Loading...
4. Arbitrage Certificate$2,000,000 Tax Increment Urban Renewal Revenue Bonds Consisting of $1,445,000 Series 2005A Bonds (Non-AMT) and $555,000 Series 2005B Bonds (AMT) City of Kalispell, Montana ARBITRAGE CERTIFICATE This Arbitrage Certificate (this "Certificate") is given for the purpose of establishing and maintaining the tax-exempt status of interest on the $2,000,000 Tax Increment Urban Renewal Revenue Bonds, consisting of $1,445,000 Series 2005A Bonds (Non-AMT) and $555,000 Series 2005B Bonds (AMT) (the "Series 2005 Bonds"), of the City, dated, as originally issued, as of September 15, 2005, of the City of Kalispell, Montana (the "City"). The representations and covenants of the City herein are for the benefit of the registered holders from time to time of the Series 2005 Bonds. We further understand that Dorsey & Whitney LLP will rely on the representations and covenants contained herein in giving its opinion as to the validity of, and the tax exemption of interest on, the Series 2005 Bonds. I. General. 1.1. The Series 2005 Bonds are issued pursuant to Resolution No. 5051, adopted by the City Council of the City on September 6, 2005 (the "Resolution"). Terms used with initial capital letters but undefined herein shall have the meanings given them in the Resolution, the Internal Revenue Code of 1986, as amended (the "Code"), or in the Regulations (as hereinafter defined), unless the context hereof clearly requires otherwise. The Series 2005 Bonds are special, limited obligations of the City, payable only from Tax Increment, and in certain circumstances from supplemental or replacement revenues. This Certificate is intended to be, and may be relied upon as, among other things, a certification described in Treasury Regulations, Section 1.148-2(b) and Section 148 of the Code, and is delivered as a part of the transcript of proceedings relating to the Series 2005 Bonds. We are among those officers of the City responsible for issuance of the Series 2005 Bonds. 1.2. We have investigated the facts, estimates and circumstances surrounding the issuance of the Series 2005 Bonds, which are described summarily in this Certificate. To the best of our knowledge and belief, such facts, estimates and circumstances are correct and complete and the City's expectations as to future events, which are based thereon, are in all respects reasonable and made in good faith. To the extent that the expectations of the City are based upon estimates and representations made by others, including the Original Purchaser (as hereinafter defined), we have examined such estimates and representations and consider them to be reasonable and correct. Any statements in this Certificate involving future events, whether or not expressly so stated, are intended as expectations of the City and not as representations of fact. On the basis of such facts, estimates and circumstances, it is expected that the proceeds of the Series 2005 Bonds will be used in a manner that would not cause the Series 2005 Bonds to be considered "arbitrage bonds" within the meaning of Section 148 of the Code. 1.3. In addition to the terms otherwise defined in or pursuant to paragraph 1.1 hereof, the following terms have the following meanings when used in this Certificate: Bond Account shall mean the Bond Account created in the Tax Increment Debt Service Fund of the City pursuant to the Resolution. Bond Counsel shall mean nationally recognized municipal bond counsel selected by the City. Bond Year shall mean each one-year period (or shorter period from the Closing Date) that ends at the close of business on each July 15 or, if the last outstanding Series 2005 Bond is not finally paid on a July 15, such shorter period from the last preceding July 16 to the date on which the last Series 2005 Bond is paid. Closing Date shall mean September 15, 2005, the date of issuance and delivery of the Series 2005 Bonds. Construction Account shall mean the Construction Account created in the Tax Increment Fund of the City pursuant to the Resolution. Interest Account shall mean the subaccount in the Bond Account so designated and created pursuant to the Resolution. 