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HomeMy WebLinkAbout2020-3019February 26, 2020 Joseph Kloiber, Finance Director The City of Columbia Heights, Minnesota 590 40th Ave NE Columbia Heights Minnesota 55421 EHLERS LEAOE:RS IN PUBLIC FIN NCE Re: Letter of Engagement to Retain Ehlers as Arbitrage Consulting and Monitoring Agent Related to the Arbitrage Provisions of the Internal Revenue Code of 1986 and Related Treasury Regulations All tax-exempt Obligations ("Obligations") issued by or on behalf of the City of Columbia Heights, Minnesota ("Issuer") are subject to the arbitrage provisions of the Internal Revenue Code of 1986 and related Treasury regulations ("Tax Code). To comply with the statute and regulations the Issuer must undertake certain analyses. Ehlers & Associates, Inc. ("Ehlers") can provide arbitrage consulting and monitoring services that comply with the Tax Code and include the necessary reports and or analyses. This Letter of Engagement ("Letter") is being presented to memorialize and clarify the terms of the Issuer's engagement of Ehlers as the Issuer's Arbitrage Consulting and Monitoring Agent. In this regard, Ehlers agrees to provide Issuer with those services described in Appendix A ("Services"). Ehlers shall be entitled to compensation by the Issuer also as described in Appendix A. This Letter shall be effective as of the date of its execution by the Issuer and shall remain in effect for the life of each obligation defined herein as the "Term". Notwithstanding the foregoing, this Letter may be terminated by either party upon sixty (60) days prior written notice. All outstanding Ehlers projects will be completed and invoiced prior to the deemed termination date. To perform the engagement, Issuer agrees to provide Ehlers all documents and information as are deemed necessary to fulfill the Issuer's reporting requirements related to the Tax Code, and within the applicable timeframe. Issuer agrees to provide Ehlers with timely and accurate information regarding pertinent cash and investment activity as well as pertinent revenue and expenditure activities for all funds related to the required service ("Arbitrage Information"). The Issuer is obligated to pay arbitrage due within sixty (60) days of the related installment date. A II installment date analysis information must be provided to Ehlers within thirty (30) days of Issuer's receipt of any such request from Ehlers. The Issuer is ultimately responsible for the completion and filing of IRS Form 8038-T or 8038-R. Issuer, and not Ehlers, shall be responsible for payment of any arbitrage payment due and any interest or penalty for failure to make timely payments. Ehlers shall deem all Arbitrage Information provided to it by the Issuer to be accurate and free of defect, as well as not containing any material misstatements, falsehoods, or omissions of fact. Issuer acknowledges that Ehlers shall be entitled to rely on all Arbitrage Information provided by the Issuer without further investigation as to its completeness or accuracy. Issuer shall indemnify, hold harmless and defend Ehlers from and against any damages, costs or other liabilities (including reasonable attorneys' fees) arising from or relating to any breach of this Letter by Issuer, including, but not limited to, damages, costs and other liabilities arising out of any Arbitrage Information received and distributed by Ehlers. Further, in no event shall Ehlers' total aggregate liability under this Letter be more than the amount of fees paid by Issuer to Ehlers during the Term then in effect notwithstanding anything contained herein. In addition, Issuer acknowledges that Ehlers shall not be responsible and/or liable for any errors, misstatements or omissions associated with any arbitrage report or filing form, or for the correction thereof, that was prepared or distributed by any party other than Ehlers. This Letter constitutes the entire agreement between the parties and is intended to supersede all agreements, BUILDING COMMUNITIES. IT'S WHAT WE DO. � info@ehlers-inc com � 1 (800) 552-1171 @) www.ehlers-1nc.com Contract # 2020-3019 whether oral or written, between the parties that were entered into relative to the subject matter hereof prior to the effective date of this Letter. No amendment or modification of this Letter shall be deemed valid unless made in writing and signed by both parties. This Letter covers the Issuer's current outstanding Obligations and any future Obligations that Ehlers is informed about. If the Issuer agrees to contract with Ehlers for Arbitrage Services, the Issuer must inform Ehlers in writing if they do not want Ehlers to provide Arbitrage services on any currently outstanding and/or future individual Obligations. The Ehlers Election Form for declining the specific obligation(s) is provided in Appendix B. If our engagement under the terms of this Letter is acceptable, please sign this Letter in the appropriate signature block below and return a signed copy to us for our records. If, however, you do not wish to engage our services, please note that election and return a copy of this Letter to us. Please contact me if you have any questions or would like to discuss our engagement further. Sincerely, EHLERS & ASSOCIATES, INC. Stephen H. Broden Arbitrage Managing Director SO ACCEPTED BY ISSUER Issuer hereby accepts this Letter and engages Ehlers to provide the services noted herein and executes this Letter as of the date noted below: City Manager By: � �� Title: Kelli B�s I • "'1, "\!