2016-13 RESOLUTION NO.2016- 1
A RESOLUTION ADOPTING POST-ISSUANCE PROCEDURES MANUAL
FOR TAX-EXEMPT BONDS ISSUED BY THE VILLAGE OF BUFFALO GROVE
WHEREAS, the Village of Buffalo Grove is a Home Rule Unit pursuant to the Illinois Constitution
ofl970- and
WHEREAS, various requirements apply under the Internal Revenue Code and Income Tax
Regulations (hereinafter"IRS Requirements") including infort-nation filing and other requirements related to
issuance, the proper and timely use of bond-financed property, and arbitrage yield restriction and rebate
requirements; and
WHEREAS, to comply with the IRS Requirements, governmental bond issuers must ensure that the
rules are met at the time the bonds, capital loan notes or lease-purchase obligations (hereinafter"bonds") are
issued and throughout the to of the bond; and
WHEREAS, this includes the continued review of post-issuance obligations and maintenance of
records:
NOW, THEREFORE, BE IT RESOLVED BY THE PRESIDENT AND BOARD OF TRUSTEES OF THE
VILLAGE OF BUFFALO GROVE, COOK AND LAKE COUNTIES, ILLINOIS, as follows:
Section 1. The President and Board of Trustees of the Village of Buffalo Grove approve a
Resolution adopting Post-Issuance Procedures Manual for Tax-Exempt Bonds Issued by the Village of
Buffalo Grove which is attached hereto as Exhibit A.
Section 2. The official designated in said policy shall take any and all action to properly implement
the policy.
AYES: 6 —Berinazi.Tri I I i iig,_S!cW.01 tenhe iiner, Weideii feld,Johnson
NAYS: 0 - one
ABSENT: 0 - one
PASSED: April 18, 2016.
APPROVED. April 18, 2016.
?Beve ly Suss a<Village President
�riy Suss,
ATTEST:
Janet M?Sirabian, Village Clerk
Exhibit A.
POST-ISSUANCE PROCEDURES
MANUAL
FOR
Tax-EXEMPT BONDS
ISSUED By
THE VILLAGE OF BUFFALO GROVE
(THE "ISSUER")
Adopted: April 18, 2016
Revised:
2016-13 Exh A
0000700
Exhibit A.
NOTHING|N THIS MANUAL xSINTENDED TO REDUCE THE RESPONSIBILITY OF THE ISSUER. THESE
PROCEDURES ARE INTENDED n0FACILITATE COMPLIANCE WITH TAX RELATED COVENANTS MADE!NBOND
DOCUMENTS.
|. POLICY STATEMENT........................................................................................................................ 1
U. PROCEDURES............................................................................................................................... 2
A. Bonds Subject 10 these Procedures........................................................................ 2
B. Facilities/Assets Subject tm these Procedures........................................................ 2
C. Assignment of Responsibility to Staff..................................................................... 2
D. Duties oFthe Compliance Officer....................................... ................................... 2
1. Maintaining List of Bonds.............................................................................. 2
2. Maintaining List of Facilities.......................................................................... 2
3. ReCordkeeping............................................................................................... 3
a. Transcript Items...................................................................................... 3
b. Expenditure & Investment Items ........................................................... 3
m. Records Of Use ......... .............................................................................. 4
d. Rebate &Yield Calculations.................................................................... 4
e. Actions under these Procedures ............................................................ 4
4. Arbitrage Computations........................................................................ ....... 5
5. Annual Review and Reports------------------------- 5
6. Action On the Discovery ofa Potential Violation .......................................... 5
a. Reallocation ............................................................................................ 5
b. Rernediation.......................................................... ..........,....... ............. 6
c. Voluntary Closing Agreement Program.............................. ................... 6
7. Action onIRS Contact.................................................................................... 6
a. Examination of Bonds............................................................................. 6
b. Compliance Checks................................................................................. 7
8. Training.......................................................................................................... 7
E. Changes tQ the Manual........................................................................................... 7
F. Specific Procedures for Special Cases..................................................................... 8
G. Authorization and Expense..................................... ............................................... 8
'i-
Exhibit A.