2005 Project shall mean the construction of a significant portion of the City of Kalispell Airport/Athletic Complex Redevelopment Plan, as further described in the Resolution. Non-AMT Obligation means any obligation the interest on which is not includable in gross income under Section 103 of the Code and which is not a "specified private activity bond" (within the meaning of Section 57(a)(5)(C) of the Code). NonpgMose Investment shall mean any Investment Property that is not a purpose investment in which Gross Proceeds of the Series 2005 Bonds are invested. Original Purchaser shall mean D.A. Davidson & Co., of Great Falls, Montana. Regulations shall mean the Treasury Regulations applicable to the Series 2005 Bonds and promulgated under the Code, including, without limitation, Treasury Regulations, Sections 1.148-0 through 1.148-11, and Sections 1.149(b)-1, 1.149(d)-1, 1.149(g)-1, 1.150-1 and 1.150-2. Reserve Account shall mean the Reserve Account created in the Tax Increment Debt Service Fund of the City pursuant to the Resolution. Reserve Requirement shall mean, as of the date of calculation, an amount equal to the lesser of (1) the maximum Principal and Interest Requirements on Outstanding Bonds for the then current or any future calendar year, or (2) ten percent (10%) of the aggregate principal amount of all series of Bonds then Outstanding. 2 Series 2005 Bonds shall mean the City's $1,445,000 Tax Increment Urban Renewal Revenue Bonds, Series 2005A (Non-AMT) and the $555,000 Tax Increment Urban Renewal Revenue Bonds, Series 2005B (AMT), issued in the combined original principal amount of $2,000,000. Yield, with reference to any obligation, means that discount rate which, when computing the present value of all unconditionally payable payments of principal and interest paid and to be paid on such obligation and taking into account payments made for qualified guarantees, produces an amount equal to the present value of the issue price of the obligation. Yield of the Series 2005 Bonds shall mean 4.16242% per annum. II. The Purposes of the Series 2005 Bonds. 2.1. The Series 2005 Bonds are issued pursuant to the Resolution for the purposes of providing funds to be used, with other available funds of the City, (i) to pay a portion of the costs of the 2005 Project, (ii) to fund a deposit to the Reserve Account, and (iii) to pay costs associated with the issuance of the Series 2005 Bonds. 2.2. The Series 2005 Bonds are not hedge bonds (as defined in Section 149(g) of the Code) since at least 85% of the spendable proceeds are to be used to pay costs of the 2005 Project within three years after the date hereof and less than 50% of the proceeds are to be invested in nonpurpose investments having a substantially guaranteed yield for four years or more. III. Sources and Disbursements of Funds. 3.1. The City will receive $1,968,693.75 of proceeds from the sale of the Series 2005 Bonds to the Original Purchaser, reflecting an Underwriter's Discount of $31,306.25. This amount represents payment for the principal of the Series 2005 Bonds, no interest having accrued on the Series 2005 Bonds to the date hereof. The Original Purchaser has represented that it is purchasing the Series 2005 Bonds for investment purposes without intent to sell or otherwise distribute the Series 2005 Bonds to any other Person. 3.2. The proceeds of the Series 2005 Bonds will be applied as follows: (i) $1,783,818.75 are to be deposited in the Construction Account to pay costs of the 2005 Project and costs of issuance of the Series 2005 Bonds; and (ii) $184,875.00 are to be deposited in the Reserve Account. 3.3. The administrative costs of issuing the Series 2005 Bonds are estimated to be approximately $35,700. Such costs shall be paid from proceeds of the Series 2005 Bonds, as described in paragraph 3.2 hereof. IV. Yield of the Series 2005 Bonds. 4.1. No other obligations of the City are: (a) being sold at substantially the same time as the Series 2005 Bonds, (b) being sold pursuant to the same plan of financing as the Series 2005 3 Bonds, and (c) paid out of substantially the same source of funds (or which will have substantially the same claim to be paid out of substantially the same source of funds) as will be used to pay the Series 2005 Bonds, within the meaning of Section 1.150-1(c) of the Regulations. 4.2. The Yield of the Series 2005 Bonds, computed in accordance with Section 148 of the Code and applicable Regulations, is 4.16242% per annum V. Temporary Investments. 5.1. Except as described in paragraphs 5.2 and 5.3 hereof, none of the proceeds of the Series 2005 Bonds or funds of the City deposited as described in Section III hereof will be invested at a materially higher yield for a temporary period. 