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2023 General Obligation Bonds Arbitrage Rebates and Investment Earnings
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INFORMATION CONTACT:
Beverly Liles, Finance, Finance Director, 704-283-3675
ACTION REQUESTED:
1) Authorize the County Manager and/or Finance Director going forward to appropriate bond proceeds investment earnings on the 2023 General Obligation (GO) Bonds for arbitrage rebate payments due to the IRS and transfer any excess investments earnings not needed for arbitrage payments to debt service funds to be spent on interest payments due on the 2023 GO Bonds. 2) Adopt Capital Project Ordinance 399 3) Adopt Budget Amendment #3
PRIOR BOARD ACTIONS:
Various approvals for the 2023 General Obligation Voter Approved School Bonds
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 using excess investment earnings on debt payments to progress the spenddown of bond proceeds in a timelier fashion.
The 2023 GO Bonds were issued based on a Bond Order that restricted the use of the bond proceeds to only be spent on a new Forest Hills High School and an East Elementary School. Based on this restriction the investment earnings on the bond proceeds can only be spent on these projects or the interest debt services payments on the 2023 GO Bonds.
This action will allow the County Mana...
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