°'. °\.I", Name: _________________ Date: _ _,.'Oc.......,,:CI'-:_·��=�'----""""�'--""-------- SO DECLINED BY ISSUER Issuer hereby acknowledges that it will be responsible for updating and submitting all necessary arbitrage reports and filings as may be required of Issuer without the assistance of Ehlers. Issuer further acknowledges and agrees that Ehlers assumes no responsibility for the compilation and/or submission of any such arbitrage reports or filings. By: __________________ Title: Name: _________________ Date: ______________ _ APPENDIX A EHLERS ARBITRAGE CONSULTING AND MONITORING AGENT SERVICES AND FEES Ehlers' arbitrage consulting and monitoring services are designed to assist the Issuer in meeting its Tax Code obligations. Depending on the size of a transaction and the total amount of debt outstanding at the time of issuance, different debt issues may be subject to different reporting requirements. Ehlers will provide the services identified below, which are reflective of the Issuer's requirements with the Tax Code. In no event will Ehlers assist Issuer with assessing whether information provided or omitted as part of an analysis will be accepted by the IRS when subject to an audit. If the Issuer accepts this letter and engages Arbitrage Consulting and Monitoring Agent, Ehlers shall provide the following services and charge the following fees: Background Since 1986, the Internal Revenue Service ("IRS") has enforced the arbitrage provisions of the Internal Revenue Code of 1986 and related Treasury Regulations which requires issuers and borrowers of tax­ exempt obligations to confirm exemptions and make timely arbitrage payments. Issuers and borrowers often work with third party service providers who can assist with confirmation of exemptions, payments due, payments that should be recovered, and proper processing of related violations. Full arbitrage monitoring reporting entities must: o Maintain adequate training on the requirements and methods associated with the arbitrage provisions. o Retain records for the life of every obligation plus three (3) tax years or the extended period to the life of a refunding obligation plus three (3) tax years. Records must include documents that support the spending of all obligation gross proceeds. o File IRS 8038-T forms within sixty (60) days of the IRS installment date for an obligation. o File IRS 8038-R forms with two (2) years of the final maturity date for an obligation. o Enter the IRS' Voluntary Closing Agreement Program ("VCAP") when violations are not able to be corrected by other means. Arbitrage Consulting Services Description of Services Ehlers agrees to provide Issuer with a specific education on the Tax Code provisions which may include arbitrage, accounting, record retention, or even more specific subsections of the Tax Code. Training includes organized review of the IRS' current agent training materials, publications, presentations and related information. Training can be done on-site or offsite via video teleconference. Ehlers can separately agree to provide Issuer with a specific education on the Tax Code provisions that pertain to current or future Issuer Obligations. Description of Fees Ehlers will charge Issuer a fee of $300 per hour to provide the arbitrage consulting services set forth above. Ehlers will invoice Issuer for the amount due. The invoice is due and payable by the Issuer within 60 days of the invoice date. Arbitrage Monitoring Services Description of Services Issuer engages Ehlers to provide the following services in connection with the preparation and distribution of Issuer's arbitrage reports, preparation of IRS filing forms, recommendations in connection with all Obligations of the Issuer subject to the Tax Code and for which arbitrage reports or filings are required. During the Term of the engagement, Ehlers shall provide the services hereinafter described with respect to all existing Obligations subject to the Tax Code and having arbitrage requirements. Ehlers shall provide these services for and any future Obligations that Ehlers is informed about. The Issuer must inform Ehlers in writing if they do not want Ehlers to provide Arbitrage services on any currently outstanding and/or future individual Obligations (see Appendix 8 for the Ehlers Election Form). Ehlers agrees to provide the following services to Issuer: I.Review the following documents for each obligation: a.Information Return for Tax-Exempt Governmental Obligations (Form 8038-G) b.Tax Compliance Certificates c.Official Statements d.Addendum to Official Statements, if any e.Closing Memorandums, if any f.Post Sales Reports, if any g.Verification Reports, if any h.Prior Arbitrage Calculations, if any i.Trust Indentures, if any j.Credit Enhancement Agreements, if any 2.Calculate the Issuer's arbitrage liability under Section 148(f) of the Internal Revenue Code of 1986, as amended and applicable Treasury regulations in connection with each obligation, including: a.Obtain nonpurpose investment transaction data for all funds related to each obligation b.Review and analyze nonpurpose investment transaction data as required based on the aforementioned documents c.Compute/verify the amount of spend-down penalties payable to the IRS for Obligations applying such provisions d.Confirm the arbitrage yield for each obligation e.Compute/verify the amount of excess earnings, if any, on nonpurpose investments and the value of those earnings as of the applicable computation date f.Determine the rebate amounts and rebate payments due to the IRS, if any g.Compute/verify the yield reduction payments due on yield restricted nonpurpose investments, if any h.Assist with the purchase of State and Local Government Series of U.S. Treasuries for yield restriction of the investments, if necessary i.Prepare arbitrage reports, including computational methods and assumptions used in the analysis and conclusions supporting the calculation j.Prepare IRS Form 8038-T or 8038-R, if required k.Obtain a legal opinion for the arbitrage reports and IRS Form 8038-T or 8038-R, if required I.Deliver arbitrage reports, along with legal opinion and IRS Form 8038-T or 8038-R, if applicable 3.Maintain a system for computing and tracking the arbitrage liability and future arbitrage computation dates, as necessary. 4.Evaluate and make recommendations on record keeping practices for those funds and accounts subject to arbitrage compliance. 5.Apprise Issuer of any changes in the arbitrage regulations that may occur during the term of this Agreement. 