct bank placement. 3 August 2014 33 SECTION 4. REFUNDING BONDS OR NOTES Refundings will be conducted in accordance with chapter 39.53 RCW. Unless otherwise justified, the City will refinance debt to either achieve debt service savings as market opportunities arise, or to eliminate restrictive covenants. Unless otherwise justified, an "advance refunding" transaction will require a present value savings of five percent of the principal amount of the debt being refunded. In addition to the savings, any determination to refund debt should take into consideration all costs and negative arbitrage in the refunding escrow. A "current refunding" transaction will require present value savings in an amount or percentage to be determined by the Finance Director based upon the advice of the City's financial advisor. SECTION 5. STRUCTURAL ELEMENTS Maturity Term. The City shall issue debt with an average life less than or equal to the average life of the assets being financed. Unless otherwise stated in law, the final maturity of the debt shall be no longer than 40 years (RCW 39.46.110). Debt Service Structure. Unless otherwise justified and deemed necessary, debt service should be structured on a level annual basis. Refunding bonds should be structured to produce debt service savings as determined by the Finance Director, based upon the advice of the City's financial advisor, to be in the best interest of the City. Unless specifically justified and deemed necessary, debt shall not have capitalized interest. If appropriate, debt service reserve funds may be used for revenue bonds. Maturity Structure. The City's long -term debt may include serial and term bonds. Unless otherwise justified, term bonds should be sold with mandatory sinking fund requirements. Price Structure. The City's long -term debt may include par, discount and premium bonds. Discount and premium bonds must be demonstrated to be advantageous relative to par bond structures, given applicable market conditions and the City's financing goals. Interest Payments. Unless otherwise justified and deemed necessary, long -term debt will bear interest payable semiannually. Redemption Features. For each transaction, the City shall evaluate the costs and benefits of call provisions. Capitalization. Debt service reserves may be capitalized for enterprise activities only. Costs of issuance may be capitalized for all debt. Interest costs may be capitalized upon the advice of the City's financial advisor for any type of debt. Bond Insurance. The City may evaluate the costs and benefits of bond insurance or other credit enhancements. Any credit enhancement purchased by the City shall be competitively procured unless otherwise justified. Tax - exemption. Unless otherwise justified and deemed necessary, the City shall issue its debt on a tax - exempt basis. Taxable debt may be justified based on a need for flexibility in use of proceeds, or when expected to reduce burdens relative to IRS rules. SECTION 6. CREDIT OBJECTIVE The City shall seek to maintain and improve its bond rating or ratings, as applicable. 4 August 2014 34 SECTION 7. USE OF PROFESSIONALS AND OTHER SERVICE PROVIDERS Bond Counsel. All debt issued by the City will include a written opinion by bond counsel affirming that the City is authorized to issue the debt, and that all statutory requirements have been met. The bond counsel opinion and other documents relating to the issuance of debt will be prepared by nationally recognized bond counsel with extensive experience in public finance and tax issues. Bond counsel will be appointed by the Finance Director consistent with the City's general authority to contract. Financial Advisor. The Finance Director will appoint a financial advisor for each debt issue, or for a specified term, consistent with the City's general authority to contract. The financial advisor shall be nationally recognized, have comprehensive municipal debt experience, including debt structuring and pricing of municipal securities, be registered as a "municipal advisor" with the MSRB and SEC, and have knowledge of State laws relating to City finances. The City financial advisor is to be available for general purposes, and will assist the City with all financing issues. In no case shall the financial advisor serve as underwriter for the City's debt issues. Underwriter. The Finance Director in consultation with the City's financial advisor will select an underwriter for any negotiated sale of bonds. The selection of an underwriter may be for an individual bond issue, series of financings or a specified time period, as determined by the Finance Director. Depending upon the nature and amount of each financing, the Finance Director is authorized, in consultation with the City's financial advisor, to appoint more than one underwriter for each financing and to designate one underwriting firm as the managing underwriter. Other Service Providers. Professional services such as verification agent, escrow agent or rebate analyst shall be appointed by the Finance Director in consultation with the City's financial advisor and/or bond counsel. Other City Policies and Procedures. The City shall comply with its Post - Issuance Tax Compliance Policy, and shall provide the appropriate department heads and staff with educational opportunities