Administration - Joe Huss, Finance Director/Asst. City Manager
Title
Title
Declaring the Official Intent of the City of Blaine, Minnesota, to Reimburse Certain Capital Expenditures of a Project from the Proceeds of Tax-Exempt Bonds
Executive Summary
The reclassification of the Northern Long-eared Bat species from threatened to endangered has resulted in federal rules changes regarding the disruption of the bat’s roosting habitat. The new rule prohibits the removal of trees during the bat’s roosting season, generally from April 1 to November 1 each year. As tree removal costs are typically funded through the proceeds from the issuance of general obligation debt, the city is required to adopt a resolution indicating its intent to reimburse itself for costs incurred prior to the receipt of bond proceeds.
Background
Where previously tree removal required for street reconstruction projects was included in project construction contracts and performed during the construction season, the new regulations require this work to be done between November 1 and April 1, before the approval of construction contracts. As part of overall project costs, funding for tree removal is through the issuance of general obligation bonds. Pursuant to IRS and U.S. Treasury regulations, for municipalities to pay for capital improvement costs that are incurred before the issuance of bonds used to fund those capital improvements, a municipality must first declare this as its intent.
The City intends to issue general obligation bonds in 2023 to fund road and utilities improvements. The resolution below, prepared with the assistance of the City’s bond counsel, Kennedy & Graven, declares the City’s intent to reimburse tree removal costs incurred before the debt is issued with proceeds from the 2023 issue.
Strategic Plan Relationship
A proper transportation program includes regular maintenance and periodic reconstruction of city roads. This is consistent with the city’s strategic initiative of a well-maintained infrastructure. The resolution below allows for the funding of these improvements to come from the issuance of general obligation bonds.
Board/Commission Review
None required.
Financial Impact
The city will be required to pledge the full faith and credit of the city’s taxing powers to fund the repayment of the debt. This specific resolution is neutral as to the financial impact as it does not increase that obligation.
Public Outreach/Input
None required.
Staff Recommendation
Council is asked to adopt the resolution below that allows the city to reimburse the costs incurred for 2023 improvement projects with bond proceeds.
Attachment List
No attachments
Body
WHEREAS, the Internal Revenue Service has issued Treasury Regulations, Section 1.150-2 (the “Reimbursement Regulations”) under the Internal Revenue Code of 1986, as amended (the “Code”), providing that proceeds of tax-exempt bonds used to reimburse prior capital expenditures will not be deemed spent unless certain requirements are met; and
WHEREAS, the City of Blaine, Minnesota, a municipal corporation and a political subdivision of the State of Minnesota (the “City”), expects to incur certain expenditures that may be financed temporarily from sources other than tax-exempt bonds, and later reimbursed from the proceeds of tax-exempt bonds; and
WHEREAS, the City has determined to make a declaration of its official intent (the “Declaration”) to reimburse certain capital costs from the proceeds derived from the sale of tax-exempt bonds issued by the City or another political subdivision in accordance with the Reimbursement Regulations.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF BLAINE, MINNESOTA AS FOLLOWS:
1. The City may incur certain capital expenditures in connection with road improvements and improvements to the City’s water, sanitary sewer, and storm sewer utility systems.
2. The City reasonably expects to reimburse the expenditures made for certain costs of the Project from the proceeds of tax-exempt bonds in a principal amount currently estimated not to exceed $15,000,000. All reimbursed expenditures related to the Project will be capital expenditures, costs of issuance of the tax-exempt bonds or other expenditures eligible for reimbursement under Section 1.150-2(d)(3) of the Reimbursement Regulations.
3. This Declaration has been made not later than 60 days after payment of any original expenditure to be subject to a reimbursement allocation with respect to the proceeds of tax-exempt bonds, except for the following expenditures: (a) costs of issuance of tax-exempt bonds; (b) costs in an amount not in excess of the lesser of $100,000 or 5% of the proceeds of the tax-exempt bonds; or (c) “preliminary expenditures” up to an amount not in excess of 20% of the aggregate issue price of the tax-exempt bonds that are reasonably expected by the City to finance the Project. The term “preliminary expenditures” includes architectural, engineering, surveying, soil testing, bond issuance and similar costs that are incurred prior to commencement of acquisition, construction, or rehabilitation of the Project, excluding land acquisition, site preparation, and similar costs incident to commencement of construction.
4. A reimbursement allocation with respect to tax-exempt bonds will be made not later than 18 months after the later of: (i) the date the original expenditure is paid; or (ii) the date the Project is placed in service or abandoned, but in no event more than 3 years after the original expenditure.
5. This Declaration is an expression of the reasonable expectations of the City based on the facts and circumstances known to the City as of the date hereof. The anticipated original expenditures for the Project and the principal amount of the tax-exempt bonds described in paragraph 2 are consistent with the City’s budgetary and financial circumstances. No sources other than proceeds of tax-exempt bonds are reasonably expected to be reserved, allocated on a long-term basis, or otherwise set aside pursuant to the City’s budget or financial policies to pay such expenditures for which bonds are issued.
6. The action is intended to constitute a declaration of official intent for purposes of the Reimbursement Regulations.
PASSED by the City Council of the City of Blaine this 20th day of March, 2023.