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HomeMy WebLinkAboutExhibit - Tax Compliance Exhibit$84,540,000 City of Miami, Florida Tax -Exempt Special Obligation Parking Revenue Bonds, Series 2010A (Marlins Stadium Project) and $16,830,000 City of Miami, Florida Taxable Special Obligation Parking Revenue Bonds, Series 2010B (Marlins Stadium Project) TAX CERTIFICATE AS TO ARBITRAGE AND THE PROVISIONS OF SECTIONS 141-150 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED In connection with the issuance by the City of Miami, Florida (the "Issuer") of its $84,540,000 Tax -Exempt Special Obligation Parking Revenue Bonds, Series 2010A (Marlins Stadium Project), dated July 29, 2010 (the "Series 2010A Bonds") and its $16,830,000 Taxable Special Obligation Parking Revenue Bonds, Series 2010B (Marlins Stadium Project), dated July 29, 2010 (the "Series 2010B Bonds", and together with the Series 2010A Bonds, collectively the "Series 2010 Bonds"), and pursuant to Section 1.148-2(b)(2) of the Income Tax Regulations (the "Regulations"), the Issuer makes and enters into the following Tax Certificate as to Arbitrage and the Provisions of Sections 141-150 of the Internal Revenue Code of 1986, as amended (the "Code"). The City acknowledges that the opinion of Bond Counsel regarding the exclusion of interest on the Series 2010A Bonds from gross income under Section 103(a) and Sections 141-150 of the Code is rendered in reliance upon the representations and statements of fact and expectations contained herein and assumes the City's continued compliance with the provisions of this Certificate. 1. The Series 2010 Bonds are being issued pursuant to the Constitution and laws of the State of Florida, including particularly Chapter 166, Part VII of Chapter 159, Florida Statutes, as amended, Article VIII, Section 2 of the Constitution of the State of Florida, the Charter of the Issuer and other applicable provisions of law (the "Act") and pursuant to Resolution No. R-09-0509 adopted by the City Commission of the Issuer (the "Commission") on October 22, 2009, as amended by Resolution No. R-10-0272 adopted by the Commission on June 24, 2010 and as further amended by Resolution No. R-10-0281 adopted by the Commission on July 8, 2010 (collectively, the "Bond Resolution"), to provide for the issuance of the Series 2010 Bonds and for the deposit of money to various funds and accounts established pursuant to the Bond Resolution: (a) to finance the costs of the design, acquisition, construction and equipping of parking appurtenant and ancillary facilities, including retail space, surface lots and parking structures for 5,642 parking spaces located adjacent to the site commonly referred to as the Marlins Baseball Stadium (the "Project"); (b) to currently refinance the Issuer's not to exceed $15,000,000 Special Obligation Parking Revenue Bond Anticipation Notes, Series 2010 (Marlins Stadium Project) (the "BAN") issued in connection with the Project, to the extent any draw under the BAN was funded prior to the issuance of the Series 2010 Bonds; (c) to make a deposit into the Reserve Fund for the benefit of the Series 2010 Bonds in an amount equal to one-half of the. Reserve Requirement, and to pay the premium for a Reserve Product (the "Reserve Fund Surety") issued by Assured Guaranty Municipal Corp. (the "Insurer") with a coverage amount equal to one-half of the Reserve Requirement; and (d) to pay the costs of issuing the Series 2010 Bonds (the "Issuance Expenses), including the premium for a Municipal Bond Insurance Policy (the "Bond Insurance") issued by the Insurer, Unless otherwise specifically defined, all capitalized terms used in this Certificate shall have the meanings as those set forth in the Bond Resolution. 2. On the basis of the facts, estimates and circumstances in existence on the date hereof, I reasonably expect the following withrespect to the Series 2010 Bonds being issued this day and as to the use of the proceeds thereof: (a) Sale Proceeds of the Series 2010A Bonds :in the amount of $83,260,514.98 (representing $84,540,000.00 principal amount of the Series 2010A Bonds, less original issue discount of $637,996.95 and less underwriter's discount of $641,488.07), are expected to be needed and fully expended as follows: (i) $2,812,067.87 of said proceeds will be used to pay the Issuance Expenses allocated to the Series 2010A Bonds (including a municipal bond insurance premium to the Insurer of $2,279,051.30 related to the Series 2010A Bonds); (ii) $4,028,022.77 of said proceeds of the Series 2010A Bonds will be deposited into the Reserve Fund for the Series 2010A Bonds, and $120,840.69 will be paid as an insurance premium for the Reserve Fund Surety; (iii) $3,733,775,10 of said proceeds will be deposited into the Interest Account of the Fund for the Series 2010A Bonds and used to pay a portion of the interest due on the Series 2010A Bonds through the January 1, 2012 interest payment date; and 2 (iv) $72,565,808.55 of said proceeds of the Series 2010A Bonds, together with the investment earnings thereon, will be deposited into the Series 2010A Construction Account within the Construction Fund and expended within three years from the date hereof to pay Project costs. There is no Accrued Interest, (b) Sale Proceeds of the Series 2010B Bonds in the amount of $16,681,256.76 (representing $16,830,000.00 principal amount of the Series 2010B Bonds, less underwriter's discount of $148,743.24), together with a cash contribution from the Issuer in the amount of $5,000,000.00, are expected to be needed and fully expended as follows: (i) $512,761.38 of said proceeds willbe used to pay the Issuance Expenses allocated to the Series 2010E Bonds (including a municipal bond insurance premium to the Insurer of $403,030.43 related to the Series 2010B Bonds); (ii) $801,888.14 of said proceeds of the Series 2010B Bonds will be deposited into the Reserve Fund for the Series 2010E Bonds, and $24,056.64 will be paid as an insurance premium for the Reserve Fund Surety; (iv) $515,624.15 of said proceeds will be deposited into the Interest Account of the Sinking Fund for the Series 2010B Bonds and used to pay a portion of the interest due on the Series 201.0E Bonds on the January 1, 2011 interest payment date; (v) $14,826,926.45 of said proceeds of the Series 2010B Bonds, together with $5,000,000.00 in cash funds provided by the Issuer and together with the investment earnings thereon, will be deposited into the Series 2010E Construction Account within the Construction Fund and expended within three years from the date hereof to pay Project costs allocated to the use of the Project by the Marlins Baseball Team pursuant to the City Parking Agreement dated April 15, 2009 (the "Parking Agreement") between the Issuer, Marlins Stadium Operator, L.L.C. and Miami -Dade County, Florida (the "County") and to fund a grant to the County toward the costs of LEED components in the County's Marlin Stadium Project which will be used in the trade or business of the Marlins Baseball team (collectively, the "Private Use"), and to pay the costs of a subset of the Project comprising the costs of construction, build -out and build -out allowances for segregated and discrete retail and commercial space within the 4 parking structures and a separate and discrete deck covering a portion of the upper parking floors in the parking structures on which FP&L, a private utility company, will construct solar photovoltaic panels for the commercial generation of electricity (collectively, the "Taxable Projects"). There is no Accrued Interest. (c) The payment of the costs of issuance, reserve funds, bond insurance premium and similar neutral costs are allocated ratably among the Series 2010A Bonds and the Series 2010B Bonds. (d) The Issuer does not expect to sell or otherwise dispose of any property comprising a part of the Project financed or refinancedwith the proceeds of the Series 2010A Bonds prior to the final maturity date of the Series 2010A Bonds, except such minor parts or portions thereof as may be disposed of due to nou nal wear, obsolescence, or depreciation in the ordinary course of business. 4. Binding contracts or commitments obligating the expenditure of not less than 5 percent of the Sale Proceeds of the Series 2010A Bonds toward the cost of the Project have been entered into by the Issuer prior to the date hereof. Work on the construction and equipping of the Project and the allocation of the Sale Proceeds of the Series 2010A Bonds to the costs of the Project will proceed with due diligence. It is expected that the Project will be completed and at least 85 percent of the Sale Proceeds of the Series 2010A Bonds will be allocated to Project expenditures within three years of the date hereof. 