6.Issuer acknowledges that, in its sole discretion, Ehlers may contract with third parties selected by Ehlers for the performance of some of the services to be performed hereunder. Description of Fees Ehlers will charge Issuer a base fee per bond year per obligation to determine spending exceptions, bona fide debt service fund exemptions, penalty calculations, rebate amounts and yield reduction payments for all funds related to the Obligations. Depending on the structure of the transaction, certain complexities may require computational work that extends beyond the scope of a standard arbitrage calculation. Conversely, the amount of computational work required to prepare future arbitrage calculations may decrease due to the rapid expenditure of gross proceeds. In such instances, Ehlers will charge additional fees and/or offer discounts in accordance with the fee schedule set forth below. Base Fee: $600 per bond year Typical Additions to Base Fee Commingled funds transferred proceeds, debt $200 per hour service excess, or universal cap analysis IRS Form 8038-T preparation Atypical Additions to Base Fee Variable rate bond analysis IRS Form 8038-R preparation Legal opinion Recalculation of prior arbitrage liability Discounts to Base Fee Discretionary discounts Adjustments to Base Fee Gross proceeds spent, review only $500 per form $200 to $500 per hour $500 to $1,000 per form To be determined To be negotiated To be determined by Ehlers $ 100 to $200 per year*** ***This adjustment replaces the Base Fee with the amount listed above for each affected obligation. Ehlers will invoice Issuer for the amount due. The invoice is due and payable by the Issuer within 60 days of the invoice date. Limited Arbitrage Review Services Description of Services Issuer engages Ehlers to provide the following services in connection with the preparation and distribution of Issuer's arbitrage reviews and recommendations. During the Term of the engagement, Ehlers shall provide the services hereinafter described with respect to all identified Obligations subject to the Tax Code, having arbitrage requirements, and where arbitrage reports or filing forms are not requested. Ehlers shall provide these services for and any future Obligations that Ehlers is informed about. The Issuer must inform Ehlers in writing if they do not want Ehlers to provide Arbitrage services on any currently outstanding and/or future individual Obligations (see Appendix B for the Ehlers Election Form). Ehlers agrees to provide the following services to Issuer: I.Review the following documents for each obligation: a.Information Return for Tax-Exempt Governmental Obligations (Form 8038-G) b.Tax Compliance Certificates c.Official Statements d.Addendum to Official Statements, if any e.Closing Memorandums, if any f.Post Sales Reports, if any g.Verification Reports, if any h.Prior Arbitrage Calculations, if any i.Trust Indentures, if any j.Credit Enhancement Agreements, if any 2.Calculate the Issuer's arbitrage liability under Section 148(f) of the Internal Revenue Code of 1986, as amended and applicable Treasury regulations in connection with each obligation, including:a.Obtain nonpurpose investment transaction data for all funds related to each obligation b.Review and analyze nonpurpose investment transaction data as required based on the aforementioned documents c.Compute/verify the amount of spend-down penalties payable to the IRS for Obligations applying such provisions d.Compute/verify the amount of excess earnings, if any, on nonpurpose investments e.Prepare arbitrage reviews, including computational methods and assumptions used in the analysis and conclusions supporting the review 3.Maintain a system for computing and tracking the arbitrage review status and future arbitrage computation dates, as necessary. 4.Evaluate and make recommendations on record keeping practices for those funds and accounts subject to arbitrage compliance. Description of Fees Ehlers will charge Issuer a review fee per obligation to determine spending exceptions, bona fide debt service fund exemptions, rebate and yield restriction amounts for all funds related to the Obligations. Ehlers will charge fees in accordance with the fee schedule set forth below. Basefee $1,000 per review Adjustments to Base Fee Gross proceeds spent, review only $ 100 to $200 per year*** ***This adjustment replaces the Base Fee with the amount listed above for each affected obligation. Ehlers will invoice Issuer for the amount due. The invoice is due and payable by the Issuer within 60 days of the invoice date. Future Fee Changes Ehlers reserves the right to adjust fees during the Term of the engagement without prior consent of the Issuer, but not more than annually. Prior to any fee adjustments, the Issuer will be notified in writing of the revised fees and their effective date. Arbitrage Monitoring as of February 26, 2020 Next Ne,t Final Delivery Original PAR Arbitrage Arbitrage Status Report Ne•t Report Report Outstanding Date Amount Issue Name Yield Field/Category Type Date Budget Maturity Recommendations as of February 26, 2020 General Obligation Improvement and Utility 11/21/2013 $2,775,000.00 Revenue Bonds, Series 2013A 1.7441846 Pending/ Small Issuer Five year . 11/21/2018 $3,000.00 2/1/2024 General Obligation Library Bonds, Series 3/4/2015 $6,875,000.00 2015A 2.51357 Pending/ Rebate Five year 3/4/2020 $3,000.00 2/1/2036 Columbia Heights Economic Development IAuthority Ta• Increment Revenue Bonds, 7/7/2016 $2,435,000.00 Series 2016 2.58888884 Pending / Rebate Five year 7/7/2021 $3,000.00 2/15/2032 General Obligation Refunding Bonds, Series 7/6/2017 $3,265,000.00 2017A 1.90979160 Pending/ Rebate Five year 7/6/2022 $1,000.00 2/1/2029 General Obligation Refunding Bonds, Series 7/6/2017 $8,505,000.00 2017B 2.55896498 Pending/ Rebate Five year 7/6/2022 $3 ,000.00 2/1/2038 General Obligation Public Facilities Refunding 12/27/2018 $2,070,000.00 Bonds, Series 2018A 3.0387177 Pending/ Small Issuer Five year 12/27/2023 $1 ,000.00 2/1/2038 Not Monitoring as of February 26, 2020 Ta,able General Obligation Housing I7/16/2008 $975,000.00 Improvement Area Bonds, Series 2008A Not Monitoring 2/1/2024 �COLUMBIA � HEIGHTS City of Columbia Heights 590 40th Avenue NE, Columbia Heights, MN 55421 • Ph: 763-706-3600 • www.columbiaheightsmn.gov DATE: June 20, 2020 TO: BY: RE: KELLI BOURGEOIS, CITY MANAGER �__...JOSEPH KLOIBER, FINANCE DIRECTOR r PROCUREMENT OF SERVICES FOR BOND ARBITRAGE REBATE CALCULATIONS To document compliance with federal limitations on the timing and use of tax-exempt bond proceeds, IRS regulations require certain recordkeeping and complex calculations of arbitrage interest rebates, potentially payable by the City to the IRS. Until recently the City addressed this compliance requirement with the following: 1.Interest rate analysis by staff, to identify bonds at risk of triggering IRS rebates, and to then contract for the formal calculation of that specific bond issue -if ever. 2.Review by staff of existing record keeping assure it is sufficient from which to timely prepare and file the more elaborate schedules required for IRS rebate filings, in the event that a bond issue not identified in step 1 is selected for examination. 