Appendix A—List of Bonds
Appendix -1—List of Bond - Financed Property
Appendix B-2—List of Disposed Bond - Financed Property
Appendix C—Glossary of Terms and Concepts
I. Policy Statement
This Post-issuance Procedures Manual (the "Manual") is intended to provide
procedures (the "Procedures") for compliance with the requirements of the Internal Revenue
Code of 1986, as amended (the "Code"), and applicable United States Treasury Regulations (the
"Regulations") necessary to maintain the tax exemption of the interest on bonds or other
obligations issued by and for the benefit of the Issuer.
The Issuer has and will from time to time issue various issues of tax-exempt bonds, tax
credit bonds or direct pay bonds (the "Bonds"). Maintaining the tax-exempt or tax-advantaged
status of Bonds requires continuing compliance by the Issuer with certain covenants and
agreements contained in the documents relating to the issuance of the Bonds. In connection
with each issue of tax-exempt Bonds, the Issuer has covenanted or will covenant not to take
any action that would cause the interest on the Bonds to become included in the gross income
of the holders of the Bonds for federal income tax purposes. These Procedures are being
adopted by the Issuer to assist the Issuer in fulfilling covenants to maintain the tax-exempt or
tax-advantaged status of the Bonds. It is the intention of the Issuer that the Issuer will comply
with all applicable Federal tax law requirements and maintain sufficient records to
demonstrate such compliance.
The Issuer is aware that the Internal Revenue Service ("IRS") maintains an active force
of revenue agents who examine bond issues for compliance. As a result of such examinations,
the IRS may require payment of financial penalties or impose other sanctions to preserve the
tax-exemption or tax-advantaged nature of the Bonds or may declare bonds to no longer be
tax-exempt or tax-advantaged. Any such declaration could result in legal action against the
Issuer. To minimize the risk of such occurrence, these Procedures have been adopted to
provide a framework for post-issuance compliance. This Manual is only for the benefit of the
Issuer. No other person (including an owner of a Bond) may rely on the Procedures included in
this Manual.
The Issuer is aware that the existence of adequate written procedures may influence
the IRS to settle matters on more favorable terms should such settlement be required.
Federal tax law imposes restrictions related to the investment and expenditure of Bond
proceeds and on the use of facilities financed with Bonds. Compliance with these restrictions is
often necessary to maintain the tax-exemption or tax-advantaged nature of the Bonds.
The Issuer is responsible for following tax-related covenants concerning the Bonds.
These Procedures are not intended to diminish or augment those covenants.
In order to most efficiently apply limited resources, these Procedures may be limited to
Bonds issued after a specified date.
Certain concepts and terms addressed and used in these Procedures are further
described in the glossary attached hereto, as Appendix C.
I1. Procedures
A. Bonds Subject to these Procedures
Attached hereto as AppendixA is a list of the Issuer's outstanding Bonds subject to
these Procedures. The Compliance Officer (as hereinafter defined) should update this list
whenever Bonds are issued and whenever an issue of Bonds subject to the Procedures is fully
retired. If payments on the Bonds are provided for by an escrow, such Bonds should remain on
the list until the Bonds are paid in full.
B. Facilities/Assets Subject to these Procedures
Attached hereto as Appendix B-1 is a list of the facilities and assets financed, refinanced
or reimbursed with proceeds of the Bonds and that are subject to Federal tax restrictions.
Attached hereto as Appendix B-2 is a list of those facilities and assets that have been disposed
of.
The Issuer and the Compliance Officer recognize that a list of financed assets is
necessary to track Private Business Use of Bond financed facilities. In order to simplify the
maintenance of the list, the Compliance Officer may include entire buildings or other facilities
even if only partially financed with Bonds. The list for each issue of Bonds should be completed
within a reasonable period after the final allocation of Bond proceeds is made. In the case of
Refunding Bonds, the list of assets financed should include the list of assets financed by the
refunded obligations.
