DATE: April 6, 2015
TO: Board of Mayor and Aldermen
FROM: Eric Stuckey, City Administrator
SUBJECT:
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Consideration Of Resolution 2015-01, A Resolution Declaring The Intent Of The City Of Franklin To Reimburse Itself For Certain Expenditures Relating To Public Works Projects With The Proceeds Of Bonds Or Other Debt Obligations To Be Issued By The City Of Franklin, Tennessee In An Approximate Amount Of $15,000,000. (04/09/15 Budget & Finance 3-0)
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Purpose
The purpose of this resolution is to provide the opportunity to delay issuing bonds until the CIP projects are underway and expenditures have begun.
Background
The Internal Revenue Service has certain requirements about the timing of expenditures made from tax exempt bond issues. To avoid complications from arbitrage (investing tax exempt bond proceeds at taxable rates), cities must either borrow in advance of a construction project or meet one of three exceptions. The most lenient exception provides that funds be spent on a progressive schedule and must be completely expended within two years.
The City of Franklin staff believes that is advantageous to issue bonds after a project has begun and, in some cases, long after the project has begun. This allows the City the flexibility of selecting the time in which bond issues are taken to market, and the opportunity to select the size of the issue to minimize the cost of issuance.
The best way to accomplish City borrowing goals and the IRS requirements is to adopt a resolution stating that the City wishes to reimburse itself from future bond proceeds for expenditures that occur prior to issuance of the bonds. The proposed resolution satisfies the requirements of the Internal Revenue Service.
Financial Implications
There is no change in the proposed financing of the CIP projects. This resolution only allows the City the opportunity to reimburse itself from bond proceeds if and when the bonds are issued.
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