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R-95-12-21-11B - 12/21/1995WHEREAS, the City of Round Rock desires to retain arbitrage rebate compliance services in order to meet the requirements of the Internal Revenue Code, and WHEREAS, First Southwest Company has submitted a proposal to provide said arbitrage rebate compliance services, and WHEREAS, the City Council desires to accept said proposal from First Southwest Company, Now Therefore BE IT RESOLVED BY THE COUNCIL OF THE CITY OF ROUND ROCK, TEXAS, That the Mayor is hereby authorized and directed to execute on behalf of the City an agreement with First Southwest Company, for arbitrage rebate compliance services in order to meet the requirements of the Internal Revenue Code. RESOLVED this 21st day of December, 1995. ATTEST: C d., , / / i AJ • 1 E LAND, City Secretary C:\ NPDOCS \RDSOLUTI \RS51Si1D.NpD /a1s RESOLUTION NO. R- 95- 12- 21 -11B I 7 CHARLES C ULp City of Roun A PER, Mayor Rock, Texas PROPOSAL AND AGREEMENT FOR ARBITRAGE REBATE COMPLIANCE SERVICES BY AND BETWEEN CITY OF ROUND ROCK, TEXAS (Hereinafter Referred to as the "Issuer ") AND FIRST SOUTHWEST COMPANY It is understood and agreed that the Issuer, in connection with the sale and delivery of certain bonds, notes, certificates, or other tax- exempt obligations (the "Bonds "), will have the need to determine to what extent, if any, it will be required to rebate investment earnings of the proceeds of the Bonds to the United States of America (hereinafter referred to as "Rebatable Arbitrage ") pursuant to the provisions of Section 148(0(2) of the Internal Revenue Code of 1986 (the "Code "). We have been requested to provide professional services to the Issuer as such services may be necessary to effect this determination and we are pleased to submit the following proposal for consideration. This proposal, if accepted by the Issuer, shall become the agreement (the "Agreement ") between the Issuer and First Southwest Company effective at the date of its acceptance as provided for herein below. 1. This Agreement shall apply to all issues of tax- exempt bonds delivered subsequent to the effective date of the rebate requirements, to the extent that any particular issue does not qualify for exceptions to the rebate requirements in accordance with Section 148 of the Internal Revenue Code and related Treasury regulations. Provisions of First Southwest Company 2. We agree to provide our professional services and our facilities in the creation and maintenance of records useful to or necessary in the determination of Rebatable Arbitrage with regard to the Bonds. The Issuer will assume and pay the fee of First Southwest Company as such fee is set out in Appendix A attached hereto. First Southwest Company shall not be responsible for any extraordinary expenses incurred in connection with providing such professional services, including any costs incident to litigation, mandamus action, test case or other similar legal actions; unless First Southwest Company is a party to such litigation and a claim is asserted against First Southwest Company for work performed under this Agreement. 1 3. We agree to perform the following duties in connection with providing arbitrage investment rebate services: Provisions of Issuer a. To cooperate fully with the Issuer in reviewing the schedule of investments made by the Issuer with (i) proceeds from the Bonds, and (ii) proceeds of other funds of the Issuer which, under Treasury Regulations Section 1.148 or any successor regulations thereto, are subject to the rebate requirements of the Code; b. To perform, or cause to be performed, calculations no less frequently than once a year, consistent with the Code and the regulations promulgated thereunder, regarding the amounts of Rebatable Arbitrage from the investment of funds subject to the requirements of Section 148(f)(2) of the Code; c. To provide a report to the Issuer specifying the amount of Rebatable Arbitrage based upon the investment schedule, the calculations of bond yield and investment yield, and other information deemed relevant by First Southwest Company. 4. In connection with the performance of the aforesaid duties, the Issuer agrees to the following: a. That First Southwest Company will be compensated for the performance of services with respect to calculating and advising the Issuer of the amount of Rebatable Arbitrage in accordance with the schedule set forth in Appendix A attached hereto. b. That the Issuer will provide First Southwest Company, and First Southwest Company shall be entitled to rely upon, all information regarding the issuance of the Bonds and the investment of the proceeds therefrom, and any other information necessary in connection with calculating the amount of Rebatable Arbitrage. In particular, the Issuer shall furnish to First Southwest Company the information set forth in Appendix B attached hereto. c. That the Issuer will inform First Southwest Company of the retirement, prior to the scheduled maturity, of any Bonds included under the scope of this Agreement within 30 days of such retirement. This notification is required to provide sufficient time to comply with Section 1.148 -3(g) of the arbitrage 2 regulations which requires final payment of any Rebatable Arbitrage within 60 days of the final retirement of the Bonds. 