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CR 2012-120 Establish Legislative Policy 6- I (Debt Compliance Policy)October 16, 2012 Council Report 2012-120 City of Hopkins ESTABLISH LEGISLATIVE POLICY 6-1 DEBT COMPLIANCE POLICY Proposed Action Staff recommends adoption of the following motion: Move to Adopt Resolution 2012-076 establishing Legislative Policy 6-I Debt Compliance Policy. Adoption of this motion will create Policy 6-I Debt Compliance Policy. Overview The City of Hopkins does not currently have a Debt Compliance Policy. New rules by the IRS require cities to disclose whether they have Debt Compliance Policies and Procedures in place. All issuers of tax-exempt bonds are required to file IRS Form 8038-G upon issuance. Late last September, the IRS revised this form, adding line items 43 (which deals with private use), 44 (which deals with arbitrage) and 45 a and b (which deals with reimbursement of prior expenditures). Issuers want to be able to check lines 43 and 44 in the positive and fill out lines 45 a and b correctly. Adoption, implementation and execution of the policies and procedures enables them to check the boxes to line items 43 and 44. Failure to check the box may trigger an audit. The Debt Compliance Policy also states the staff person responsible for monitoring the City's debt compliance and the Finance Director is the staff person assigned to this role. The City of Hopkins contracts with Ehlers to do our debt monitoring and arbitrage reporting. The attached Debt Compliance Policy was drafted by Ehlers and is one used by their clients. Primary Issues to Consider • IRS rule changes regarding Form 8038G and disclosure of Debt Compliance Policy. Supporting Information • Resolution 2012-076 • Legislative Policy 6-I • Form 8038G Christine M Harkess, CPA, CGFM Finance Director Financial Impact: $ none Budgeted: Y/N n/a N Source: Related Documents (CIP, ERP, etc.): Notes: CITY OF HOPKINS Hennepin County, Minnesota RESOLUTION NO. 2012-076 A RESOLUTION AMENDING LEGISLATIVE POLICY MANUAL, ESTABLISHING CHAPTER 6-1 DEBT COMPLIANCE POLICY WHEREAS, The IRS now requires governmental jurisdictions who sell tax exempt bonds to formally notify them when filing Form 8038G whether they have post -issuance Debt Compliance Policies in place; and WHEREAS, no formal policy currently for post -issuance Debt Compliance for the City of Hopkins; NOW THEREFORE BE IT RESOLVED, that the City Council of the City of Hopkins hereby establishes Legislative Policy 6-I, Debt Compliance Policy. EFFECTIVE DATE: This amendment will go into effect on October 16, 2012. Adopted by the City Council of the City of Hopkins this 16th day of October, 2012. Eugene Maxwell, Mayor ATTEST: Kristine A. Luedke, City Clerk POLICY 6-I POST -ISSUANCE DEBT COMPLIANCE POLICY The City Council (the "Council") of the City of Hopkins, Minnesota (the "City") has chosen, by policy, to take steps to help ensure that all obligations will be in compliance with all applicable federal regulations. This policy may be amended, as necessary, in the future. 1. Background 1.01 The Internal Revenue Service (IRS) is responsible for enforcing compliance with the Internal Revenue Code (the "Code") and regulations promulgated thereunder ("Treasury Regulations") governing certain obligations (for example: tax-exempt obligations, Build America Bonds, Recovery Zone Development Bonds and various "Tax Credit" Bonds). The IRS encourages issuers and beneficiaries of these obligations to adopt and implement a post -issuance debt compliance policy and procedures to safeguard against post -issuance violations. 2. Post -Issuance Debt Compliance Policy Objective 2.01 The City desires to monitor these obligations to ensure compliance with the Code and Treasury Regulations. To help ensure compliance, the City has developed the following policy (the "Post -Issuance Debt Compliance Policy"). The Post -Issuance Debt Compliance Policy shall apply to the obligations mentioned above, including bonds, notes, loans, lease purchase contracts, lines of credit, commercial paper or any other form of debt that is subject to compliance. 3. Post -Issuance Debt Compliance Policy 3.01 The Finance Director of the City is designated as the City's agent who is responsible for post -issuance compliance of these obligations. 3.02 The Finance Director shall assemble all relevant documentation, records and activities required to ensure post -issuance debt compliance as further detailed in corresponding procedures (the "Post -Issuance Debt Compliance Procedures"). At a minimum, the Post - Issuance Debt Compliance Procedures for each qualifying obligation will address the following: 1. General post -issuance compliance; 2. Proper and timely use of obligation proceeds and obligation -financed property; 3. Arbitrage yield restriction and rebate; 4. Timely filings and other general requirements; 5. Additional undertakings or activities that support points 1 through 4 above; 6. Maintenance of proper records related to the obligations and the investment of proceeds of obligations; 7. Other requirements that become necessary in the future. 