5. Not more than 50 percent of the proceeds of the Series 2010A Bonds will be invested in obligations having a substantially guaranteed yield for 4 years or more. 6. The Bond Resolution requires the Issuer to have on deposit in the Reserve Fund cash or a Reserve Fund Surety in an amount equal to the Reserve Requirement. The Issuer has elected to deposit proceeds of the Series 2010 Bonds into the Reserve Fund in an amount equal to one-half of the Reserve Requirement and to purchase a Reserve Fund Surety for the remaining one-half of the Reserve Requirement. The Reserve Requirement imposed by the Bond Resolution is an amount equal to the lesser of (i) 10% of the proceeds of the Series 2010 Bonds, (ii) the maximum annual debt service on the Series 2010 Bonds, and (iii) one hundred twenty-five percent (125%) of the average annual debt service on the Series 2010 Bonds. Amounts on deposit in the Reserve Fund or drawn under the Reserve Fund Surety are to be used to pay the principal of and interest on the Series 2010 Bonds when other moneys in the Sinking Fund are insufficient therefore. The Underwriter has advised the Issuer in a letter attached as Exhibit A hereto that the deposit in the Reserve Fund in the amount of the Reserve Requirement was a vital factor in marketing the Series 2010 Bonds at an interest rate comparable to other bond issues of a similar type and was a requirement for securing bond insurance for the Series 2010 Bonds. 7. There are no funds or accounts established pursuant to the Bond Resolution or otherwise, other than the Sinking Fund and the Reserve Fund, which are reasonably expected to be used to pay debt service on the Series 2010 Bonds, or which are pledged as collateral for the Series 2010 Bonds (or subject to a negative pledge) and for which there is a reasonable assurance on the part of the bondholders that amounts therein will be available to pay debt service on the Series 2010 Bonds if the Issuer encounters financial difficulties. 4 8. The portion of the Sinking Fund allocable to the Series 2010 Bonds will be used primarily to achieve a proper matching of the Pledged Revenues and debt service on the Series 2010 Bonds within each bondyear and amounts deposited thereto will be depleted at least once a year except for any carryover amount which will not in the aggregate exceed the greater of (A) the earnings on such fiord for the immediately preceding bond year, or (B) one -twelfth of the debt service on the Series 2010 Bonds for the immediately preceding bond year. 9. Except for preliminary expenditures, such as architectural, engineering, surveying, soil testing, and similar costs, proceeds of the Series 2010A Bonds will not be used to reimburse the Issuer for Project costs paid prior to the date which is 60 days before October 22, 2009. Except for preliminary expenditures, any Project costs paid prior to the date of issuance of the Series 2010A Bonds which are to be reimbursed from Sale Proceeds will be reimbursed not later than 18 months after the later of (a) the date the original expenditure was paid; or (b) the date that the portion of the Project to which the reimbursement relates was placed in service. 10. The following represents the expectations of the Issuer with respect to the investment of funds on deposit in the aforementioned funds and accounts: (a) Proceeds derived from the sale of the Series 2010A Bonds to be applied to pay Issuance Expenses may be invested at an unrestricted yield for a period not to exceed 3 years from the date hereof; (b) Proceeds derived from the sale of the Series 201.0A Bonds deposited in the Construction Fund to pay Project costs may be invested at an unrestricted yield for a period not to exceed three years from the date hereof. (c) Investment earnings on obligations acquired with amounts described in subparagraphs (a) and (b) above may be invested at an unrestricted yield for a period of three years from the date hereof or one year from the date of receipt, whichever period is longer, Investment earnings on obligations acquired with amounts described in subparagraph (a) above may be invested at an unrestricted yield for a period not to exceed 13 months from the date of receipt. (d) Amounts described in subparagraphs (a) through (c) that may not be invested at an unrestricted yield pursuant to such subparagraphs, may be invested at an unrestricted yield to the extent such amounts do not exceed $100,000 (the "Minor Portion"). (e) All amounts deposited in the Sinking Fund allocated to the Series 2010A Bonds may be invested at an unrestricted yield for a period of 13 months from the date of deposit of such amounts to such Fund. Investment earnings on such amounts may be invested at an unrestricted yield for a period of 13 months from the date of receipt of the amount earned. 5 (f) Amounts described in subparagraph (e) that may not be invested at an imrestricted yield pursuant to such subparagraph may be invested at an unrestricted yield to the extent such amount does not exceed the Minor Portion reduced by the amounts described in subparagraph (d) that are invested at a yield in excess of the yield on the Series 2010A Bonds. (g) Amounts described in this Paragraph 10 that may not be invested at an unrestricted yield shall be invested at a yield not in excess of 5.612073% (i.e. 5.487073% plus .125%) or be invested in tax-exempt obligations under Section 103(a) of the Code the interest on which is not an item of preference within the meaning of Section 57(a)(5) of the Code. 11. For purposes of this Certificate, "yield" means that yield which when used in computing the present worth of all payments of principal and interest (including any qualified guarantee fees) to be paid on an obligation produces an amount equal to the issue price of such obligation. The yield on obligations acquired with amounts described in Paragraph 10 hereof and the yield on the Series 2010A Bonds shall be calculated by the use of the same frequency interval of compounding interest. In the case of the Series 2010A Bonds, the issue price is the initial offering price to the public (excluding bond houses, brokers and other intermediaries) at which price at least 10% of each maturity of the Series 2010A Bonds was sold to the public. Such initial offering price for the Series 2010A Bonds is, in the aggregate, $83,902,003.05, as represented in a letter from Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") attached as Exhibit A hereto. Any investments acquired with amounts that may not be invested at an unrestricted yield pursuant to paragraph 10 above shall be purchased at prevailing market prices and shall be limited to securities for which there is an established market or shall be tax-exempt obligations under 103(a) of the Code the interest on which is not an item of tax preference within the meaning of Section 57(a)(5) of the Code. In accordance with such meaning of the term yield, the yield on the Series 2010A Bonds has been determined to be not less than 5.487073%. Such determinations as to yield have been made on the basis of computations performed by Merrill Lynch, Pierce, Fenner & Smith Incorporated and by their representation as to the initial offering prices of the Series 2010A Bonds to the public. See Exhibit A hereto. 12. No portion of the proceeds of the Series 2010A Bonds will be used as a substitute for other moneys of the Issuer which were otherwise to be used to construct the Project and which have been or will be used to acquire, directly or indirectly, obligations producing a yield in excess of the yield on the Series 2010A Bonds. 13. The weighted average maturity of the Series 2010A Bonds does not exceed 120 percent of the reasonably expected economic life of the Project to be financed with the proceeds of the Series 2010A Bonds (within the meaning of Section 147(b) of the Code). 6 14. There are no other obligations of the Issuer that (i) are being sold at substantially the same time as the Series 2010 Bonds (within 15 days); (i) are being sold pursuant to a common plan of financing together with the Series 2010 Bonds, and (iii) will be paid out of substantially the same source of funds (or will have substantially the same claim to be paid out of substantially the same source of funds) as the Series 2010 Bonds. 15. The Issuer has covenanted in the Bond Resolution that so long as the Series 2010A Bonds remain outstanding, the moneys on deposit in any fund or account maintained in connection with the Series 2010A Bonds, will not be used in any manner that would cause the Series 2010A Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code or bonds not described under Section 103(a) of the Code and the applicable regulations promulgated from time to time thereunder. Accordingly, the Issuer shall comply with the guidelines and instructions in the Arbitrage Letter of Instructions from Bond Counsel, dated the date hereof, by which the Issuer shall, among other things, pay or cause to be paid to the United States an amount equal to the sum. of (i) the excess of the aggregate amount earned from the investment of "Gross Proceeds" of the Series 2010A Bonds from the date of issue over the amount that would have been earned if such amounts had been invested at a yield equal to the yield of the Series 2010A Bonds, plus (ii) the income or earnings attributable to the excess amount described in (i). See Exhibit C attached hereto. 