5.2. Proceeds of the Series 2005 Bonds deposited in the Construction Account are to be used to pay costs of the 2005 Project and costs of issuance of the Series 2005 Bonds, and will be invested for a temporary period not in excess of three years from the date hereof pursuant to Section 1.148-2(e)(2) of the Regulations. The estimated total cost of the 2005 Project, including administration, construction management, contingencies and interest during construction, is $2,254,000.00. Costs in excess of the Project will be paid from available City funds. Interest earned on the proceeds of the Series 2005 Bonds in the Construction Account pending disbursement will be applied to the payment of interest on the Series 2005 Bonds. (a) The City has incurred or will incur within six months after the date hereof substantial binding obligations to undertake the 2005 Project (in the form of binding contracts or commitments) in an aggregate amount not less than five percent of the net sale proceeds of the Series 2005 Bonds (i.e., $100,000). (b) Work on the 2005 Project and the expenditure of the proceeds of the Series 2005 Bonds and investment income from the Construction Account for costs thereof will proceed with due diligence to completion, which is expected to occur by June 15, 2007, a date which is less than three years from the date of this Certificate. (c) All proceeds of the Series 2005 Bonds deposited in the Construction Account and income therefrom will be expended for costs of the 2005 Project by June 15, 2007, a date less than three years from the date hereof. Any proceeds of the Construction Portion unexpended at the end of the temporary period (i.e., June 15, 2007) will be invested at a Yield less than or equal to the Yield of the Series 2005 Bonds, except as permitted in Section VII hereof or unless the City elects to make yield reduction payments as permitted by Section 1.148-5(c) of the Regulations. VI. Bond Account and Reserve Account. 6.1. Pursuant to the Resolution, the principal of and interest on the Series 2005 Bonds and other Bonds are to be paid from the Bond Account. The City does not reasonably expect to 9 use any other fund or account to pay principal of or interest on the Series 2005 Bonds. The Tax Increment pledged and appropriated by the Resolution to the Bond Account is expected to produce amounts sufficient to pay all principal of and interest on the Series 2005 Bonds, the Outstanding Series 2000 and 2001 Bonds and any Additional Bonds payable therefrom (collectively, the "Bonds") when due. It is expected that amounts in the Bond Account to be used to pay the principal of and interest on the Series 2005 Bonds will be fully expended on each July 15 (except for an amount not exceeding one -twelfth of the debt service on the Series 2005 Bonds payable in the immediately Bond Year). The amounts on hand in the Bond Account from time to time to pay principal of and interest on the Series 2005 Bonds are expected to be expended within twelve months after receipt. Therefore, amounts on deposit in the Bond Account allocable to the Series 2005 Bonds are expected to qualify as a "bona fide debt service fund" within the meaning of Section 1.148-1(b) of the Regulations. As such, the money therein allocable to the Series 2005 Bonds will be eligible for investment at an unrestricted yield for a temporary period of up to 13 months, except as provided in paragraph 6.2 hereof. 6.2. If the amount on deposit in the Bond Account allocable to the Series 2005 Bonds ever exceeds the sum of the amount of principal and interest payable from the Bond Account on the Series 2005 Bonds in the current Bond Year plus one -twelfth of the debt service payable on the Series 2005 Bonds in the immediately preceding Bond Year, then, to the extent necessary to prevent the Series 2005 Bonds from becoming arbitrage bonds, the excess over such sum will either be (a) used to redeem Series 2005 Bonds, or (b) invested at a Yield less than or equal to the Yield of the Series 2005 Bonds, except as permitted in Section VII hereof. 6.3. Pursuant to the Resolution, the City has established the Reserve Account to secure Outstanding Bonds, including the Series 2005 Bonds. The amount on deposit therein, after the deposit described in paragraph 3.2 hereof, is $184,875.00, which secures the Series 2005 Bonds. The amounts on deposit in the Reserve Account are not expected to exceed the Reserve Requirement. Unless the Regulations otherwise provide, the City will allocate investments to amounts on deposit in the Reserve Account to outstanding series of Bonds, pro rata, to each series of Bonds then Outstanding, in proportion to the maximum amount of principal of and interest payable on Outstanding Bonds of such series in any future calendar year; provided, however, that sale proceeds of Bonds of a series shall be allocated to such series. The Reserve Account is required for the