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Capital Project Ordinance Amendments to Reduce Arbitrage Rebates
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INFORMATION CONTACT:
Beverly Liles, Finance, Director, 704-283-3675
ACTION REQUESTED:
1) Adopt Capital Project Ordinance Amendments 211A, 239B, 254A, 273B, 277B, 283C, 284D, 288J, 301D, 305A, 343B, 347E, 349D, 350B, 367D, 369B, 380A, 386A, 388A; and 2) authorize the Finance Director and/or County Manager to appropriate bond proceed investment income to pay arbitrage rebate liabilities to the IRS and transfer any excess investment earnings on bond proceeds not needed for arbitrage rebate payments accumulated in capital projects to the debt service funds to be spent on interest payments due.
PRIOR BOARD ACTIONS:
Capital Project Ordinances were previously approved by the BOCC at various times for projects funded from the 2019C and 2022 General Obligation Bond Issuances.
BACKGROUND:
Arbitrage in tax-exempt bonds is the profit earned by investing proceeds from tax-exempt bonds into higher-yielding taxable investments compared to the interest rate being paid on the bonds debt service payments. Because this exploits the lower interest rates allowed by tax-exempt status, bond issuers must generally rebate these excess earnings back to the IRS. This regulation prevents governments from over-issuing debt just for profit.
Unspent tax-exempt bond proceeds are subject to IRS tax exempt bond arbitrage rebate calculations on an annual basis until all bond proceeds have been spent in full. To mitigate the continuation of annual arbitrage rebate calculations and to reduce any payments due to the IRS the Finance Director is recommending replacing the funding sources on expenditures already paid on projects with the same function as the originally adopted projects to progress the spenddown of bond proceeds in a timelier fashion.
The capital project ordinances will swap funding sources, correct funding sources or close out unneeded funds on the following projects:
Public Safety; Radio Towers, Bi-Directional Antennas at UCPS, E911 TDMA P25, Sheriff’s Office Administration Building;
Library; Southwest Regional Library;
General Government; Board of Elections Renovation, UC Jail Block Renovations, UC Jail Land Purchase, Historic Courthouse House Renovations Phase 1 and 2, Government Center Building Repairs, Government Center Electrical Infrastructure, Government County Facility Repairs, and UC Progress Building;
Parks and Recreation; Paving, JHP Park Amenities, JHP Lighting, Cane Creek and P&R R&R;
Community College; SPCC Campus Improvements, SPCC Camera, SPCC Technology, and SPCC Access Controls.
FINANCIAL IMPACT:
No change in funding. The rebate payments due back to the IRS are paid for through investment earnings on the bond proceeds in the bond construction bank accounts. No county dollars are required to cover the rebate payments due to the IRS. This action has the potential to reduce increased arbitrage rebates overtime.