16. The Issuer is not aware of any facts or circumstances that would cause it to question the accuracy of the representations made by the Financial Advisor or the Underwriter inthe letters attached as Exhibits A and B hereto, or the accuracy of the computations performed by the Underwriter. 17. None of the proceeds of the Series 2010A Bonds will be used (directly or indirectly) to make or finance loans to non -governmental persons. 18, None of the proceeds of the Series 2010A Bonds will be used (directly or indirectly) to acquire any property which prior to its acquisition was used (or held for use) by a person other than a state or local governmental unit in connection with an output facility. For purposes of this Certificate, the term "output facility" means electric and gas generation, transmission, and related facilities (but not water facilities). 19. No portion of the proceeds of the Series 2010A Bonds will be used to finance output facilities (as that terns is defined in Paragraph 18 above). 20. The Issuer does not expect that more than 10% (5% with respect to an unrelated or disproportionate use) of the proceeds of the Series 2010A Bonds will be used (directly or indirectly) in a trade or business (or to finance facilities which are used in a trade or business) carried on by any person other than a state or local governmental unit. For the purpose of this Paragraph 20, use of a facility by a person on the same basis as a member of the general public shall not be taken into account. 7 21. Paragraph 20 shall apply only if the payment of 10% (5% with respect to an unrelated or disproportionate use) or more of the principal of or interest on the Series 2010A Bonds is (under the terms of such Bonds or any underlying arrangement) directly or indirectly secured by any interest in property used or to be used for a private business use or in payments in respect of such property or derived from payments whether or not to the Issuer in respect of property or borrowed money used or to be used for a private business use. 22. A portionof the Project will consist of the Taxable Project (the costs of construction, build -out and build -out allowances for segregated and discrete retail and commercial space within the 4 parking structures and a separate and discrete deck covering a portion of the upper parking floors in the parking structures on which FP&L, a private utility company, will construct solar photovoltaic panels for the commercial generation of electricity), with a construction cost equal to $4,964,050.00. This amount is determined by adding (i) $799,215 of the total construction costs of the Project which is allocated to creating the shell and structural aspects of a discrete portion of the parking garages segregated for retail and commercial use in a trade or business, (ii) $2,000,000 for the retail build -out allowance for restaurant facilities, (iii) $1,164,835 for the retail build -out allowance for dry areas, and (iv) $1,000,000 for the Issuer's contribution to the cost of a deck covering a portion of the parking garages for the placement of solar photovoltaic panels by a private trade or business user. In accordance with Treasury Regulation section 1.141-3(g)(4)(iv), the Taxable Project is treated as a separate facility. All of the costs of the Taxable Project are allocated to a cash contribution made by the Issuer from its legally available funds, and any private payments resulting from the private trade or business use of the Taxable Project is allocated to cash funds provided by the Issuer and not to proceeds of the Series 2010A Bonds, in accordance with Treasury Regulation section 1.141-4(c)(3)(ii) and (iii). A portion of the Project (exclusive of the Taxable Project) jointly funded with proceeds of the Series 2010A Bonds and the Series 2010B Bonds will be available for the Private Use. In accordance with the Parking Agreement the Marlins baseball club will be entitled to use (i) 250 parking spaces for their exclusive use 24 hours a day each day of the year at no cost to the Marlins (the "exclusive use spaces"), (ii) all of the remaining 5,392 parking spaces for 81 baseball games (a double deader will count as 2 games out of the 81 game allowance), for a period commencing 2 hours before a game and ending 2 hours after the conclusion of a game (the "game day spaces") for which spaces the Marlins will be obligated to pay to the Issuer a predetermined rate per space starting at $10.03, and (iii) in the event the Marlins schedule a special event at the Marlin Stadium with at least 5,000 tickets sold, the Marlins will have the right to use the remaining 5,392 parking spaces during the special event at no additional costs to the Marlins beyond reimbursing the Issuer for operating costs of the parking facilities during such time (the "special event spaces"). The costs of designing, constructing and equipping the Project (exclusive of the Taxable Project) is allocated between the average general public use of the Project and the average Private Use of the Project. The Issuer has determined that the Project will be open, available and manned as a public parking facility 24 hours a day on each day of the year. Parking statistics available to the Issuer demonstrate the 24-hour use of other public parking facilities within a 5/8th mile radius of the Project 8 at a rate in excess of the number of new spaces to be provided by the Project. In addition, the area surrounding the Project is an area designated for economic development by the Issuer and the Issuer anticipates and expects that surrounding area will be the subject of commercial development, resulting in a concurrent anticipated increase in general public use demandfor the Project. Such use expectation is consistent with similarly situated public parking facilities owned and operated by the Issuer as public parking facilities. Pursuant to Section 3.9 of the Construction Administration Agreement dated April 15, 2009 among the Issuer, Miami -Dade County, Florida and Marlins Stadium Developer, LLC, the Issuer, the Issuer intends to develop commercial, retail and other development on the Project site. Based on this, the total parking space hours available for any use of the Project is 49,423,920 hours (365 days x 24 hours x 5,642 spaces). 'Ihe parking space hours allocated to exclusive use spaces is 2,190,000 hours (365 days x 24 hours x 250 spaces). The parking space hours allocated to the game day spaces is 4,367,520 (81 games x 10 hours per game x 5,392 spaces). The Issuer has determined that a reasonable estimate of game day use of 10 hours a game is determined by assuming that the average major league baseball game does not exceed 6 hours, plus the 2 hours before and 2 hours after each game. The parking space hours allocated to special event spaces is 808,800 (25 special events x 6 hours x 5,392 spaces). Although the Parking Agreement does not establish a maximum number of special events the Marlins may schedule, based on discussions and negotiations with representatives of the Marlins, the Issuer and the Marlins do not expect that more than 10 special events would occur in any year, but assuming 25 special events could be scheduled in a year is a reasonable basis for determining allocation of use of the Project. The reasonably expected average use of the Project (exclusive of the Taxable Project) by the Marlins pursuant to their rights in the Parking Agreement equals 7,366,320 parking space hours, or 14.90% of the total parking space hours (7,366,320/49,423,920). Since the fair market value of the use of the Project as general public parking facilities to the Issuer is greater than the fair market value to the Issuer of the private use of the Project pursuant to the Parking Agreement, the Issuer has allocated use of the Project in accordance with Treasury Regulation section 1.141.-3(g)(4)(ii) based on such use at different times. The Issuer does not reasonably expect that there will be any private use of the Project (exclusive of the Taxable Project) except pursuant to the Parking Agreement. The total design, construction and equipment cost of the Project (exclusive of the Taxable Portion and the $1,350,000 grant to the County) is not greater than $86,078,685, 14.90% of which equals $12,825,724.07. Since the grant to the County of $1,350,000 for LEED costs incurred in the construction of the Marlin's stadium being constructed by the County is subject to private trade or business use, the Issuer is treating the funding of the County grant as an expenditure for a private trade or business use. For all of such private trade or business use, the Issuer must provide not less than $14,175,724.07 ($12,825,724.07 + $1,350,000).. The Issuer has provided net proceeds of the Series 2010B Bonds in the amount of $14,826,926.45 to fund the County grant and to pay the portion of the costs of the Project (exclusive of the Taxable Project) allocated to private trade or business use pursuant to the Parking Agreement. Any private payments for the trade or business use of the Project pursuant to Parking Agreement are allocated to the Series 2010B Bonds and not the Series 2010A Bonds in accordance with Treasury Regulation section 1.141-4(c)(3)(iii). 