C. Assignment of Responsibility to Staff
The Issuer designates its Director of Finance (the "Compliance Officer") as having
responsibility to keep all records required to be kept by the Issuer under these Procedures, to
make all reports to the Issuer's governing body required by these Procedures, and to otherwise
assure that all actions required of the Issuer hereunder be taken. The Compliance Officer may
further delegate certain tasks to other officers, employees or agents of the Issuer. Such
delegation shall not relieve the Compliance Officer from responsibility to assure that all tasks
assigned to the Compliance Officer hereunder are completed in a timely fashion.
D. Duties of the Compliance Officer
1. Maintaining List of Bonds. The Compliance Officer is charged with maintaining
the list referred to in Section IIA hereof, and updating such list whenever a new issue of Bonds
subject to these Procedures is issued or when an issue of Bonds subject to these Procedures is
retired.
2. Maintaining List of Facilities. The Compliance Officer is charged with
maintaining the list referred to in Section 1113 hereof. When an issue of Bonds financing or
refinancing a subject facility is retired or redeemed, the list shall identify the retirement or
redemption of the Bonds that financed or refinanced such subject facility. As proceeds of
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Bonds are spent, the Compliance Officer should update the list periodically at times convenient
to the Compliance Officer. The Compliance Officer may simplify the list by including entire
buildings or other facilities even if only a portion was Bond financed.
3. Recordkeeping. The Compliance Officer is hereby designated as the keeper of all
records of the Issuer with respect to the Bonds and that relate to the tax-exempt or
tax-advantaged status of the Bonds. The Compliance Officer shall report to the Issuer's
governing body not less often than once per year concerning whether he or she has all of the
required records in his or her possession, or if not, whether he or she is taking appropriate
action to obtain or recover such records. The Compliance Officer should review the records
related to the Bonds and shall determine what requirements the Issuer must meet in order to
maintain the tax-exemption of interest paid on the Bonds or the tax-advantaged status of the
Bonds. The Compliance Officer should then prepare a list of the contracts, requisitions,
invoices, receipts and other information that may be needed in order to establish that (i)the
interest paid on the Bonds is entitled to be excluded from gross income for federal income tax
purposes or (ii) the Bonds remain tax-advantaged. Notwithstanding any other procedures of
the Issuer, such retained records shall be kept for at least as long as the related issue of Bonds
or any refunding obligations that may directly or indirectly refund such Bonds remain
outstanding, plus three years. Such records, at a minimum, shall include the following items.
a. Transcript Items. The Compliance Officer should receive, keep and
maintain a true, correct and complete counterpart of each document and agreement
delivered in connection with the issuance of the Bonds, including without limitation
(i)the proceedings of the Issuer authorizing the Bonds, (ii) any offering document with
respect to the offer and sale of the Bonds, (iii) any legal opinions with respect to the
Bonds delivered by any lawyers, (iv) notices and minutes of any public hearings held
with respect to the Bonds, (v) the tax documentation, including any Tax Exemption
Certificate and Agreement, any Tax Compliance Certificate and Agreement and any
Non-Arbitrage or Arbitrage Certificates or any tax-related covenants that may be
contained in the proceedings of the Issuer authorizing the Bonds, (vi) all written
representations of any person delivered in connection with the issuance and initial sale
of the Bonds, and (vii) the applicable series of Series 8038 Form filed with respect to the
Bonds along with proof of filing. it is likely that such transcript items will be found in
the form of or included in a bound volume or compact disc delivered to the Issuer after
the Bonds were issued.
b. Expenditure & Investment Items. The Compliance Officer should
maintain copies of:
(i) account statements showing the disbursements of all Bond
proceeds for their intended purposes, as well as any requisition requests and
the invoices and contracts (e.g., construction contracts, third party invoices) to
which the expenditure of funds relates;
(ii) account statements showing all investment activity of any and all
accounts in which the proceeds of the Bonds have been held;
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(iii) all bid requests and bid responses used in the acquisition of any
special investments or derivative products used in connection with the Bonds,
including any swaps, swaptions, or other financial derivatives entered into in
order to establish that such instruments were acquired at fair market value; and
(iv) copies of any subscriptions to the U.S. Treasury for the purchase
of State and Local Government Series (SLGS) obligations.