5. In providing the services set forth in this Agreement, it is agreed that First Southwest Company shall not incur any liability for any error of judgment made in good faith by a responsible officer or officers thereof, unless it shall be proved that such error of judgment was a result of the gross negligence or willful misconduct of said officer or officers. First Southwest Company shall only be liable for penalty and interest resulting from such error of judgment. 6. The fee and expenses due to First Southwest Company in providing arbitrage investment rebate services shall be calculated in accordance with Appendix A attached hereto. The fees will be payable annually upon delivery of the report prepared by First Southwest Company for each issue of bonds during the term of the Agreement unless terminated earlier. Bonds Issued Subsequent to Initial Contract 7. The services contracted for under this Agreement will automatically extend to any additional financing bonds (including financing lease obligations) issued during the stated term of this Agreement, if such bonds are subject to the rebate requirements under Section 148(f)(2) of the Code. In connection with extending the scope of this Agreement to additional financing bonds, the Issuer agrees to the following: a. The Issuer will notify First Southwest Company of any tax- exempt financing (including financing lease obligations) issued by the Issuer during any calendar year of this Agreement, and will provide First Southwest Company with such information regarding such other bonds as First Southwest Company deems necessary in connection with its performance of the arbitrage rebate services contracted for hereunder. b. At the option of the Issuer, any additional financing bonds issued subsequent to the execution of this Agreement may be excluded from the services provided for herein. The Issuer must notify First Southwest Company in writing of their intent to exclude any specific financing bonds from the scope of this Agreement. Election to Pay Penalty in Lieu of Rebate 8. The services contracted for under this Agreement will automatically extend to any additional financings during the stated term of this Agreement, if an election was made (prior to delivery of the Bonds) to pay penalty in lieu of rebate for a qualified 3 construction bond issue under Section 148(f)(2) of the Code. In connection with extending the scope of this Agreement to include computations of penalty, the Issuer agrees to the following: a. The Issuer will notify First Southwest Company of any financing bonds issued by the Issuer during any calendar year of this Agreement for which a penalty election was made. The Issuer will provide First Southwest Company with such information regarding the investment and expenditure of such bonds as First Southwest Company deems necessary in connection with its performance of the penalty calculation services contracted for hereunder. b. At the option of the Issuer, any additional financing subsequent to the execution of this Agreement may be excluded from the services provided for herein. The Issuer must notify First Southwest Company in writing of their intent to exclude any specific financing bonds from the scope of this Agreement. Effective Dates of Agreement 9. This Agreement shall become effective at the date of acceptance by the Issuer as set out herein below and remain in effect thereafter for a period of five (5) years from the date of acceptance, provided, however, that this Agreement may be terminated with or without cause by the Issuer or First Southwest Company upon thirty (30) days' written notice. In the event of such termination, it is understood and agreed that only the amounts due to First Southwest Company for services provided and expenses incurred to and including the date of termination will be due and payable. No penalty will be assessed for termination of this Agreement. In the event this Agreement is terminated prior to its stated term, all records provided to First Southwest Company with respect to the investment of monies by the Issuer shall be returned to the Issuer as soon as practicable. In addition, the parties hereto agree that upon termination of this Agreement First Southwest Company shall have no continuing obligation to the Issuer regarding any service contemplated herein. 