9 The Issuer levies and will collect a Parking Surcharge on all public parking facilities owned and operated by the Issuer. The parking spaces utilized in the Project will be subject to the Parking Surcharge on the same basis and at the same rate as applies to all other public parking spaces in the Issuer. As such, any receipts from the Parking Surcharge are treated as a generally applicable tax receipts in accordance with Treasury Regulation section 1.141-4(e). 23. The payment of the principal of and interest on the Series 2010A Bonds is not and will not be guaranteed directly or indirectly by the federal governrnent within the meaning of Section 149(b) of the Code. 24. This Certificate is, in part, to serve as a guideline in implementing the requirements of Sections 141 to 150 of the Code. If regulations, rulings, announcements and notices validly promulgated under the Code contain requirements which differ from those outlined here which must be satisfied for the Series 2010A Bonds to be tax-exempt or in order to avoid the impositionof penalties tender Section 148 of the Code, pursuant to the covenants contained in the Bond Resolution, the Issuer is obligated to take such steps as are necessary to comply with such requirements. If under those pronouncements, compliance with any of the requirements of this Certificate is not necessary to maintain the exclusion of interest on the Series 2010A Bonds from gross income and alternative minimum taxable income (except to the extent of certain adjustments applicable to corporations) or to avoid the imposition of penalties on the Commission under Section 148 of the Code, the Issuer shall not be obligated to comply with that requirement. The Issuer has been advised to seek the advice of competent counsel with a nationally recognized expertise in matters affecting exclusion of interest on municipal bonds from gross income in fulfilling its obligations under the Code to take all steps as are necessary to maintain the tax-exempt status of the Series 2010A Bonds. 25. To the best of my knowledge, information and belief, the above expectations are reasonable. [Remainder of page intentionally left blank} 10 IN WITNESS WHEREOF, I have hereunto set my hand this 29th day of July, 2010. CITY OF MIA 1, FLORIDA By: Carlos A. Migoya City Manager By: Diana M. o ez Finance Di 11 EXI-IIBIT A July 29, 2010 The Honorable Mayor and Members of the City Commission of the City of Miami Miami, Florida Re: $84,540,000 City of Miami, Florida Tax -Exempt Special Obligation Parking Revenue Bonds, Series 2010A (Marlins Stadium Project) and $16,830,000 City of Miami, Florida Taxable Special Obligation Parking Revenue Bonds, Series 2010B (Marlins Stadium Project) Ladies and Gentlemen: The undersigned, as representative of the underwriters in connection with the sale of the above -referenced Series 2010 Bonds, hereby represents that: 1. All of the Series 2010 Bonds have been the subject of an initial offering to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers), at prices no higher than, or yields no lower than, those shown on the inside cover of the Official Statement relating to the Series 2010 Bonds. 2. To the best of our knowledge based on our records and other information available to us which we believe to be correct, at least 10`)/0 of the Series 2010A Bonds and the Series 2010B Bonds was reasonably expected to be sold to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at initial offering prices not greater than the respective prices shown in the Official Statement At the time the Underwriters agreed to purchase the Series 2010 Bonds, based upon our assessment of the then prevailing market conditions, we had no reason to believe that any of the Series 2010 Bonds would be initially sold to the public (excluding such bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at prices greater than the prices, or yields less than the yields, shown in the Official Statement. 3. The present value of the amounts paid to obtain the bond insurance and the Reserve Fund Surety (collectively, the "Credit Enhancement) securing the Series 2010 Bonds is less than the present value of the interest reasonably expected to be saved as a result of having the Credit Enhancement, with respect to the Series 2010A Bonds, using the percentage in Section 11 of this Certificate as the discount factor for this purpose. To the best knowledge of the undersigned, the A-1 amount paid by the Issuer to Assured Guaranty Municipal Corp. (the "Insurer") for the Credit Enhancement is a connnercially reasonable charge for the transfer of credit risk on the Series 2010 Bonds. 4. The funding of the Reserve Fund securing the Series 2010 Bonds in an amount equal to the Reserve Requirement was a vital factor in marketing the Series 2010 Bonds and facilitated the marketing of the Series 2010 Bonds at an interest rate comparable to that of other bond issues of a similar type, and was a requirement for obtaining Bond Insurance. 5. The issue price of the Series 2010A Bonds is $83,902,003.05, and the issue price of the Series 2010B Bonds is $16,830,000.00. The Underwriters understand that Bond Counsel will rely upon this certificate, among other things, in reaching its conclusion that the Series 2010A Bonds do not constitute "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED Raw N. Williams Managing Director EXHIBIT B [Reserved] B-1 EXHIBIT C July 29, 2010 The Honorable Mayor and Members of the City Commission of the City of Miami Miami, Florida Re: 584,540,000 City of Miami, Florida Tax -Exempt Special Obligation Parking Revenue Bonds, Series 2010A (Marlins Stadium Project) Ladies and Gentlemen: This letter instructs you as to certain requirements of Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), with respect to the $84,540,000 City of Miami, Florida Tax - Exempt Special Obligation Parking Revenue Bonds, Series 2010A (Marlins Stadium Project) (the "Series 2010A Bonds"). Capitalized terms used in this letter, not otherwise defined herein, shall have the same meanings as set forth in the City's Tax Certificate as to Arbitrage and the Provisions of Sections 141-150 of the Internal Revenue Code of 1986, As Amended (the "Tax Certificate") executed on the date hereof. This letter is intended to provide you with general guidance regarding compliance with Section 148(f) of the Code. Because the requirements of the Code are subject to amplification and clarification, you should seek supplements to this letter from time to time to reflect any additional or different requirements of the Code. In particular, you should be aware that regulations implementing the rebate requirements of Section 148(f) (the "Regulations") have been issued by the United States Treasury Department. These regulations will, by necessity, be subject to continuing interpretation and clarification through future rulings or other announcements of the United States Treasury Department. You should seek further advice of Bond Counsel as to the effect of any such future interpretations before the computation and payment of any arbitrage rebate. For the purposes of this Letter, (i) any instructions relating to a fund or account shall be deemed to apply only to the portion of such fund or account allocable to the Series 2010A Bonds and (ii) any reference to "the date hereof" shall be deemed to mean July 29, 2010. Section 1. Tax Covenants. Pursuant to Resolution No. R-09-0509 adopted by the City Commission of the Issuer (the "Commission") on October 22, 2009, as amended by Resolution No. R-10-0272 adopted by the Commission on June 24, 2010 and as amended by Resolution No, R-10- 0281 adopted by the Commission on July 8, 2010 (collectively, the "Bond Resolution"), the Issuer has made certain covenants designed to assure that interest with respect to the Series 2010A Bonds C-1 is and shall retrain excluded from gross income for federal income tax purposes. The Issuer has agreed, and by this Letter does hereby covenant, that it will not directly or indirectly use or permit the use of any proceeds of the Series 2010A Bonds or any other funds or take or omit to take any action that would cause the Series 2010A Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code and that would cause interest on the Series 2010A Bonds to be included in gross income for federal income tax purposes under the provisions of the Code. You have further agreed by this letter to comply with allother requirements as shall be determined by Bond Counsel (as hereinafter defined) to be necessary or appropriate to assure that interest on the Series 2010A Bonds will be excluded from gross income for federal income tax purposes. To that end, the Issuer will comply with all requirements of Section 148 of the Code to the extent applicable to the Series 2010A Bonds. In particular, the Issuer agrees to cause the proceeds of the Series 2010A Bonds and certain other amounts described in Paragraph 10 of the Tax Certificate to be invested in a manner that is consistent with the expectations set forth in such Certificate. In the event that at any time the Issuer is of the opinion that for purposes of this Section 1 it is necessary to restrict or to limit the yield on the investment of any moneys held by the Issuer, the Issuer shall take such action as may be necessary. Section 2. Definitions. Unless the context otherwise requires, in addition to the use of the terms defined in the Non Arbitrage Certificate, the following capitalized terms have the following meanings: "Bond Counsel" shall mean Bryant Miller Olive P.A., or other nationally recognized bond counsel selected by the Issuer. "Bond Year" shall mean the one year period that ends at the close of business on the day in the calendar year that is selected by the Issuer. The first and last bond years may be short periods. "Bond Yield" shall mean that discount rate that, when used in computing the present value on the Delivery Date of all unconditionally payable payments of principal, interest, retirement price, and Qualified Guarantee payments paid and to be paid on the Series 2010A Bonds, produces an amount equal to the present value on the Delivery Date, using the same discount rate, of the aggregate Issue Price of the Series 2010A Bonds. Yield is computed under the Economic Accrual Method using any consistently applied compounding interval of not more thanone year. Short first and last compounding intervals may be used. Other reasonable, standard financial conventions, such as the 30 days per month/360 days per year convention, may be used in computing yield but trust be consistently applied. The yield on the Series 2010A Bonds, computed by Merrill Lynch, Pierce, Fenner & Smith Incorporated in this manner, is 5.487073%. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the applicable Treasury Regulations promulgated thereunder. C-2 "Computation Date" shall mean any date selected by the Issuer as a computation date pursuant to Section 1.148-3(e) of the Regulations, and the Final Computation Date. "Computation Credit Amount" means an amount, as of each Computation Credit Date, equal to $1,000, as such amount may be adjusted from time to time. "Computation Credit Date" means the last day of each Bond Year during which there are amounts allocated to Gross Proceeds of the Series 2010A Bonds that are subject to the rebate requirement of Section 148(f) of the Code, and the Final Computation Date. "Delivery Date" shall mean July 29, 2010. "Economic Accrual Method" shallmean the method of computing yield that is basedon the compounding of interest at the end of each compounding period (also known as the constant interest method or the actuarial method). "Final Computation Date" shall mean the date that the last bond that is part of the Series 2010A Bonds is discharged. "Gross Proceeds" shall mean with respect to the Series 2010A Bonds, any proceeds of the Series 2010A Bonds and any funds (other than the proceeds of the Series 2010A Bonds) that are a part of a reserve or replacement fund for the issue, which amounts include amounts which are (A) actually or constructively received by the Issuer from the sale of the Series 2010A Bonds (other than amounts used to pay accrued interest on the Series 2010A Bonds as set for the in the Tax Certificate); (B) treated as transferred proceeds (as defined in Section 1.148-9(b) of the Regulations); (C) treated as Replacement Proceeds under Section 1.148-1(c) of the Regulations; (D) invested in a reasonably required reserve or replacement fund (as defined in Section 1.148-2(f) of the Regulations); (E) pledged by the Issuer as security for payment of debt service on the Series 2010A Bonds; (F) received with respect to obligations acquired with proceeds of the Series 2010A Bonds; (G) used to pay debt service on the Series 2010A Bonds; and (H) otherwise received as a result of investing any proceeds of the Series 2010A Bonds. The determination of whether an amount is included within this definition shall be made without regard to whether the amount is credited to any fund or account established under the Bond Resolution or (except in the case of an amount described in (E) above) whether the amount is subject to the pledge of such instrument. "Guaranteed Investment Contract" means any Nonpurpose Invesluient that has specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate, and also includes any agreement to supply investments on two or more future dates (e.g., a forward supply contract). C-3 "Installment Payment Date" shall mean a Computation Date that is not later than 5 years after the Delivery Date and subsequent Computation Dates which occur no later than 5 years after the immediately preceding Installment Payment Date. "Investment Property" shall mean any security or obligation, any annuity contract or other investment -type property within the meaning of Section 148(b)(2) of the Code. The term Investment Property shall not include any obligation the interest on which is excluded from gross income (other than a Specified Private Activity Bond withinthe meaning of Section 57(a)(5)(C) of the Code) and shall not include an obligation that is a one -day certificate of indebtedness issued by the United States Treasury pursuant to the Demand Deposit State and Local Government Series Program. described in 31 CFR, part 344. "Issue Price" shall mean, with respect to each bond comprising the Series 2010A Bonds, the issue price for such bond set forth in the letter from Merrill Lynch, Pierce, Fenner & Smith Incorporated, as the representative of the underwriters of the Series 2010A Bonds, attached as Exhibit A to the Tax Certificate. "Issue Yield" shall mean the Bond Yield unless the Series 2010A Bonds are described in Section 1.148-4(b)(3) or (4) of the Regulations, in which case, the Issue Yield shall be the Bond Yield as recomputed in accordance with such provisions of the Regulations. "Nonpurpose Investment" shall mean any Investment Property in which Gross Proceeds are invested, other than any Purpose Investment as defined in Section 1.14841(b) of the Regulations. For purposes of this Letter, Investment Property acquired with revenues deposited in the Sinking Fund to be used to pay debt service on the Series 2010A Bonds within 13 months of the date of deposit therein shall be disregarded. "Nonpurpose Payment" shall, with respect to a Nonpurpose Investment allocated to the Series 2010A Bonds, include the following: (1) the amount actually or constructively paid to acquire the Nonpurpose Investment; (2) the Value of an investment not acquired with Gross Proceeds on the date such investment is allocated to the Series 2010A Bonds, and (3) any payment of Rebatable Arbitrage to the United States Government not later than the date such amount was required to be paid. In addition, the Computation Credit Amount shall be treated as a Nonpurpose Payment with respect to the Series 2010A Bonds on each Computation Credit Date. "Nonpurpose Receipt" shall mean any receipt or payment with respect to a Nonpurpose Investment allocated to the Series 2010A Bonds. For this purpose the term "receipt" means any amount actually or constructively received with respect to the investment. In the event a Nonpurpose Investment ceases to be allocated to the Series 2010A Bonds other than by reason of a sale or retirement, such Nonpurpose Investment shall be treated as if sold on the date of such cessation for its Value. In addition, the Value of each Nonpurpose Investment at the close of business on each Computation Date shall be taken into account as a Nonpurpose Receipt as of such C-4 date, and each refund of Reba table Arbitrage pursuant to Section 1.148-3(i) of the Regulations shall be treated as a Nonpurpose Receipt. "Qualified Guarantee" shall have such meaning as ascribed to such term by Treasury Section 1.148-4(f) and shall include the municipal bond insurance policy and the Reserve Fund Surety issued by Assured Guaranty Municipal Corp. (the "Insurer"). "Rebatable Arbitrage" shall mean as of any Computation Date the excess of the future value of all Nonpurpose Receipts with respect to the Series 2010A Bonds over the future value of all Nonpurpose Payments with respect to the Series 2010A Bonds. The future value of a Nonpurpose Payment or a Nonpurpose Receipt as of any Computation Date is determined using the Economic Accrual Method and equals the value of that payment or receipt when it is paid or received (or treated as paid or received), plus