To the extent that such records are not in the possession of the Compliance
Officer with respect to a particular issue of Bonds, investment or expenditure, the
Compliance Officer should make a note that such record is not in his or her possession.
In such case, the Compliance Officer should take reasonable steps to obtain such
records or, if not possible, consult with counsel concerning possible alternatives.
C. Records of Use. The Compliance Officer should maintain records
establishing that all Bond-financed property has been used for the purposes required
for interest on the Bonds to be excluded from gross income for federal income tax
purposes or for the Bonds to remain tax-advantaged. Such records shall include copies
of all significant contracts and agreements of the Issuer, including any leases,
management contracts, research agreements, or service contracts, with respect to the
use of any property owned by the Issuer and acquired or financed with the proceeds of
the Bonds (excluding arm's length contracts covering 50 or fewer days). The
Compliance Officer shall cause such contracts to be reviewed either by staff of the
Issuer or by an outside consultant (i) to determine if such contracts cause any Private
Business Use of such facilities, or (ii) if the Compliance Officer cannot reasonably
determine whether such contract causes Private Business Use. If any such contract is
determined to cause Private Business Use of a Bond-financed facility, the Compliance
Officer should determine or cause to be determined for each year, the percentage of
such facility so privately used. Such determination may be made in consultation with
counsel or other consultants.
d. Rebate & Yield Calculations. The Compliance Officer should maintain
copies of any calculations of liability for arbitrage rebate or yield reduction payment
that is or may become due with respect to the Bonds, and any calculations prepared to
show that no arbitrage rebate is due, together, if applicable, with account statements
or cancelled checks showing the payment of any rebate amounts to the U.S. Treasury
together with any applicable IRS Form 8038-T, Arbitrage Rebate, Yield Reduction and
Penalty in Lieu of Arbitrage Rebate, or Form 8038-R, Request for Recovery of
Overpayments under Arbitrage Rebate Provisions, or any successor form to either of
those.
e. Actions under these Procedures. The Compliance Officer should retain all
records, memoranda and other documents and correspondence relating to these
Procedures or actions taken under these Procedures.
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4. Arbitrage Computations. The Compliance Officer should review the agreements
of the Issuer with respect to each issue of Bonds and shall determine what actions are
necessary or advisable to comply with the arbitrage restrictions and arbitrage rebate
requirements of the Code. Some issues of Bonds may be exempt from the rebate requirement.
Taking into account any applicable exemptions from the arbitrage rebate requirement for each
issue of Bonds, the Compliance Officer should cause computations to be made at least once in
the first five years the Bonds are outstanding (and at least once every 5-year period thereafter
while the Bonds are outstanding) of the accrued arbitrage rebate amount (if any) with respect
to each issue of Bonds. The Compliance Officer should, if authorized, retain a law firm or other
consultant or use staff of the Issuer to prepare reports stating whether or not there is any
rebate or yield reduction payment liability to the U.S. Treasury related to the Bonds, and
setting forth any applicable exemptions from rebate liability that may be applicable to any
funds or accounts. Such report should be updated annually. Updates will not be required if a
report clearly indicates that no additional rebate or yield restriction liability will accrue. The
Compliance Officer is responsible for ensuring the timely payment to the U.S. Treasury of all
arbitrage rebate payments and yield reduction payments when due, including the filing of any
required IRS forms.
If and to the extent that any Bond proceeds are or become subject to a yield restriction
requirement, the Compliance Officer is responsible for investing or directing the investment of
such proceeds at a yield not in excess of the permitted yield and for making any yield reduction
payments to the U.S. Treasury as are necessary.
The Compliance Officer may, if authorized, retain a law firm or other consultant to
assist in making such determinations.