3.03 The Finance Director shall apply the Post -Issuance Debt Compliance Procedures to each qualifying obligation and maintain a record of the results. Further, the Finance Director Legislative Policy Manual -- Chapter 6-1 will ensure that the Post -Issuance Debt Compliance Policy and Procedures are updated on a regular and as needed basis. 3.04 The Finance Director or any other individuals responsible for assisting the Finance Director in maintaining records needed to ensure post -issuance debt compliance, are authorized to expend funds as needed to attend training or secure use of other educational resources for ensuring compliance such as consulting, publications, and compliance assistance. 3.05 Most of the provisions of this Post -Issuance Debt Compliance Policy are not applicable to taxable governmental obligations unless there is a reasonable possibility that the City may refund their taxable governmental obligation, in whole or in part, with the proceeds of a tax-exempt governmental obligation. If this refunding possibility exists, then the Finance Director shall treat the taxable governmental obligation as if such issue were an issue of tax-exempt governmental obligations and comply with the requirements of this Post -Issuance Debt Compliance Policy. 4. Private Activity Bonds 4.01 The City may issue tax-exempt obligations that are "private activity" bonds because either (1) the bonds finance a facility that is owned by the City but used by one or more qualified 501(c)(3) organizations, or (2) the bonds are so-called "conduit bonds", where the proceeds are loaned to a qualified 501(c)(3) organization or another private entity that finances activities eligible for tax-exempt financing under federal law (such as certain manufacturing projects and certain affordable housing projects). Prior to the issuance of either of these types of bonds, the Finance Director shall take steps necessary to ensure that such obligationswill remain in compliance with the requirements of this Post - Issuance Debt Compliance Policy. 4.02 In a case where compliance activities are reasonably within the control of a private party (i.e., a 501(c)(3) organization or conduit borrower), the Finance Director may determine that all or some portion of compliance responsibilities described in this Post -Issuance Debt Compliance Policy shall be assigned to the relevant party. In the case of conduit bonds, the conduit borrower will be assigned all compliance responsibilities other than those required to be undertaken by the City under federal law. In a case where the Finance Director is concerned about the compliance ability of a private party, the Finance Director may require that a trustee or other independent third party be retained to assist with record keeping for the obligation and/or that the trustee or such third party be responsible for all or some portion of the compliance responsibilities. 4.03 The Finance Director is additionally authorized to seek the advice, as necessary, of bond counsel and/or its financial advisor to ensure the City is in compliance with this Post - Issuance Debt Compliance Policy. Established 10/16/2012 City of Hopkins Legislative Policy Manual -- Chapter 6-1 2 Form 8038-G (Rev. September 2011) Department of the Treasury Internal Revenue Service Information Return for Tax -Exempt Governmental Obligations ► Under Internal Revenue Code section 149(e) OMB No. 1545-0720 ► See separate instructions. Caution: If the issue price is under $100, 000, use Form 8038 -GC. Reportina Authoritv If Amended Return, check here ► I 1 1 Issuer's name —� 2 Issuer's employer identification number (EIN) 3a Name of person (other than issuer) with whom the IRS may communicate about this return (see instructions) 3b Telephone number of other person shown on 3a 4 Number and street (or P.O. box if mail is riot delivered to street address) Roorn/suite 5 Report number (For IRS Use Only) 3 6 City, town, or post office, state, and ZIP code 7 Date of issue 8 Name of issue 9 CUSIP number .............. — 10a Name and title of officer or other employee of the issuer whom the IRS may call for more Information (sou instructions) — 10b Telephone number of officer or other employee shown on 10a 1VI3e of Issue (enter the issue oricel. See the instructions and attach schedule. 11 Education . . . . . . . . . . . . . . . . . . . . . . . 