to ensure they are aware of requirements that may pertain to bond financed facilities and assets relating to their duties. SECTION 8. POST - ISSUANCE COMPLIANCE PROCEDURES Continuing Disclosure Obligations for All Bonds Purpose. At the time of issuance of any Bonds, regardless of tax status, the City is required to enter into a Continuing Disclosure Undertaking ( "Undertaking ") in order to allow the underwriter of the Bonds to comply with Securities and Exchange ( "SEC ") Rule 15(c)2 -12. The Undertaking is a contract between the City and the underwriter in which the City agrees to provide certain information to an "information repository" operated by the Municipal Securities Rulemaking Board ( "MSRB ") to ensure investors have access to annual updates and related events that occur during the year. Responsibility for Undertaking. The Finance Director is responsible for negotiating the terms of and complying with each of the City's Undertakings. The Finance Director will negotiate the terms of the Undertaking at the time of each bond issuance, with a goal of meeting the requirements of Rule 15(c)2 -12, without undue burden on the City. The Finance Director will strive to ensure that each Undertaking is similar to prior Undertakings to the extent possible, to simplify future compliance. 5 August 2014 35 SECTION 8. POST - ISSUANCE COMPLIANCE PROCEDURES (continued) Compliance with Undertaking. The Finance Director will have responsibility for ensuring compliance with each Undertaking, which activities may be delegated to staff within the Finance Department. This will require certain annual filings, by a set due date, as well as periodic filings as certain specified events arise. Filings are to be made through the Electronic Municipal Market Access ( "EMMA ") portal, managed by the MSRB. The Finance Director is responsible for knowing the terms of the City's Undertakings, and ensuring appropriate staff within the Finance Department and other departments of the City are aware of the events that may require a filing. Certification of Compliance. At the time of each subsequent bond issue, the Finance Director is responsible for reviewing all prior compliance, and providing a statement as to that prior compliance, as required by Rule 15(c)2 -12. Each official statement will include a statement that describes compliance (or non - compliance) with each prior undertaking, which statement will be certified by the Finance Director. Compliance Relating to Tax Exempt Bonds Purpose. The purpose of these post- issuance compliance procedures ( "Compliance Procedures ") for tax - exempt bonds and other obligations issued by the City for which federal tax exemption is provided by the Internal Revenue Code of 1986, as amended (the "Code "), is to facilitate compliance by the City with the applicable requirements of the Code that must be satisfied after the issue date of the bonds to maintain the tax exemption for the bonds after the issue date. Responsibility for Monitoring Post - Issuance Tax Compliance. The City Council of the City has the overall, final responsibility for monitoring whether the City is in compliance with post- issuance federal tax requirements for the City's tax - exempt bonds. However, the City Council has delegated the primary operating responsibility to monitor the City's compliance with post- issuance federal tax requirements for the City's bonds to the Finance Director and has authorized and directed the Finance Director of the City to adopt and implement on behalf of the City these compliance procedures. Arbitrage Yield Restriction and Rebate Requirements. The Finance Director will 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 City was eligible to be treated as a "small City" in respect of bonds issued in that calendar year because the City did not reasonably expect to issue more than $5,000,000 of tax - exempt 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 City has complied with an available spending exception to the arbitrage rebate requirement in respect of that bond issue; 6 August 2014 36 SECTION 8. POST - ISSUANCE COMPLIANCE PROCEDURES (continued) (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 -T timely filed with the IRS; and 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. Restrictions on Private Business Use and Private Loans. The Finance Director will adopt procedures calculated to educate and inform the principal operating officials of those departments, including utility departments, if any, of the City (the "users ") for which land, buildings, facilities and equipment ( "property") are financed with proceeds of tax - exempt 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 - exempt 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 these Compliance Procedures 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 - exempt 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 - exempt 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 - exempt bond issue may be 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) the Finance Director is to communicate with the City's bond counsel and /or financial advisor relative to any proposed change in use or special use arrangement that may impact the status of the bonds, before entering into such agreement. (f) 7 August 2014 37