5. Annual Review and Reports. Not less often than once per year, the Compliance
Officer should conduct a review of records and other information described in these
Procedures to determine whether any or all of the Bonds comply with the tax requirements
applicable to such Bonds. The Compliance Officer, if authorized, may hire counsel or other
consultants to assist in such review. To the extent that any violations or potential violations of
tax requirements are discovered, the Compliance Officer may make recommendations or take
such actions as the Compliance Officer should reasonably deem necessary to assure the timely
correction of such violations or potential violations through remedial actions described in the
Regulations or the Tax Exempt Bonds Voluntary Closing Agreement Program described in
Treasury Notice 2008-31 or any successor guidance. The Compliance Officer should prepare a
written report (which may be marked as confidential) and should present such report to the
Issuer's governing body no less frequently than once per year. The annual review requirement
will continue with respect to a particular Bond issue until the first review to occur after the
date that all Bonds of that issue and any refunding obligations that may directly or indirectly
refund such Bonds are fully paid and retired.
6. Action on the Discovery of a Potential Violation.
a. Reallocation. The Issuer and the Compliance Officer recognize that, in
limited circumstances, if there is a failure to spend Bond proceeds properly, such Bond
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proceeds can be reallocated to qualified costs that may be financed with Bond
proceeds, provided that such reallocation occurs within specified time frames. If the
Compliance Officer determines that a failure to spend Bond proceeds on qualified costs
has occurred, the Compliance Officer should (with the aid of a law firm or other
consultant or staff of the Issuer) determine if a reallocation of Bond proceeds is
possible.
b. Remediation. The Issuer and the Compliance Officer recognize that if,
among other things, there is a failure to use Bond proceeds properly, a failure to spend
all Bond proceeds, or a disposition of Bond-financed property or Private Business Use in
excess of allowed limits, a remedial action may be required in accordance with the Code
and the Regulations. The Compliance Officer should (with the aid of a law firm or other
consultant or staff of the Issuer) determine if such remedial actions are required and
possible. The Compliance Officer should prepare or cause to be prepared a
memorandum describing any such remedial action or proposed remedial action. The
memorandum should describe whether such remedial action will serve to cure any
particular tax law violation. The memorandum should include a full description of such
required actions of the Issuer. A copy of any such memorandum shall be given to the
Issuer's governing body. Following any such remedial action, the Compliance Officer
should prepare a report describing the effect of such remedial action. The list of Bond-
financed property may need to be revised as a result of such remedial action and, if so,
the Compliance Officer should so revise the list.
C. Voluntary Closing Agreement Program. The Issuer and the Compliance
Officer recognize that if there is a violation of the covenants of the Issuer related to the
maintenance of the exclusion from gross income for federal income tax purposes of
interest on the Bonds or a violation of the covenants of the Issuer related to the
maintenance of the tax-advantaged status of the Bonds, then the Issuer may be able to
enter into a voluntary closing agreement with the IRS to preserve the favorable tax
status of the Bonds. The Compliance Officer should determine if a voluntary closing
agreement is desirable and possible. The Compliance Officer should coordinate the
Issuer's efforts in obtaining any voluntary closing agreement. The Issuer may (to the
extent authorized) retain or consult with counsel to attempt to obtain a voluntary
closing agreement. Following the execution of any such closing agreement, the
Compliance Officer should prepare a report describing the effect of such closing
agreement. The list of Bond-financed Property may need to be revised as a result of
such closing agreement and, if so, the Compliance Officer should so revise the list.
7. Action on IRS Contact.
a. Examination of Bonds. The Issuer and the Compliance Officer recognize
that the IRS or another regulatory entity may undertake an examination of Bonds. In
the event that the Issuer is notified of such an examination, the Issuer shall as quickly as
possible notify the Compliance Officer. The Compliance Officer should coordinate the
defense of such examination and should determine if counsel should be hired and, if so,
which counsel. Except to the extent that the Issuer determines that another party
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should undertake a response, the Compliance Officer will be responsible for compiling
answers to any information or document request that might be presented to the Issuer
as a result of such examination. If an examination cannot be closed without a closing
agreement, the Compliance Officer should use reasonable efforts to reach an
acceptable closing agreement with such regulatory agency and to obtain all required
Issuer approvals of such closing agreement.