11 E 12 Health and hospital . . . . . . . . . . . . . . . . . . . . . . . . 12 13 Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 14 Public safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 15 Environment (including sewage bonds) . . . . . . . . . . . . . . . . . . . . _.—.. 15 _._._._...._.._....__..._. _..._._....... 16 Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 . _._..._.. _ 17 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 18 Other. Describe ► 18 19 If obligations are TANS or RANs, check only box 19a . . . . . . . . . . . . ► ❑ If obligations are BANS, check only box 19b . . . . . . . . . . . . . . ► ❑ 20 If obligations are in the form of a lease or installment sale, check box . . . . . . . . ► ❑ Description of ligations. Complete for the entire issue for which this form is being,fiied (a) Final maturity date (b) Issue price (c) Stated redemption price at maturity (d) weighted average maturity (e) Yield 217 ......................... ears —.................................._..............._ � uses of Froceeas or sons issue (including underwriters discount) 22 Proceeds used for accrued interest . . . . . . . . . . . . . . . 22 r— 23 Issue price of entire issue (enter amount from line 21, column (b)) . . . . 23 _ 24 Proceeds used for bond issuance costs (including underwriters' discount) . 24 25 Proceeds used for credit enhancement . . . . . . . . . . . . 25 26 Proceeds allocated to reasonably required reserve or replacement fund . 26 27 Proceeds used to currently refund prior issues . . . . . . . . . _27 m 28 Proceeds used to advance refund prior issues . . , . . . . . . 28 29 Total (add lines 24 through 28) . . . . . . . . . . . . . . . . . . . . . . .. 29 30 Nonrefunding proceeds of the issue (subtract line 29 from line 23 and enter amount here)11;17 Description of Refunded Bonds. Complete this partonlyfor refunding bonds. 31 Enter the remaining weighted average maturity of the bonds to be currently refunded . ► years 32 Enter the remaining weighted average maturity of the bonds to be advance refunded . ► years 33 Enter the last date on which the refunded bonds will be called (MM/DD/YYYY) ► 34 Enter the date(s) the refunded bonds were issued ► y,4WDoIYYYY) For Paperwork Reduction Act Notice, see separate instructions. cat. No. 637735 Form 8038-G (Rev, 9-2011) Form 8038-G (Rev. 9-2011) 2 35 Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) . . . . 35 36a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract (GIC) (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . 36a b Enter the final maturity date of the GIC 0- c c Enter the name of the GIC provider ► 37 Pooled financings: Enter the amount of the proceeds of this issue that are to be used to make loans to other governmental units . . . . . . . . . . . . . . . . . . . . . . . . 37 38a If this issue is a loan made from the proceeds of another tax-exempt issue, check box ► ❑ and enter the following information: b Enter the date of the master pool obligation ► _ ......... c Enter the EIN of the issuer of the master pool obligation Po- d d Enter the name of the issuer of the master pool obligation 0- 39 39 If the issuer has designated the issue under section 265(b)(3)(13)(1)(111) (small issuer exception), check box ► C.1 40 If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box . . . . . . . . . . . . ► 1. I 41a If the issuer has identified a hedge, check here ► ❑ and enter the following information: b Name of hedge provider ► c Type of hedge No- d d Term of hedge ► _ 42 If the Issuer has superintegrated the hedge, check box . . ..—� . . . . . . . . . . . . . . . . 0- 43 43 If the issuer has established written procedures to ensure thata nonqualified bonds of this Issue are reme Ia e according to the requirements under the Code and Regulations (see instructions), check box . . . . . . . . ► ❑ 44 If the issuer has established written procedures to monitor the requirements of section 148, check box . . . . . ► ❑ 45a If some portion of the proceeds was used to reimburse expenditures, check here ► ❑ and enter the amount of reimbursement . . . . . . . . . lo- b b Enter the date the official intent was adopted ► Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the bust of my knowledge Signature and belief, they are true, correct, and complete. I further declare that I consent to the IRS's disclosure of the issuer's return information, as necessary to and process this return, to the person that I have authorized above. Consent F Signature of issuer's authorized representative Date F Type or print name and title Paid Print/Type preparer's name Preparer's signature Date PTIN Check ❑ if Preparer .--- sell -employed Use Only Firm's name 11 -Firm's EIN ► Form 8038-G (Rev. 9-2011)