3.Periodically review the results of internal procedures 1 and 2 above with an external consultant that professionally prepares IRS rebate calculations. Historically, this consultant was the City's independent auditor, Redpath and Company. Due to the SEC's adoption of a new rule regarding the roles and responsibilities for "Municipal Advisors" and other professionals advising issuers of municipal bonds, Redpath and Company no longer provides arbitrage rebate services. In addition, upon recommendation of the City's bond counsel, the City has since adopted a policy requiring more formal calculations be made of substantially all bond issues, not just those identified as at risk for triggering rebates. Consequently, for the last couple of years, we have been budgeting incremental amounts in the City's debt service funds to contract for this greater level of arbitrage services, and I have solicited quotes for arbitrage rebate services from two other firms with which I have had past professional experience in this area: Springsted (now Baker Tilly) They provided arbitrage rebate calculations to my previous employer. Ehlers & Associates As the City's municipal bond advisor, they coordinated with the City's bond counsel on the City's adoption of the City's current policy on arbitrage reporting compliance. MEMO_ P rocu reme ntAna lys is _ArbitrageRe bateServices _ 062020. d ocx Memo_ProcurementAnalysis_Arbitrage RebateServices_062020.docx Page 2 The fee schedules for the two proposals are largely equivalent with the exception that Ehlers charges $500 to file IRS form 8038-T. This filing would only be required in the event that a rebate is owed to the IRS. Whereas, Springsted does not have an additional charge for this filing, or at least they did not before they were purchased by Baker-Tilly. The Ehlers' fee schedule indicates discounts are negotiable. I expect that in the circumstance of interest rates causing multiple bond series to have rebates payable at the same time, this fee could likely be negotiated to be a lower rate per form. As these are professional services, the real meaning of the fee schedules can only be determined as the relationship with the contractor occurs. For example, Ehlers' fee schedule states that common additions to the base fee include $200 per hour to address comingled or transferred funds. Whereas, Springsted's fee schedule states that this service is included in their base fee unless significant work is involved, then it is subject to their comparable hourly rates. In practice, these two statements could effectively mean the same thing, or they could mean very different things simply due to the staff each the contractor happens to assign to the engagement. Another outcome of the change to the SEC municipal advisor rule, is that the City now contracts for fee-based (non-commission) investment advisory services with the separate legal entity, Ehlers Investment Partners (EIP) for the investment of any available bond proceeds. Potentially, some of the data already available to Ehlers through EIP could be leveraged to reduce the administrative effort required for these arbitrage calculations. Given the above, I recommend proceeding with the Ehlers proposal at this time. The set-up costs for either contractor are minimal, so the proposals are substantially year-to-year and by individual bond issue. In the event that the relationship with Ehlers does not develop as desired over the next couple of years, I would have no problem requesting an updated proposal from Baker Tilly and changing contractors for these services. Proposal City of Columbia Heights, Minnesota Proposal to Provide Arbitrage Rebate Services June 2, 2017 Table of Contents Mission Statement LETTER OF TRAN SM ITT AL 1 OVERVIEW OF THE FIRM .................................................................... 3 History and Leadership ................................................................... 3 2 ORGANIZATION OF THE FIRM AND RANGE OF SERVICES ...................... 3 Organizational Structure .................................................................. 3 Unique Qualifications .................................................................... .4 3 RELEVANT ARBITRAGE REBATE CALCULATION EXPERIENCE ............... 5 4 OTHER RELEVANT INFORMATION ....................................................... 5 5 PRINCIPAL CONTACT ........................................................................ 7 Principal Contact ............................................................................ 7 Assigned Personnel ....................................................................... 7 6 PROPOSED ANNUAL FEE STRUCTURE ................................................ 9 ARBITRAGE ISSUE LISTING .............................................................. APPENDIX I Springsted provides high quality, independent financial and management advisory services to public and non-profit organizations, and works with them in the long-term process of building their communities on a fiscally sound and well-managed basis. LETTER OF TRANSMITTAL June 2, 2017 Mr. Joseph Kloiber Finance Director City of Columbia Heights 590 40th A venue NE Columbia Heights, Minnesota 55421-3878 Springsted Springsted Incorporated 380 Jackson Street Suite 300 Saint Paul. rvlN 55101-2887 Tel 651 223 3000 Fax 651 223 3002 www sprirgsteci com Re: Request for Proposal to Provide Arbitrage Rebate Compliance Services Dear Mr. Kloiber: Springsted Incorporated is pleased to have this opportunity to submit a proposal to provide arbitrage compliance and reporting services. We enjoyed a successful relationship with the City several years ago and would like very