Regardless of how an examination of the Bonds is closed, the Compliance Officer
should retain all communications with the IRS or other regulatory agency relating to
such examination among the records kept under Section II.D.3. of these Procedures
(Record keeping).
The Compliance Officer should advise the Issuer's governing body of any such
examination when, as and in such manner as the Compliance Officer may deem
appropriate.
b. Compliance Checks. The IRS and other regulatory agencies may conduct
compliance checks from time to time. As part of such compliance check, the IRS or
another regulatory agency may send questionnaires to the Issuer. The Compliance
Officer may, if authorized, hire counsel to assist in the response to a compliance check.
The Compliance Officer should advise the Issuer's governing body of any such
compliance check promptly after receiving notice thereof.
8. Training. The Compliance Officer should undertake to maintain a reasonable
level of knowledge concerning the rules related to tax-exempt and tax-advantaged bonds so
that he or she may fulfill his or her duties hereunder. The Compliance Officer may consult with
counsel, attend conferences and presentations of trade groups, read materials posted on
various web sites, including the web site of the Tax-Exempt Bond function of the IRS, and use
other means to maintain such knowledge. Recognizing that the Compliance Officer may not be
fully knowledgeable in this area, such officer may consult with in-house or outside counsel,
consultants and experts to assist in exercising his or her duties under these Procedures. The
Compliance Officer should endeavor to make sure that other staff of the Issuer is aware of the
need for continuing compliance and coordinate appropriate training and education of other
personnel of the Issuer. The Compliance Officer should provide copies of relevant Bond
documents and these Procedures to other staff members who may be responsible for taking
actions described in the Bond documents and in particular to any person who is expected to be
a successor Compliance Officer. The Compliance Officer should assist in the education of any
new Compliance Officer and the transition of the duties under these Procedures. The
Compliance Officer should review the Bond documents and these Procedures periodically to
determine if there are portions that need further explanation and, if so, will attempt to obtain
such explanation from counsel or other experts or consultants or staff.
E. Changes to the Manual
The Procedures contained herein may be revised and amended from time to time as
the Issuer and the Compliance Officer deem necessary to comply with the requirements of the
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Code and Regulations. The Issuer and the Compliance Officer may, from time to time and upon
the issuance of new Bonds, contact outside counsel to determine whether the Procedures
contained herein adequately address the post-issuance responsibilities of the Issuer as
required by the Code and Regulations.
F. Specific Procedures for Special Cases
The Procedures contained herein specifically address post-issuance compliance
procedures with respect to tax-exempt governmental bonds issued for capital projects under
Section 103 of the Code. The Issuer and the Compliance Officer recognize that these
Procedures may be inadequate for other types of tax-exempt obligations (including TIF
financings), tax-credit or direct pay obligations, for which additional procedures may be
required. In the event that the Issuer issues private activity tax-exempt obligations, tax-
exempt obligations funding a significant amount of working capital, tax increment financing
bonds, tax-credit bonds, or direct pay bonds, the Issuer receives an indication from counsel
that additional procedures are required, or the Issuer enters into any derivative products,
these Procedures should be revised to reflect any specific rules and requirements and post-
issuance responsibilities applicable to such type of tax advantaged obligations and derivative
products.
G. Authorization and Expense
This Compliance Manual is not intended to provide authorization to the Compliance
Officer to enter into contracts for service or to spend Issuer funds. To the extent that the
Compliance Officer determines that such contracts or expenditures are desirable and are not
otherwise authorized, the Compliance Officer should obtain such authorization before entering
into such contracts and spending such Issuer funds.