4 - Acceptance of Agreement 10. This Agreement is submitted in duplicate originals. When accepted by the Issuer, it, together with Appendices A and B attached hereto, will constitute the entire Agreement between the Issuer and First Southwest Company for the purposes and the consideration herein specified. Acceptance will be indicated on both copies and the return of one executed copy to First Southwest Company. Respectfully submitted, FIRST SOUTHWEST COMPANY orized Representative Date 5 PLEASE CHOOSE AND EXECUTE THE APPROPRIATE OPTION Acceptance Not Requiring Board Approval: The above and foregoing is hereby in all things accepted and approved by the on this the day of (Issuer's Name) , 19 . Acceptance Requiring Board Approval: C r r of ,t ii1 J' ieoc ACCEPTANCE CLAUSE By Authorized Representative The above and foregoing is hereby in all things accepted and approved by the , on this the o9/ day of D ECE �� ""'' (Issuer's Name) n,BE,C- 19 95 , pursuant to the provisions of Resolution No. , passed and approved by the Members of the C'/ e0CIAJC /L on a DEGE/7786i' .21 , 19 95. B e # e s eL E e I1'f1yo.€ Ciry OF ROLIAJD £oc,e Title 6 Description Fees Base Fee $1,800 Additional Charges for: Debt Service Reserve Funds 8500 Commingled Funds 500 Transferred Proceeds 500 Debt Service Fund Residual Calculations (Excess Tax Collections) 500 Premium for Quick Turnaround (Under 3 weeks from date data is received) 500 Variable/Floating Rate Bond Issue 1,000 Penalty Calculations: Semiannual fee for each issue of Bonds, regardless of issue size. 1,000 APPENDIX A FEES The Bonds to be initially covered under this contract include all issues of tax- exempt bonds delivered subsequent to the effective dates of the rebate requirements, to the extent that any particular issue does not qualify for exceptions to the rebate requirements in accordance with Section 148 of the Internal Revenue Code and related Treasury regulations. The fee for all bonds included in this contract shall be: The fee for any Bonds under this contract shall only be payable if a computation is required under Section 148(f)(2) of the Internal Revenue Code of 1986, as amended. In the event that any of the Bonds, comply with an exclusion to the computation requirement as defined by Section 148 of the Internal Revenue Code or related regulations and no calculations were required by First Southwest Company to make that determination, the specified fee will be waived by First Southwest Company. For example, certain bonds are excluded from the rebate computation requirement if the proceeds are spent within specific time periods. In the event one of the above - captioned Bonds fulfill the exclusion 7 requirements of the Internal Revenue Code or related regulations, the specified fee will be waived by First Southwest Company if no calculations were required to make the determination. Recognizing that computational complexities are reduced when all or the majority of the gross proceeds of an issue are expended, it is First Southwest Company's policy to reduce fees to the following levels, as appropriate: Per issue fees will be reduced to the following: • Proceeds expended. Liability updated but no report issued. $200 • Proceeds expended. Liability updated and report issued. 500 • Reserve Fund only 1,000 • Rebate Fund only 500 • Preparation of IRS reporting package 500 The above fees are payable annually upon delivery of the report prepared by First Southwest Company, commencing one year after the date of delivery of the Bonds and on each computation date thereafter during the term of the Agreement, unless terminated earlier. The fees for computations of Rebatable Arbitrage which encompass more, or less, than one full year of investment data performed during the same computation period shall be prorated to reflect the longer, or shorter, period of work performed during that period. 8 APPENDIX B INFORMATION REQUIRED TO PERFORM REBATE COMPUTATIONS The following information must be provided for each bond issue requiring an arbitrage rebate calculation. Most of this information can be accumulated at the time the bonds are issued and sent to First Southwest Company as part of the delivery of the bonds. We recommend that information related to investment activity be forwarded on a periodic basis. This will allow First Southwest Company to enter and review the investment detail in advance of the computation date required under federal law. In this manner, the time required to complete the computation and issue the related report can be reduced For each bond issue, please obtain the following information to be sent to First Southwest Company: Copy of Official Statement for the issue. If no Official Statement is prepared on the issue, a copy of the bond resolution, indenture, ordinance or similar official transcript describing the issue will be needed. Copy of Winning Bid Form and Underwriter's Certificate as to Yields. This information is only required when the bond issue was sold on a competitive basis. If the sale was negotiated, the Final Official Statement normally provides the information required to properly compute the arbitrage yield. If the issue was sold competitively, the winning bid form and underwriter's certificate are needed to