marketability of the Series 2005 Bonds and, as established and implemented pursuant to the Resolution, constitutes a "reasonably required reserve" for the Series 2005 Bonds within the meaning of Section 148(d) of the Code and Section 1.148-2(f) of the Regulations to the extent that the amount on deposit in the Reserve Account allocable to the Series 2005 Bonds (the "2005 Reserve Amount") does not exceed the 2005 Reserve Limitation (as hereinafter defined). For purposes of this paragraph 6.3, the "2005 Reserve Limitation" is equal, as of the date of calculation, to the least of. (i) ten percent (10%) of the proceeds of the Series 2005 Bonds ($200,000.00); (ii) the maximum amount of principal and interest payable on the Series 2005 Bonds in the current or any future calendar year of the City (initially, $184,875.00), or (iii) 125% of the average debt service on the Series 2005 Bonds payable in any calendar year of the City during the term of the Series 2005 Bonds ($225,653.13). Any portion of the 2005 Reserve Amount that is in excess of the 2005 Reserve Limitation shall not be invested at a yield in excess of the Yield of the Series 2005 Bonds, except as permitted by Section VII hereof. As of the date hereof, the 2005 Reserve Amount is $184,875.00. All of the 2005 Reserve Amount, determined as of the date hereof, is a reasonably required reserve for the Series 2005 Bonds and may be invested at an unrestricted Yield pursuant to this paragraph 6.3. 6.4. Except as set forth in this Section VI, the City has not created or established, and does not expect to create or establish, any sinking or similar fund which is reasonably expected to be used to pay debt service on the Series 2005 Bonds or which is pledged as collateral to secure the Series 2005 Bonds. No amounts in any other funds or accounts of the City are reserved for or pledged to the payment of debt service on the Series 2005 Bonds or will be used to replace funds that will be used to pay debt service on the Series 2005 Bonds. VII. Minor Portion Amount. An aggregate amount of proceeds of the Series 2005 Bonds not to exceed the minor portion amount under Section 148(e) of the Code, that is $100,000, may be invested without restriction as to Yield throughout the term of the Series 2005 Bonds. The following amounts, at any one time in the aggregate, may be invested up to the minor portion amount at a Yield greater than the Yield of the Series 2005 Bonds: (i) any amount in the Construction Fund allocable to the Series 2005 Bonds at the end of the temporary period described in paragraph 5.4 hereof, (ii) the amount on hand in the Bond Account in excess of the amount described in paragraph 6.2 hereof relating thereto; and (iii) the amount on hand in the Reserve Account in excess of the 2005 Reserve Limitation specified in paragraph 6.3 hereof. VIII. General. 8.1. The sale proceeds of the Series 2005 Bonds will not exceed the amounts needed to finance the 2005 Project, fund the Reserve Account and pay costs of issuance of the Series 2005 Bonds. No portion of the Series 2005 Bonds is issued solely for the purpose of investing the proceeds at a materially higher yield than the yield of the Series 2005 Bonds. None of the proceeds of the Series 2005 Bonds will be used directly or indirectly to replace funds which were used directly or indirectly to acquire obligations with a yield that is materially higher than the Yield of the Series 2005 Bonds. 8.2. In connection with the issuance of the Series 2005 Bonds, except as specifically provided in Sections 148(c) and (d) of the Code, the City has not engaged and will not engage in any transaction or series of transactions (i) enabling the City to exploit the difference between tax-exempt and taxable interest rates to gain a material financial advantage, and (ii) increasing the burdens on the market for tax-exempt obligations in any manner including, without limitation, by selling bonds that would not otherwise be sold, or by selling more bonds, or issuing them sooner, or allowing them to remain outstanding longer, than would otherwise be necessary. 8.3. The City has no intention to sell or otherwise dispose of the property financed or refinanced with proceeds of the Series 2005 Bonds before the final maturity of the Series 2005 Bonds. The City expects that such property will continue to be owned and operated by the City substantially in the manner in which similar property is now owned and operated for an C� indefinite period concluding not earlier than the final stated maturity date of the Series 2005 Bonds. 