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APPENDIX
LIST OF BONDS
FINAL
NAME OF ISSUE DATE OF ISSUANCE MATURITY DATE
Tax-Exempt Installment March 27, 2015 06/01/2029
Purchase Agreement Schedule
1
General Obligation Corporate August 27, 2012 12/30/2030
Purpose Bonds, Series 2012
General Obligation Refunding May 6, 2010 12/30/2025
Bonds, Series 2010A and
General Obligation Corporate
Purpose Bonds, Series 2010
A-1
APPENDix B-1
LIST OF BOND-FINANCED PROPERTY
DESCRIPTION OF THE BONDS THAT FINANCED AmOUNT BOND USEFUL PLACEDIN
PROPERTY LOCATION THE PROPERTY FINANCED ECONOmic LIFE SERVICE DATE
Water Meter Replacements Tax-Exempt Installment rox. 20 years
and I System Purchase Agreement $
Schedulel
Streetlights Tax-Exempt Installment Approx. 20 years
Purchase Agreement $
Schedule 1
SCADA upgrades Tax-Exempt Installment Approx. 10 years
Purchase Agreement $
Schedule
Road Improvements Various Village General Obligation [$6,100,00] 20 years
Locations Corporate Purpose
Bonds, Series 2012
Storm water drainage Various Village General Obligation
improvements, e Locations Refunding Bonds,
construction of water Series 201 OA and
detention facilities, General Obligation
installation of storm sewers Corporate Purpose
and storm box culverts Bonds, Series 2010
Roadway Reconstruction Various Village General Obligation
Locations Refunding Bonds,
Series 2010A and
General Obligation
Corporate Purpose
Bonds, Series 2010
Landscape all Various Village General Obligation
Reconstruction ocatio s Refunding Bonds,
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Series 2010A and
General Obligation
Corporate Purpose
Bonds, Series 2010B
Sidewalk Removal and Various Village General Obligation
Restoration Locations Refunding Bonds,
Series 2010A and
General Obligation
Corporate Purpose
Bonds, Series 2010B
Public of Course General Obligation
Improvements Refunding Bonds,
Series 2010A and
General Obligation
Corporate Purpose
Bonds, Series 2010B
(Refunding Portion-
o ° inlly financed with
Series 2001 )A
Construction of Commuter General Obligation
Train Station Refunding Bonds,
Series 2010A and
General Obligation
Corporate Purpose
Bonds, Series 2010B
(Refunding Portion-
originally financed with
Series 1 were
refunded by Series
2001 B)
[Public Capital General Obligation
Improvements - specific Refunding Bonds,
descriptions] Series 2010A and
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General Obligation
Corporate Purpose
Bonds, Series 2010B
(Refunding Portion -
originally financed with
Series 1995A & Series
1992, which were
refunded by Series
2001B)
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APPENDIX C
GLOSSARY OF TERMS AND CONCEPTS
Private Business Use
"Private Business Use" means any use of Bond-financed property by any person other
than a state or local government unit, including as a result of (i) ownership, (ii) actual or
beneficial use pursuant to a lease or a management, service, incentive payment, research or
output contract or (iii) any other similar arrangement, agreement or understanding, whether
written or oral, except for use of Bond-fi n ace d property on the same basis as the general public.
Private Business Use includes any formal or informal arrangement with any person other than a
state or local governmental unit that conveys special legal entitlements to any portion of
Bond-financed property that is available for use by the general public or that conveys to any
person other than a state or local governmental unit any special economic benefit with respect to
any portion of the Bond-financed property that is not available for use by the general public. Use
by a natural person not engaged in any trade or business is not private use. Any use by the
federal government or by a corporation is Private Business Use.
Examples of common uses of Bond-financed property that may create Private Business
Use include the following:
• Management contracts with private companies or individuals to manage all or a
portion of a Bond-financed facility (e.g., a contract with a private company to
manage a Bond-financed cafeteria, convention center, recreation center, etc.)
• A lease of space in a Bond-financed facility to a non-governmental person (e.g., a
lease of space in a Bond-financed municipal building to Star bucks or McDonalds)
• Rental arrangements whereby individuals, non-profit organizations or private
businesses rent space in a Bond-financed facility
There are certain exceptions to Private Business Use. For example, a "qualified
management contract" following certain guidelines set forth in Revenue Procedure 97-13 does
not create Private Business Use. In addition, under appropriate circumstances, short-term rentals
and other uses of up to 50 days (or in some cases 100 days or 200 days) are permitted.