obtain information regarding the interest rates and initial offering yields to the public. Copy of Form 8038 (Informational Tax Form). This form is normally prepared by bond counsel as part of the closing documents. A copy of this form must accompany any rebate payments filed with the Internal Revenue Service. Description of Funds created for the bond issue. To ensure that we have properly addressed the distribution of all funds and the related arbitrage requirements, it is useful for us to obtain a description of the various funds created by the bond issue. In the official documents supporting the issuance of the bonds (e.g., Official Statement), there is normally a narrative section outlining the funds for which bond proceeds and other monies may be deposited. Copy of "No- Arbitrage Certificate." This certificate, although frequently called by another name, describes the federal tax law requirements the Issuer must follow to comply with various arbitrage laws. This document permits us to evaluate the specific tax compliance requirements established by Bond Counsel at the time the bonds were issued. 9 Investment transaction information. The computation of the rebate amount for excess investment earnings requires very detailed investment records. In order for us to compute the rebate amount, it is necessary that you forward investment information which includes the following data: • Source of funds for purchasing the investment (e.g. Construction Fund, Reserve Fund, Debt Service Fund), • Description of security purchased, • Date purchased, • Maturity date, • Maturity value of security (par value/face value), • • Coupon rate (Interest rate) and frequency of interest receipts, • • • Purchase price of security showing both the cost of principal as well as any accrued interest paid, Yield to maturity (required for discount securities), Sale date, if sold prior to maturity, Sales price of both principal and interest, if sold prior to maturity. The best documentation available for the information listed above are copies of the actual trade confirmations provided when the security is purchased or sold. The trade confirmation should contain all of the information we will require and should be the only documentation you would have to provide us. If trade confirmations are not available, or are too cumbersome to accumulate, your internal investment records would be sufficient for our purposes as long as the information described above can be obtained from your records. Bank Statements for Interest Bearing Checking Account. In many situations, an interest bearing checking account is used to hold maturing investments and miscellaneous fund balances until the proceeds are either reinvested or used on a specific project. The rebate computation requires that all funds related to a bond issue be tracked. It will be necessary therefore, for us to obtain the monthly bank statements related to any interest- bearing checking account in which bond proceeds or related funds were deposited. If you have questions as to what would be the best source of information in your situation, please do not hesitate to contact us. 10 DATE: December 19, 1995 SUBJECT: City Council Meeting, December 21, 1995 ITEM: 11. B. Consider a resolution authorizing the Mayor to enter into an agreement with First Southwest Company for Federal Arbitrage Rebate Calculation Services. STAFF RESOURCE PERSON: David Kautz This resolution renews the agreement between the City and First Southwest Company for the Federal Arbitrage Regulations required rebate calculation. The calculation is required for tax - exempt bond issues in order to determine whether investment earnings have exceeded levels allowed by law, thus becoming subject to rebate to the federal government. The five year agreement provides expert assistance to the City in complying with the federal arbitrage regulations. In addition to performing the calculations for applicable City bond issues, First Southwest also provides expert assistance in developing strategies for incurring the minimal arbitrage liability. The base fee for this service is $1,800 per bond issue per year. Currently, six bond issues require the calculation. Mayor Charles Culpepper Mayor Pro-tem Earl Palmer Council Members Robert Stluka Rod Morgan Reck Stewart Martha Chavez Jimmy Joseph City Manager Robert L Bennett, Jr City Attorney Stephan L Sheets February 29,1996 Ms. Randee Wilson First Southwest Company 1700 Pacific Avenue, Suite 500 Dallas, TX 75201 Dear Ms. Wilson: Resolution No. R- 95- 12- 21 -11B was approved by the Round Rock City Council on December 21, 1995. Enclosed is a copy of the resolution and agreement for your files. If you have any questions, please do not hesitate to call. cerely, Wal 'Joanne Land Assistant City Manager/ City Secretary Enclosure(s) THE CITY OF ROUND ROCK kifflob 221 East Main Street Round Rock, Texas 78664 512. 255.3612 Fax 512- 255 -6676 1- 800 - 735 -2989 (TDD) 1- 800- 735 -2988 (Voice)