much to reestablish that relationship. Tax-exempt finance is our specialty. We are involved in this type of work through our arbitrage and continuing disclosure compliance areas, as well as in the work that we do on behalf of clients in structuring and selling their bond transactions. We deal with regulatory issues all day, every day. We have a depth of personnel -both in our compliance areas and in our staff of technical public finance professionals. While we have assigned a specific team to address your arbitrage compliance needs, we have a broad staff of financial analysts that can be called upon to assist if that is ever needed. We'd like to draw your attention to the credentials of the staff in our arbitrage compliance area. In addition to Springsted's seasoned public finance professionals, our compliance group includes professionals holding a CPA and bachelors in accounting and finance. Our staff is led by registered municipal advisors held to the same rigorous training and testing requirements as our other municipal advisory staff. As a Springsted arbitrage client you will have the benefit of specialized arbitrage staff combined with a nationally recognized public finance staff. Our focus is not to just "do the numbers," but to provide consulting assistance that will: •Minimize the financial impact of compliance through the accurate and resourceful application of regulations; Public Sector Advisors City of Columbia Heights, Minnesota June 2, 2017 Page 2 •Help you determine how to best track information going forward to minimize the future burden of compliance; •Assist with ideas on investments that will simplity reporting and/or reduce rebate obligations; and •Provide tracking services going forward to help avoid interest and penalty expense. Through the ongoing development of our arbitrage compliance practice, Springsted has already incorporated valuable solutions to the standard problems of tracking individual issue responsibilities into its service offering. To provide you with accurate, timely notifications, we have a recently enhanced database system that helps manage the timing requirements for our clients through its tickler system. It also keeps historical information at the ready, so that we can quickly respond to your questions. A sample report from our tracking system has been included with this proposal for your review. Thank you for your consideration of this proposal. Springsled's broad experience in municipal finance and specialized service offering in the area of arbitrage compliance will offer you a wide range of options to fit your needs. We are happy to answer any questions you may have. Respectfully submitted, Shelli A. Ness, CPA Vice President sml 1.Overview of the Firm History and Leadership City of Columbia Heights, Minnesota Proposal to Provide Arbitrage Rebate Services The Springsted Group is an umbrella of three companies: Springsted Incorporated, Springsted Investment Advisors and Springsted I Waters. This structure was created to both delineate our service areas and to ensure compliance with new federal regulatory requirements. Springsted Incorporated (SI) provides Municipal Advisor and Human Capital and Organizational Consulting Services. Springsted Investment Advisors provides Municipal Investment Advisor Services. Springsted I Waters provides Executive Recruitment Services. Springsted is one of the largest and longest established independent public sector advisory firms in the United States. For over 60 years, we have continually grown in the range of our client relationships, the comprehensiveness of our services and our prominence within the industry. Our managed growth is focused on providing clients with a balance of national perspective and local expertise. Springsted is a privately held corporation and a women-owned business. Our headquarters are located in Saint Paul, Minnesota, with offices strategically located throughout the United States. Specifically, our regional offices include Milwaukee, Wisconsin; Des Moines, Iowa; Kansas City, Missouri; Richmond, Virginia; Denver, Colorado and Dallas, Texas. Saint Paul has been our corporate home since the firm first opened its doors in the early 1950s. Currently, we have a staff of more than 70 professionals, including client representatives, consultants, analytical professionals and support personnel. Our size provides both subject matter expertise and contingency in the case of unforeseen circumstances. 2.Organization of the Firm and Range of Services Organizational Structure The Springsted Group is unique among advisors in the range and quality of its total service offerings. Our services include all related financial and management areas. We have seven Practice Groups across The Springsted Group: Public Finance, Operational Finance/Fiscal Planning, Housing and Economic Development, Investment Services, Human Resources, Management Consulting and Executive Recruitment. We have developed our seven Practice Groups because our clients' goals and issues often require multiple approaches and areas of expertise. A jurisdiction's single goal or challenge many times requires the combined expertise of a variety of professional disciplines. Our seven Practice Groups provide our clients with immediate access to a full range of such specialized professionals. Whether the topic is financial, organizational, economic development or other areas, our clients can deal with a single source to approach these issues in a professional, coordinated manner. The organization of our staff is based on six principles designed to benefit our clients: •Our staff is aligned both geographically and within specialty service areas to ensure in-depth state and/or practice area knowledge. Springsted City of Columbia Heights, Minnesota. Proposal to Provide Arbitrage Rebate Services. � •With our seven Practice Groups, each specialty has a substantial dedicated professional staff to apply their specific expertise to our clients' goals. •Our clients can work with one advisory firm to effectively address their capital and operational financial needs. •With a team-based approach to service, our clients are assured that more than one professional is familiar with their individual situation. •Our basic work