8.4. The City reasonably expects that during the term of the Series 2005 Bonds no private business use will be made of the 2005 Project and that no private payments or security will be made or furnished that would cause the Series 2005 Bonds to be "private activity bonds" within the meaning of Section 141 of the Code and applicable Regulations. No proceeds of the Series 2005 Bonds are being or will be lent to any nongovernmental person. No "impermissible agreement" within the meaning of Section 1.141-4(e)(4) of the Regulations has been or will be entered into by the City with any Person in respect of taxable property in the District. The City reasonably expects that the Series 2005 Bonds will not be private activity bonds within the meaning of Section 141 of the Code. 8.5. The Series 2005 Bonds will not be outstanding longer than necessary, within the meaning of Section 1.148-1(c)(4) of the Regulations. The weighted average maturity of the Series 2005 Bonds (8.477 years) to be used to finance the 2005 Project is expected not to exceed 120% of the average reasonably expected economic life of the 2005 Project, determined under Section 147(b) of the Code. IX. Arbitraize Rebate. As determined in Section 12.04 of Resolution No. 5051, the Series 2005 Bonds are are subject to the rebate requirements of Section 148(f) of the Code. X. Reimbursement Expenditures. The provisions of this Section X are intended to establish and provide for compliance by the City with Treasury Regulations, Section 1.150-2 (the "Reimbursement Regulations") applicable to the "reimbursement proceeds" of the Series 2005 Bonds, being those proceeds which will be used by the City to reimburse itself for any expenditure with respect to the 2005 Project which the City paid or will have paid prior to the issuance of the Series 2005 Bonds and as to which the City will reimburse itself from "reimbursement proceeds" (a "Reimbursement Expenditure"). The City hereby certifies and covenants as follows: (a) Except as hereinafter provided, on or before the date of payment of any Reimbursement Expenditure, the City by resolution of the City Council or by its duly authorized representative made a written declaration of the City's official intent (each a "Declaration") which complies with the provisions of Section 1.150-2(d) and (e) of the Reimbursement Regulations. The Declaration need not cover, however, Reimbursement Expenditures: (i) to be paid or reimbursed from sources other than the Series 2005 Bonds, (ii) constituting "preliminary expenditures" (within the meaning of Section 1.150-2(f)(2) of the Regulations) for the 2005 Project, including engineering or architectural expenses and similar preparatory expenses, which in the aggregate do not exceed 20% of the "issue price" of the Series 2005 Bonds, or (iii) in a "de minimus" amount (as defined in Section 1.150-2(f)(1) of the Regulations), i.e., $100,000. 7 (b) As of the date of the Declaration, no funds from sources other than the Series 2005 Bonds were, or were reasonably expected to be, reserved, allocated on a long-term basis, or otherwise set aside by the City to provide financing for the Reimbursement Expenditure to be reimbursed from proceeds of the Series 2005 Bonds. (c) Each Reimbursement Expenditure to be reimbursed from proceeds of the Series 2005 Bonds, other than costs of issuing the Series 2005 Bonds, is a capital expenditure (i.e., a cost that is properly chargeable to capital account (or would be with a proper election) under general federal income tax principles). (d) The "reimbursement allocation" described in the Reimbursement Regulations for each Reimbursement Expenditure to be reimbursed from proceeds of the Series 2005 Bonds shall be made forthwith following (but not prior to) the issuance of the Series 2005 Bonds and in all events within the period ending on the date which is three years after the later of. (i) the date of payment of the Reimbursement Expenditure or (ii) the date on which the 2005 Project are first placed in service or abandoned. (e) Each such reimbursement allocation will be evidenced by an entry on the official books or records of the City maintained for and in connection with the Series 2005 Bonds and will specifically identify the actual prior Reimbursement Expenditure to be reimbursed from proceeds of the Series 2005 Bonds. (f) The City is unaware of any facts or circumstances which would cause it to question the reasonableness or accuracy of this Section 10 or of the Declaration, or its compliance with any of the covenants herein contained. Dated: September 15, 2005. KALISPELL, MONTANA Mayor d ity Manager And Fin rice Director