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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 X Cons Calendar _ City Mgr Rpts Council Reports _ Legal Affairs Boards /Cmtes _ Public Hrgs Admin Reports Plan /Environ 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.