SR - RES-10821 - TAX ADVANTAGED BONDS POST ISSUANCE COMPLIANCE PROCEDURESAGENDA ITEM
October 14, 2014
TO: Honorable Mayor and
Members of the City Council
THRU: John W. Sibley
City Manager
FROM: William M. Kolbow
Finance Director
Lisa L. Kim
Economic Development Manager
ReviewedNe Tied By:
City Manage
Finance Dir for
To Be Presen
Lisa Kim
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1. SUBJECT
Resolution No. 10821 - A Resolution of the City Council of the City of Orange adopting Tax -
advantaged bonds Post - issuance Compliance Procedures.
2. SUMMARY
This is a procedural requirement by the Internal Revenue Service for municipalities to establish
written procedures to monitor post- issuance compliance of tax - advantaged bonds.
3. RECOMMENDATION
Approve Resolution No. 10821.
4. FISCAL IMPACT
There is no fiscal impact to the General Fund.
5. STRATEGIC PLAN GOAL(S)
2. Be a fiscally healthy community.
a. Expend fiscal resources responsibly.
16. GENERAL PLAN IMPLEMENTATION
Goal 1.0: Sustain a diversified economic base and strong fiscal stability.
Policy 1.7: Pursue a variety of funding approaches, including grants, impact fees, assessments,
and transportation funds in order to support public services, municipal programs, and capital
investments that support City businesses.
ITEM , ,Ie 0 1 10/14/14
7. DISCUSSION and BACKGROUND
BACKGROUND
Bonds that are issued by municipalities to finance or refinance public capital improvements or
certain other purposes, as permitted by law, are sometimes provided preferential treatment under
federal tax laws. Such bonds include those that are commonly referred to as "tax- exempt bonds"
and "tax credit bonds." They are often collectively referred to by the Internal Revenue Service
( "IRS ") as "tax- advantaged bonds." Tax advantaged bonds are subject to federal tax
requirements both at the time the bonds are issued and for as long as they remain outstanding.
Failure by the issuer to comply with any applicable federal tax requirement with respect to tax -
advantaged bonds jeopardizes their preferential treatment and could subject the issuer of non-
compliant bonds to IRS penalties or civil liability.
DISCUSSION
In recent years, the IRS has placed new focus on the importance for issuers to establish and adopt
written procedures to monitor post- issuance compliance of tax - advantaged bonds, which focus is
reflected in the recently amended IRS form to be filed upon the closing of a tax - exempt bond
issue.
Currently, the Successor Agency to the Orange Redevelopment Agency is proposing to issue its
Orange Merged and Amended Redevelopment Project Area 2014 Tax Allocation Refunding
Bonds, Series A to refund the Tustin Street Redevelopment Project 1997 Tax Allocation Parity
Bonds, Series A and the Orange Merged and Amended Redevelopment Project Area 2003 Tax
Allocation Refunding Bonds, Series A previously issued by the former Orange Redevelopment
Agency. This is an example of tax - advantaged bonds and requires post- issuance compliance
monitoring.
In the future, the City or another related entity of the City may issue other tax - advantaged bonds
to finance public capital improvements within the City. Related entities of the City, such as the
Successor Agency and community facilities districts formed by the City, are considered
subordinate entities of the City for federal tax purposes. The City's Finance Department
currently monitors post- issuance compliance with federal tax requirements of outstanding bonds
and refers questions on an as- needed basis to bond counsel.
The attached Post - issuance Compliance Procedures will help the City monitor compliance with
applicable federal tax requirements as long as any tax - advantaged bonds to be issued in the future
by the City, the Successor Agency or any other related entity of the City are outstanding. These
procedures advance recent IRS objectives and serve as a measure of added internal controls to
assist the City in preventing violations from occurring, or timely correcting identified violations,
to ensure the continued tax - advantaged status of the bonds. Approval of this item would
formalize and aid the City's monitoring process with written procedures that can be used as a
checklist.
7. ATTACHMENTS
• Resolution No. 10821
• Post - Issuance Compliance Procedures
NAEconomic Development Files \STAFF REPORTS\2014 \101414d_Bonds Post Compliance_City.doc
ITEM 2 10/14/14
RESOLUTION NO. 10821
A RESOLUTION OF THE CITY COUNCIL OF
THE CITY OF ORANGE ADOPTING TAX -
ADVANTAGED BONDS POST - ISSUANCE
COMPLIANCE PROCEDURES
WHEREAS, the City of Orange, a municipal corporation duly formed and existing under
the laws of the State of California, or one or more of its related entities (the "City ") has issued
bonds or otherwise incurred bonded indebtedness ( "Tax- Exempt Bonds "), the interest on which
is excluded from gross income for owners thereof for federal income tax purposes pursuant to
the Internal Revenue Code of 1986, as amended (the "Code "); and
and
WHEREAS, the City intends to issue additional Tax - Exempt Bonds from time to time;
WHEREAS, the City may also, in the future, issue bonds or incur bonded indebtedness
( "Tax Credit Bonds," and together with Tax - Exempt Bonds, "Tax- Advantaged Bonds ") that
entitle the City, the owners of the Tax Credit Bonds or another party to either a credit against
federal income tax liability or a refundable credit from the United States Treasury; and
WHEREAS, issuers of Tax - Advantaged Bonds are required to comply with certain post
issuance requirements in accordance with the Code; and
WHEREAS, the City desires to adopt the Tax - Advantaged Bonds Post - Issuance
Compliance Procedures (the "Procedures "), as set forth in Exhibit A hereto;
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF ORANGE DOES
HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS:
Section 1. The above recitals, and each of them, are true and correct.
Section 2. The Procedures, as set forth in Exhibit A , are hereby approved and adopted
and shall be made applicable to all Tax - Advantaged Bonds issued by or on behalf of the City and
its related entities (such as, but not limited to, the Successor Agency to the Orange
Redevelopment Agency).
Section 3. The City Manager, in consultation with bond counsel, is hereby authorized
to amend the Procedures from time to time as necessary or appropriate.
Section 4. The City Manager, the Finance Director and all other officers of the City are
hereby authorized and directed, jointly and severally, to do any and all things, to effectuate the
purposes of this Resolution and to implement the Procedures any such actions previously taken
by such officers are hereby ratified and confirmed.