interest assumed to be earned and compounded over the period at a rate equal to the Issue Yield, using the same compounding interval and financial conventions used in computing that yield. "Retirement Price'shall mean, with respect to a bond, the amount paid in connection with the retirement or redemption of the bond. "Value" means value as determined under Section 1.148-5(d) of the Regulations for investments. Section 3. Rebate Requirement. (a) Pursuant to this Letter there shall be established a fund separate from any other fund established and maintained under the Bond Resolution designated the Rebate Fund (the "Rebate Fund"), The Issuer shall administer or cause to be administered the Rebate Fund and invest any amounts held therein in Nonpurpose Investments. Moneys shall not be transferred from the Rebate Fund except as provided in this Section 3. (b) Unless one or more of the Spending Exceptions to Rebate described in Appendix I to this letter are applicable to all or a portion of the Gross Proceeds of the Series 2010A Bonds, the Issuer specifically covenants that it will pay or cause to be paid to the United States Government the following amounts: (I) No later than 60 days after each Installment Payment Date, an amount which, when added to the future value of all previous rebate payments made with respect to the Series 2010A Bonds, equals at least 90 percent of the Rebatable Arbitrage calculated as of each such Installment Payment Date; and (2) No later than 60 days after the Final Computation Date, an amount which, when added to the future value of all previous rebate payments made with C-5 respect to the Series 2010A Bonds, equals 100 percent of the Rebatable Arbitrage as of the Final Computation Date. (c) Any payment of Rebatable Arbitrage made within the 60-day period described in Section 3(b)(1) and (2) above may be treated as paid on the Installment Payment Date or Final computation date to which it relates. (d) On or before 55 days following each Installment Payment Date and the Final Computation Date, the Issuer shall determine the amount of Rebatable Arbitrage to be paid to the United States Government as required by Section 3(b) of this Letter. Upon making this determination, the Issuer shall take the following actions: (1) If the amount of Rebatable Arbitrage is calculated to be positive, deposit the required amount of Rebatable Arbitrage to the Rebate Fund; (2) If the amount of Rebatable Arbitrage is calculated to be negative and money is being held in the Rebate Fund, transfer from the Rebate Fund the amount on deposit in such fund; and (3) On or before 60 days following the Installment Payment Date or Final Computation Date, pay the amount described in Section 3(b) of this Letter to the United States Government at the Internal Revenue Service Center, Ogden, Utali. 84201. Payment shall be accompanied by Form 8038-T. A rebate payment is paid when it is filed with. the Internal Revenue Service at the above location. (e) The Issuer shall keep proper books of record and accounts containing complete and correct entries of all transactions relating to the receipt, investment, disbursement, allocation and application of the money related to the Series 2010A Bonds, including money derived from, pledged to, or to be used to make payments on the Series 2010A Bonds. Such records shall specify the account or fund to which each investment (or portion thereof) held by the Issuer is to be allocated and shall set forth, in the case of each investment security, (a) its purchase price; (b) nominal rate of interest; (c) the amount of accruedinterest purchased (included in the purchase price); (d) the par or face amount; (e) maturity date; (f) the amount of original issue discount or premium (if any); (g) the type of Investment Property; (h) the frequency of periodic payments; (i) the period of compounding; (j) the yield to maturity; (k) date of disposition; (1) amount realized on disposition (including accrued interest); and (m) market price data sufficient to establish the fair market value of any Nonpurpose investment as of any Computation Date, and as of the date such Nonpurpose Investment becomes allocable to, or ceases to be allocable to, Gross Proceeds of the Series 2010A Bonds. C-6 Section 4. Prohibited Investments and Dispositions. (a) No Investment Property shall be acquired with Gross Proceeds for an amount (including transaction costs) in excess of the fair market value of such Investment Property. No Investment Property shall be sold or otherwise disposed of for an amount (including transaction costs) less than the fair market value of the Investment Property. (b) For purposes of subsection 4(a), the fair market value of any Investment Property for which there is an established market shall be determined as provided in subsection 4(c). Except as otherwise provided in subsections 4(e) and (f), any market especially established to provide Investment Property to an issuer of governmental obligations shall not be treated as an established market. (c) The fair market value of any Investment Property for which there is an established market is the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arni's-length transaction. Fair market value is generally determined on the date on which a contract to purchase or sell the Investment Property becomes binding (Le., the trade date rather than the settlement date). If a United States Treasury obligation is acquired directly from or disposed of directly to the United States Treasury, such acquisition or disposition shall be treated as establishing a market for the obligation and as establishing the fair market value of the obligation. (d) Except to the extent provided in subsections (e) and (f), any Investment Property for which there is not an established market shall be rebuttably presumed to be acquired or disposed of for a price that is not equal to its fair market value. (e) In the case of a certificate of deposit that has a fixed interest rate, a fixed payment schedule, and a substantial penalty for early withdrawal, the purchase price of such a certificate of deposit is treated as its fair market value on its purchase date if the yield on the certificate of deposit is not less than (1) the yield on reasonably comparable direct obligations of the United States; and (2) the highest yield that is published or posted by the provider to be currently available from the provider on reasonably comparable certificates of deposit offered to the public. (f) The purchase price of a Guaranteed Investment Contract is treated as its fair market value on the purchase date if: (1) The Issuer makes a bona fide solicitation for the Guaranteed Investment Contract with specified material terms and receives at least 3 qualifying from different reasonably competitive providers of Guaranteed Investment Contracts that have no material financial interest in the Series 2010A Bonds; C-7 (2) The Issuer purchases the highest -yielding Guaranteed Investment Contract for which a qualifying bid is made (determined net of broker's fees); (3) The determination of the terms of the Guaranteed Investment Contract takes into account as a significant factor the Issuer's reasonably expected drawdown schedule for the funds to be invested, exclusive of float funds and reasonably required reserve and replacement funds; (4) The collateral security requirements for the Guaranteed Investment Contract are reasonable, based on all the facts and circumstances; (5) The obligor of the Guaranteed Invests tent Contract certifies those administrative costs that it is paying (or expects to pay) to third parties in connection with the contract; and (6) The yield on the Guaranteed lnvesLmerit Contract is not less than the yield currently available from the obligor on reasonably comparable investment contracts offered to other persons, if any, from a source of funds other than Gross Proceeds of tax-exempt bonds. Section 5. Accounting for Gross Proceeds. In order to perform the calculations required by the Code and the Regulations, it is necessary to track the investment and expenditure of all Gross Proceeds. To that end, the Issuer must adopt a reasonable and consistently applied method of accounting for all Gross Proceeds. Section 6. Administrative Costs of Investments. (a) Except as otherwise provided in this Section, an allocation of Gross Proceeds of the Series 2010A Bonds to a payment or receipt on a Nonpurpose InvesLtitent is not adjusted to take into account any costs or expenses paid, directly or indirectly, to purchase, carry, sell or retire the Nonpurpose Investment (administrative costs). Thus, administrative costs generally do not increase the payments for, or reduce the receipts from, Nonpurpose Investments. (b) In determining payments and receipts on Nonpurpose Investments, Qualified Administrative Costs are taken into account by increasing payments for, or reducing the receipts from, the Nonpurpose Investments. Qualified