Arbitrage & Arbitrage Rebate
Arbitrage generally is the earnings that an issuer will earn when it invests proceeds of the
Bonds in investments with a yield above the yield on the Bonds. Generally, an issuer is required
to make payments of any arbitrage it earns as a result of the investment of the proceeds of the
Bonds above the yield on the Bonds t o t he IRS, which is known as "arbitrage rebate." There are
certain exceptions tote requirement to make arbitrage rebate payments to the IRS (e.g., small
issuer exceptions, spending exceptions, bona fide debt service fund exceptions).
C-1
Yield Restriction and Yield-Rcduction Paymetit
Yield restriction is the requirement that an issuer not invest Gross Proceeds (defined
below) of the Bonds at a yield higher than Bond yield. Generally, in a capital project financing,
an issuer will have a 3-year"temporary period" during which it can invest proceeds of the Bonds
in its project fund above the yield on the Bonds. After such time, moneys are yield restricted and
cannot be invested above the yield on the Bonds (plus a de minimis percentage). Additionally,
after the expiration of the temporary period, proceeds generally cannot be invested in federally
guaranteed investments (including FDIC-insured accounts), other than certain de minimis
amounts. If an issuer invests amount above the yield on the Bonds after the expiration of a
temporary period, it may still be able to achieve yield compliance by making a yield reduction
payment to the IRS, which is a rebate payment or any other amount paid to the United States in
the same manner as rebate amounts are required to be paid or at such other time or i n s uch
manner as IRS may prescribe that will be treated as a reduction in Yield of an investment under
the Regulations. Yield reduction payments may only be made in limited circumstances, and do
not work for all investments above Bond yield.
Gross Proceeds
"Gross Proceeds" generally means (i) sale proceeds of the Bonds and investment
earnings thereon and (ii) amounts reasonably expected to be used directly or indirectly to pay
principal or interest on the Bonds. In addition, a pledged fund may also constitute gross
proceeds. A pledge is any amount that is directly or indirectly pledged to pay the principal of or
interest on the bonds. A pledge byte issuer must provide reasonable assurance that such
moneys will be available to pay the debt service on the bonds even if the issuer has fi nancial
difficulties. Gross proceeds may also arise if Bonds are outstanding longer than reasonably
necessary for their goverm-nental purpose. Typically, Gross Proceeds will be contained in a
project fund, escrow fund (if the on issue is a refunding issue), costs of issuance fund, bond
fund and debt service reserve fund (if applicable).
If moneys or investments are pledged or otherwise set aside for payment of principal of or
interest on the Bonds, any amounts are derived from the sale of any right that is part of the terms
of a Bond or is otherwise associated with a Bond (e.g., a redemption right), or the Issuer enters
into any agreement to maintain certain levels oft es of assets forte benefit of a holder of a
bond or any credit enhancement with respect tote Bonds, such amounts may also constitute
Gross Proceeds. Further, if any Bond-financed property is sold or otherwise disposed of any
amounts received from such sale or other disposition may also constitute Gross Proceeds.
Remediation
The Code prescribes three self-help mechanisms that an issuer may use to re mediate
non-qualified Bonds as a result of violation of Private Business Use covenants. These include
redemption or defeasance of non-qualified bonds, alternative use of a facility(e.g., if a 501(c)( )
organization leases a Bond-financed municipal facility) or alternative use of disposition proceeds
(e.g., if Bond-financed property is sold, the proceeds of the sale are used for other governmental
purposes that would have qualified f o r tax-exempt financing). Prior t o t aking such remedial
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actions, the issuer must satisfy certain pre-conditions. In addition, remedial actions are only able
to be taken within a specified time frame before or after the action causing Private Business Use.
Voluntary Closing Agreement Prograin
Through the Voluntary Closing Agreement Program (VC AP), issuers of Bonds can
voluntarily resolve violations of the Code and applicable Regulations (through closing
agreements with the IRS). VCAP can be used when a remedial action (described under
"Remediation") is unavailable or there is another violation of the Code or Regulations that
cannot be fixed through self-help mechanisms. The incentive fora issuer to go to VCAP is that,
generally, a settlement in VCAP will be more favorable tote issuer than if the violation were
discovered in an examination.
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