processes have been refined over many years of continued research and development, yet solutions are customized and reviewed throughout the process of addressing each financing so clients are assured that they will receive creative, quality final products, tailored to their individual needs. •Reliance on tested, well-conceived and well-managed processes, our services are delivered at cost­ effective levels. Unique Qualifications Providing rebate services has evolved naturally from our financial advisory business. Originally provided on an as-needed basis, Springsted's rebate and yield restriction (arbitrage) consulting has evolved into a fully-staffed service unit. Our arbitrage staff is centralized in our Saint Paul corporate headquarters. We work directly with Kutak Rock LLP, an internationally recognized firm, in consultation regarding legal issues. Much of our work can be coordinated through telephone, written and electronic communications; however, site visits are scheduled as needed. Specific Springsted personnel are dedicated to arbitrage analysis and are responsible for maintaining the integrity of the service. We know that oftentimes assistance is needed that goes beyond the calculations themselves. Therefore, our service is aligned to assist clients in meeting the information needs of arbitrage reporting on a timely and complete basis. Springsted's arbitrage compliance group meets weekly to discuss emerging topics and review work­ in-process. Reports are submitted for a full internal review where we reference source documentation and examine the approach taken to ensure that our processes and quality control remains effective and the interests of the client have best been met. Each report is also reviewed by the Director of Debt Management or the managing principal and is submitted to legal counsel as needed. Every Springsted arbitrage client is entered into our Compliance Database. This recently enhanced database enables us to serve clients and help manage their reporting timeline by electronically tracking the arbitrage history of the client and each issue, including impending computation dates. Clients are notified in advance of information needs. Issues are assigned to specific analysts, with work coordinated to assure consistency and timely completion. Electronic maintenance of the historical information within the database helps us to respond quickly to issuer questions and appropriately manage record retention. We have included an Issue Listing of the City's outstanding debt as Appendix I to demonstrate a standard compliance report that is routinely provided to arbitrage compliance clients. This report can serve as an effective tool through which to communicate the status of arbitrage compliance and information needs to staff, auditors or City Council members. Springsted manages the arbitrage compliance area to provide on-going value-added services to our clients .. In addition to our efforts to help clients manage their reporting requirements through our database development, we are available to assist our rebate clients to think through the implications of the arbitrage regulations on emerging financings and investment practices. Springsted City of Columbia Heights, Minnesota_ Proposal to Provide Arbitrage Rebate Services. We consider it our goal to assist arbitrage clients in minimizing their financial obligation within the confines of the federal rules. This sometimes involves closer inspection of expenditures when attempting to meet the spend-down tests. It could involve how computation dates are established or reassessing allocation options. Evidence of our success in this area is a case where a new compliance client converted to Springsted after having used a major accounting firm. Our familiarity with the design of tax exempt bond issues enabled us to better interpret the design of the transaction and its fund structure and reduced the client's rebate obligation by over $250,000 from what had been calculated by the previous consultant. As the successor provider with another new client, we identified an offset to rebate that had not been applied previously, thereby enabling a city to request from the IRS a generous refund of an overpaid liability. We have also had success with a state level issuer subjected to an IRS audit and successfully presented an analytical approach that differed from the agent's, but was eventually supported by the Service, avoiding penalty and interest for our client. Our arbitrage practice is benefited by its close working relationship with Springsted's other municipal advisors. The benefits are mutual as our arbitrage staff is frequently called on to assist with specialized applications of the arbitrage rules as new financings are being developed. Some of the more complex calculations we perform deal with single family revenue bond transactions where multiple prior issues are refunded on multiple dates or in instances where projects are funded with rolling temporary notes that are ultimately refunded with a permanent bond issue. We also have extensive experience in the allocation of parity reserves as provider to several utilities and in the allocation of mixed escrows associated with refunding issues. We have been able to provide assistance to bond trustees or the issuer, helping to interpret their fund accounting responsibilities correctly to ensure compliance with the bond terms, that extended spending exception periods are tracked and that transferred proceeds issues are treated correctly. 3.Relevant Arbitrage Rebate Calculation Experience Springsted performs calculations on over 1,400 active issues, representing approximately 240 various municipalities, school districts, colleges, universities and nonprofit groups, and our practice continues to grow. These calculations are generally prepared annually, but in every case, at a minimum of every five years and include IRS filing reports as needed. We have worked with many of these clients since the broad rebate rules were instituted in 1986. In addition, we work with trustee banks to calculate arbitrage compliance for many transactions where they serve as Trustee. 