Administrative Costs are reasonable, direct administrative costs, other than carrying costs, such as separately stated brokerage or selling commissions, but not legal and accounting fees, recordkeeping, custody, and similar costs. General overhead costs and similar indirect costs of the Issuer such as employee salaries and office expenses and costs associated with computing Rebatable Arbitrage are not Qualified Administrative Costs C-8 (c) Qualified Administrative Costs include all reasonable administrative costs, without regard to the limitation on indirect costs stated in subsection (b) above, incurred by; (i) A publicly offered regulated investment company (as defined in Section 67(c)(2)(B) of the Code); and (ii) A commingled fund in which the Issuer and any related parties do not own more than 10 percent of the beneficial interest in the fund. (d) For a Guaranteed Investment Contract, a broker's commission paid on behalf of either the Issuer or the provider is not a Qualified Administrative Cost to the extent that the commission exceeds 0.05 percent of the amount reasonably expected to be invested per year. Section 7. Records; Bond Counsel Opinion. (a) The Issuer shall retain all records with respect to the calculations and instructions required by this Letter for at least 6 years after the date on which the last of the principal of and interest on the Series 2010A Bonds has been paid, whether upon maturity, redemption or acceleration thereof. (b) Notwithstanding any provisions of this Letter, if the Issuer shall be provided an opinion of Bond Counsel that any specified action required under this Letter is no longer required or that some further or different action is required to maintain or assure the exclusion from federal gross income of interest with respect to the Series 2010A Bonds, the Issuer may conclusively rely on such opinion in complying with the requirements of this Letter. C-9 Section 8. Survival of Defeasance. Notwithstanding anything in this Letter to the contrary, the obligation of the Issuer to remit the Rebate Requirement to the United States Department of the Treasury and to comply with all other requirements contained in this Letter must survive the defeasance or payment of the Series 2010A Bonds. Very truly yours, BRYANT MILLER OLIVE P.A. BfwIt7VWn OeA Received and acknowledged: City of Miami, Florida By iana M t.mez Finance ctor Dated: July 29, 2010 Appendix I Spending Exceptions to Rebate (a) Generally. All, or certain discrete portions, of an issue are treated as meeting the Rebate Requirement of Section 148(f) of the Code if one or more of the spending exceptions set forth in this Appendix are satisfied. Use of the spending exceptions is not mandatory; except that where an issuer elects to apply the 1-1/2 percent penalty (as described below) the issuer must apply that penalty to the Construction Issue. An issuer may apply the Rebate Requirement to an issue that otherwise satisfies a spending exception. Special definitions relating to the spending exceptions are contained in section (h) of this Appendix. Where several obligations that otherwise constitute a single issue are used to finance two or more separate governmental purposes, the issue constitutes a "multipurpose issue" and the bonds, as well as their respective proceeds, allocated to each separate purpose may be treated as separate issues for purposes of the spending exceptions. In allocating an issue among its several separate governmental purposes, "conimon costs" are generally not treated as separate governmental purposes and must be allocated ratably among the discrete separate purposes unless some other allocation method more accurately reflects the extent to which any particular separate discrete purpose enjoys the economic benefit (or bears the economic burden) of the certain common costs (e.g., a newly funded reserve for a parity issue that is new money). Separate purposes include financing a separate Purpose Inves intent (e.g., a separate loan), financing a Construction Issue, and any clearly discrete governmental purpose reasonably expected to be financed by the issue. In addition, as a general rule, all integrated or functionally related capital projects qualifying for the same initial temporary period (e.g., 3 years) are treated as having a single governmental purpose. Finally, separate purposes may be combined and treated as a single purpose if the proceeds are eligible for the same initial temporary period (e.g., advance refundings of several separate prior issues could be combined, or several non-integrated and functionally unrelated capital projects such as airport runway improvements and a water distribution system). The spending exceptions described in this Appendix are applied separately to each separate issue component of a multipurpose issue unless otherwise specifically noted. (b) Six -Month Exception. An issue is treated as meeting the Rebate Requirement under this exception if (i) the gross proceeds of the issue are allocated to expenditures for the governmental purposes of the issue within the six-month period beginning on the issue date (the "six-month spending period") and (ii) the Rebate Requirement is met for amounts not required to be spent within the six-month spending period (excluding earnings on a bona fide debt service fund). For purposes of the six-month exception, "gross proceeds" means Gross Proceeds other than Appendix I-1 amounts (i) in a bonafide debt service fund, (ii) in a reasonably required reserve or replacement fund, (iii) that, as of the issue date, are not reasonably expected to be Gross Proceeds but that become Gross Proceeds after the end of the six-monthspending period, (iv) that represent Sale Proceeds or Investment Proceeds derived from payments under any Purpose Investment of the issue and (v) that represent repayments of grants (as defined in Treasury Regulation Section 1.148- 6(d)(4)) financed by the issue. In the case of an issue no bond of which is a private activity bond (other than a qualified 501(c)(3) bond) or a tax or revenue anticipation bond, the six-month spending period is extended for an additional six months for the portion of the proceeds of the issue which are not expended within the six-month spending period if such portion does not exceed the lesser of five percent of the Proceeds of the issue or $100,000. (c) 18-Month Exception. An issue is treated as meeting the Rebate Requirement under this exception if all of the following requirements are satisfied: (i) the gross proceeds are allocated to expenditures for a governmental purpose of the issue in accordance with the following schedule (the "18-month expenditure schedule") measured from the issue date: (A) at least 15 percent within six months, (B) at least 60 percent within 12 months and (C) 100 percent within 18 months; (ii) the Rebate Requirement is met for all amounts not required to be spent in accordance with the 18-month expenditure schedule (other than earnings on a bona fide debt service fund); and (iii) all of the gross proceeds of the issue qualify for the initial temporary period under Treasury Regulation Section 1.148-2(e)(2). For purposes of the 18-month exception, "gross proceeds" means Gross Proceeds other than amounts (i) in a bona fide debt service fund, (ii) in a reasonably required reserve or replacement fund, (iii) that, as of the issue date, are not reasonably expected to be Gross Proceeds but that become Gross Proceeds after the end of the 18-month expenditure schedule, (iv) that represent Sale Proceeds or Investment Proceeds derived from payments under any Purpose Investment of the issue and (v) that represent repayments of grants (as defined in Treasury Regulation Section 1.148- 6(d)(4)) financed by the issue. In addition, for purposes of determining compliance with the first two spending periods, the investment proceeds included in gross proceeds are based on the issuer's reasonable expectations as of the issue date rather than the actual Investment Proceeds; for the third, final period, actual Investment Proceeds earned to date are used in place of the reasonably expected earnings. An issue does not fail to satisfy the spending requirement for the third spending period above as a result of a Reasonable Retainage if the Reasonable Retainage is allocated to expenditures within 30 months of the issue date. The 18-month exception does not apply to an issue any portion of which is treated as meeting the Rebate Requirement as a result of satisfying the two-year exception. Appendix I-2 (d) Two -Year Exception. A Construction Issue is treated as meeting the Rebate Requirement for Available Construction Proceeds under this exception if those proceeds are allocated to expenditures for governmental purposes of the issue in accordance with the following schedule (the "two-year expenditure schedule"), measured from the issue date: (i) at least 10 percent within six months; (ii) at least 45 percent within one