4.Other Relevant Information The Debt Management department of Springsted, comprised of arbitrage compliance and refunding activities, has undergone significant enhancements during the last five years and we would like to bring them to your attention. Springsted created and recruited a director position to oversee the day-to-day activities of the department and provide training, guidance and mentoring to newly hired staff. We have identified the key traits, educational background and work experience that translate into successful interpretation and application of the regulations. In turn, we have carefully selected an exceptional staff, each with a unique background, to serve our clients. This segment of our practice has and continues to expand. Springsted City of Columbia Heights, Minnesota. Proposal to Provide Arbitrage Rebate Services. [5 During 2013, Springsted integrated the existing arbitrage compliance database with our accounting software. The enhanced database provides outstanding reporting capabilities and the ability to customize by issue and issuer. Clients are notified in advance of upcoming computations and receive an annual listing to assist in planning and budgeting. Clients have responded very favorably to the enhancements. As an organization, Springsted has established a Quality and Communication Committee that is dedicated to perpetuating quality work and improved communication with external and internal colleagues alike. The Committee, comprised of a cross-section of various disciplines and segments of the firm, has established "best practices" for several segments of our firm and will continue the mission of improving quality and communication within the organization. Springsted has a well-developed approach to each calculation. Our work on each bond issue will include: •Logging the transaction into our compliance database to facilitate tracking and information requests. •Determining the relevant arbitrage provisions contained in Section 148 of the Internal Revenue Code. •Reviewing applicable sections of bond documents to determine what arbitrage considerations were anticipated at the time of issuance. •Calculating the amount of arbitrage liability, including rebate and yield restriction, and issuing a detailed report that lays out the treatment of all identified proceeds of the issue. •Discussing with client any unusual or unexpected finding. •Discussing with client any payment identified and to coordinate payment requirements. •Preparing any IRS Form 8038-Ts required and providing instructions for filing. •Maintaining relevant documentation as a back-up to your own records. We have performed a preliminary review of the City's outstanding and recently redeemed debt and make the following recommendations: •Series 2007, 2007 A and 20078 -The City does not qualify for the small issuer exception for rebate for the 2007 calendar year. As such, the issues noted will be subject to more stringent spending criteria to qualify for an exemption from rebate. Further, the Bonds were issued during a period when issuers were frequently able to invest in short-term investments that yielded returns in excess of the yield on their Bonds. We recommend that the City have initial 5-year computations prepared for these specific bond issues, after which we will make a determination as to whether all original proceeds, and the earnings thereof, have been fully expended. We will also determine if the debt service funds have been operating in a bona fide manner. If they have, it is possible that future monitoring can be effectively managed by City personnel. •Series 20088 -While investment rates declined in 2008, as compared to the prior year, the City did again issue tax-exempt obligations in excess of the $5,000,000 limit that would exempt them from rebate. For the reasons noted above, we recommend that the initial 5-year computation be performed, with subsequent consideration given as to whether the City can perform future monitoring internally. •Series 2009A -It appears that the City will qualify for the small issuer exception from rebate for the 2009 calendar year. As such, the issue is likely exempt from rebate during the 3-year temporary period. If proceeds or earnings remain unexpended following 3 years from the date of issuance, they should be yield restricted to the materially higher yield, which is 118th of 1 percent over the yield on the Bonds. If the City has records that substantiate the spending of original Springsted City of Columbia Heights, Minnesota. Proposal to Provide Arbitrage Rebate Services. j� proceeds and earnings within the 3-year temporary period and can verify that the debt service fund is operating in a bona fide manner, it is not necessary that analysis be provided by a service provider. •Series 2015A -See comment noted above with regard to Series 20088. •Series 2016 -These Bonds were issued for the purpose of current refunding the Series 2007 Tax Increment Revenue Bonds. As such, the Bonds will qualify for the 6-Month spending exception for rebate. If the City has records to substantiate that the debt service fund is operating in a bona fide manner, it is not necessary that analysis be provided by a service provider. Springsted has the knowledge, ability and resources to effectively assist the City with its arbitrage compliance needs. We are receptive to further discussion regarding the currently outstanding issues, as well as future debt issuances. 5.Principal Contact Principal Contact Shelli A. Ness, CPA, Vice President and Director of Debt Management 651-223-3090 651-223-3002 Fax sness@springsted.com Assigned Personnel Springsted staffs breadth of experience and depth of expertise are two of our most important characteristics in providing high-quality service to clients. Many of our staff have backgrounds in state or local government, public education or non-profit organizations, so they share our clients' perspectives in developing solutions. Each client draws on the depth of our talented staff through a specific service team. The service team is selected to match the individual needs of the client and is comprised of qualified individuals who are experienced in the specific, unique challenges confronting you. The team provides you a focused access point from which to draw upon the expertise of our entire staff of more than 70 professionals. The selection criteria used to assemble the team for this engagement includes experience and stature commensurate with the needs of a state level client, familiarity and involvement at strategic levels of public finance and government management and technical acumen. Listed below are the primary members of the team and a brief synopsis of their unique skills: Kathleen A. Aho, CIPMA, Municipal Advisor President and Client Representative Ms. Kathleen Aho has been a principal of the firm since 1993. She has a reputation for developing creative solutions for managing today's most challenging financial issues, such as housing, economic development, advance refunding, sales and/or special tax-backed financings and enterprise management. In over 30 years of experience as an advisor to the public sector, she has served as manager on hundreds of financing assignments that involved both taxable and tax-exempt obligation transactions. Ms. Aho is the past president of the Minnesota Institute of Public Finance and a past president of the National Association of Independent Public Finance Advisors, former Springsted City of Columbia Heights, Minnesota. Proposal to Provide Arbitrage Rebate Services. i?i chair of the organization's Standards, Ethics and Certification Committee. Ms. Aho manages the Public Finance Services division of Springsted which includes arbitrage compliance services. She has been intimately involved in arbitrage compliance for over 30 years and in addition to oversight and review, is available to assist the team as necessary. Ms. Aho is Municipal Advisor Series 50 qualified. Shelli A. Ness, CPA, Municipal Advisor Vice President and Director of Debt Management Ms. Shelli Ness has been with Springsted since 2012. She has the financial management experience and technical knowledge to successfully assist clients with the complex IRS regulations with which issuers of tax exempt debt must comply. Ms. Ness has an uncanny ability to translate complex tax code into easily understood concepts. She is a Certified Public Accountant, with strong numeric aptitude, great attention to detail and a broad knowledge base. Ms. Ness specializes in the housing, utility and higher education segments. She has extensive knowledge in the allocation of parity reserves and transferred proceeds. Ms. Ness will serve as the primary contact to the City and will be responsible for ensuring that applicable timelines are adhered to. Ms. Ness will oversee the analysis and provide review services. Ms. Ness is Municipal Advisor Series 50 qualified. Lora S. Martin Financial Analyst Drew Hill Ms. Lora Martin has been with Springsted since 2007. Ms. Martin is responsible for updating and verifying client's debt, data collection and performing analytics related to arbitrage compliance, specializing in the housing and higher education sectors. She is also available to assist clients with record keeping requirements and compliance with IRS reporting deadlines. Ms. Martin holds a Bachelor of Science Degree in Business Administration -Accounting from Northern Michigan University. Prior to her time at Springsted, she served as an accountant for nine years in the private sector. Associate Financial Analyst Mr. Drew Hill joined Springsted in 2016. Mr. Hill's responsibilities include performing analytics related to arbitrage compliance as provided by the Debt Management Group. Prior to 2016, he interned with Springsted's Bond Services Group where he contributed to the Municipalities Continuing Disclosure Cooperation (MCDC) initiative. Mr. Hill has also assisted various municipalities with their accounting responsibilities. He is a quick learner with a broad knowledge base and great attention to detail. Mr. Hill holds a Bachelor of Science in Finance from University of Northwestern. Springsted City of Columbia Heights, Minnesota. Proposal lo Provide Arbitrage Rebate Services. 18! 6 Proposed Fee Structure Springsted proposes the following fee schedule for arbitrage compliance services. Fees charged will not exceed the rates shown. Where Only Spend-down Computation is Needed (bona-fide debt service fund, no other fund investments) Standard Computation -one year period Standard Computation -more than one year *plus $400 for each additional vear Service One-Time Initial Set-Up Legal Report (new issues with no prior Report) Fee for completion of IRS Form 8038-T for Filing to IRS Hourly Supplement Fees: Transferred Proceeds Allocations Co-mingled or Pooled Funds Anal)'sis for Consultin_g Penalty Spending Exception Report Fees (Per Semi-Annual Spend-down Period without skipping Report for any Prior Semi-Annual Spend-down (Period) *Resultant five-year compulalionfee is $3, JOO. Per Issue $ 500 $1,500 $1,500 for the first year* Fees waived included included** $500 ** Supplemental work which involves extended time involvement will be charged at an hourly rate. 11nysuch cases will be discussed specifically prior to proceeding. The fees quotes provided herein are subject to the provision of adequately detailed information regarding expenditures and investments. All work done to negotiate with or represent the City in audit conversations with the IRS will be done on an hourly basis and is not included above. Hourly Rates Kulak Rock LLP Attorney $350 "not to exceed" rate applicable to IRS work only Senior Springsted Officer, Principal $260 Senior Springsted Professional $215 Springsted Professional $160 Springsted Support Staff $75 Springsted will pass through indirect costs at actual charges incurred. Such costs will generally include printing, copying and travel expenses, if necessary. Generally, the information regarding the arbitrage­ rebate analysis can be gathered over the telephone and by electronic mail, thus, travel is seldom required. !fa site visit is required, the actual travel, lodging and meal cost will be passed through to the City. Unless extraordinary, indirect costs other than travel are generally waived. We would like to reserve the option to charge for these costs; however, to date, we have not charged a client separately for indirect costs other than travel. Springsted City of Columbia Heights, Minnesota. Proposal lo Provide Arbitrage Rebate Services. 9