year; (iii) at least 75 percent within 18 months; and (iv) 100 percent within two years. An issue does not fail to satisfy the spending requirement for the fourth spending period above as a result of unspent amounts for Reasonable Retainage if those amounts are allocated to expenditures within three years of the issue date. (e) Expenditures for Governmental Purposes of the Issue. For purposes of the spending exceptions, expenditures for the governmental purposes of an issue include payments for interest, but not principal, on the issue and for principal or interest on another issue of obligations. The preceding sentence does not apply for purposes of the 18-month and two-year exceptions if those payments cause the issue to be a refunding issue. (f) De Minimis Rule. Any failure to satisfy the final spending requirement of the 18- month exception or the two-year exception is disregarded if the issuer exercises due diligence to complete the project financed and the amount of the failure does not exceed the lesser of three percent of the issue price of the issue or $250,000. (g) Elections Applicable to the Two -Year Exception. An issuer may make one or more of the following elections with respect to the two-year spending exception: (1) Earnings on Reasonably Required Reserve or Replacement Fund. An issuer may elect on or before the issue date to exclude from Available Construction Proceeds the earnings on any reasonably required reserve or replacement fund. If the election is made, the Rebate Requirement applies to the excluded amounts from the issue date. (2) Actual Facts. For the provisions relating to the two-year exception that apply based on the issuer's reasonable expectations, an issuer may elect on or before the issue date to apply all of those provisions based on actual facts. This election does not apply for purposes of determining whether an issue is a Construction Issue and if the 1-1/2 percent penalty election is made. Appendix I-3 (3) Separate Issue. For purposes of the two-year exception, if any proceeds of any issue are to be used for Construction Expenditures, the issuer may elect on or before the issue date to treat the portion of the issue that is not a refunding issue as two, and only two, separate issues, if (i) one of, the separate issues is a Construction Issue, (ii) the issuer reasonably expects, as of the issue date, that such Construction Issue will finance all of the Construction Expenditures to be financed by the issue and (iii) the issuer makes an election to apportion the issue in which it identifies the amount of the issue price of the issue allocable to the Construction Issue. (4) Penalty in Lieu of Rebate. An issuer of a Construction Issue may irrevocably elect on or before the issue date to pay a penalty (the "1-1/2 percent penalty") to the United States in lieu of the obligation to pay the rebate amount on Available Construction Proceeds upon failure to satisfy the spending requirements of the two-year expenditure schedule. The 1-1/2 percent penalty is calculated separately for each spending period, including each semiannual period after the end of the fourth spending period, and is equal to 1.5 percent times the underexpended proceeds as of the end of the spending period. For each spending period, underexpended proceeds equal the amount of Available Construction Proceeds required to be spent by the end of the spending period, less the amount actually allocated to expenditures for the governmental purposes of the issue by that date. The 1-1/2 percent penalty must be paid to the United States no later than 90 days after the end of the spending period to which it relates. The 1-1/2 percent penalty continues to apply at the each of each spending period and each semiannual period thereafter until the earliest of the following: (i) the termination of the penalty under Treasury Regulation Section 1.148-7(1), (ii) the expenditure of all of the Available Construction Proceeds or (iii) the last stated final maturity date of bonds that are part of the issue and any bonds that refund those bonds. If an issue meets the exception for Reasonable Retain age except that all retainage is not spent within three years of the issue date, the issuer must pay the 1-1/2 percent penalty to the United States for any Reasonable Retainage that was not so spent as of the close of the three-year period and each later spending period. (h) Special Definitions Relating to Spending Expenditures. (1) Available Construction Proceeds shall mean, with respect to an issue, the amount equal to the sum of the :issue price of the issue, earnings on such issue price, earnings on amounts in any reasonably required reserve or replacement fund not funded from the issue and earnings on all of the foregoing earnings, less the amount of such issue price in any reasonably required reserve or replacement fund and less the issuance costs financed by the issue. For purposes of this definition, earnings include earnings on any tax-exempt bond. For the first three spending periods of the two- year expenditure schedule described in Treasury Regulation Section 1.148-7(e), Available Construction Proceeds include the amount of future earnings that the issuer reasonably expected as of the issue date. For the fourth spending period described in Treasury Regulation Section 1.148- 7(e), Available Construction Proceeds include the actual earnings received. Earnings on any reasonably required reserve or replacement fund are Available Construction Proceeds only to the extent that those earnings accrue before the earlier of (i) the date construction is substantially completed. or (ii) the date that is two years after the issue date. For this purpose, construction may Appendix 1-4 be treated as substantially completed when the issuer abandons construction or when at least 90 percent of the total costs of the construction that the issuer reasonably expects as of such date will be financed with proceeds of the issue have been allocated to expenditures. If only a portion of the construction is abandoned, the date of substantial completion is the date the non -abandoned portion of the construction is substantially completed. (2) Construction Expenditures shall mean capital expenditures (as defined in Treasury Regulation Section 1.150-1) that are allocable to the cost of Real Property or Constructed Personal Property. Construction Expenditures do not include expenditures for acquisitions of interest in land or other existing Real Property. (3) Construction Issue shall mean any issue that is not a refunding issue if (i) the issuer reasonably expects, as of the issue date, that at least 75 percent of the Available Construction Proceeds of the issue will be allocated to Construction Expenditures for property owned by a governmental unit or a 501(c)(3) organization and (ii) any private activity bonds that are part of the issue are qualified 501(c)(3) bonds or private activity bonds issued to financed property to be owned by a governmental unit or a 501(c)(3) organization. (4) Constructed Personal Property shall mean Tangible Personal Property or Specially Developed Computer Software if (i) a substantial portion of the property is completed more than six months after the earlier of the date construction or rehabilitation commenced and the date the issuer entered into an acquisition contract; (ii) based on the reasonable expectations of the issuer, if any, or representations of the person constructing the property, with the exercise of due diligence, completion of construction or rehabilitation (and delivery to the issuer) could not have occurred within that six-month period; and (iii) if the issuer itself builds or rehabilitates the property, not more than 75 percent of the capitalizable cost is attributable to property acquired by the issuer. (5) Real Property shall mean land and improvements to land, such as buildings or other inherently permanent structures, including interests in real property. For example, Real Property includes wiring in a building, plumbing systems, central heating or air-conditioning systems, pipes or ducts, elevators, escalators installed in a building, paved parking areas, roads, wharves and docks, bridges, and sewage lines. (6) Reasonable Retainage shall mean an amount, not to exceed five percent of (i) Available Construction Proceeds as of the end of the two-year expenditure schedule (in the case of the two-year exception to the Rebate Requirement) or (ii) Net Sale Proceeds as of the end of the 18-month expenditure schedule (in the case of the 18-month exception to the Rebate Requirement), that is retained for reasonable business purposes relating to the property financed with the issue. For example, a Reasonable Retainage may include a retention to ensure or promote compliance with a construction contract in circumstances in which the retained amount is not yet payable, or in which the issuer reasonably determines that a dispute exists regarding completion or payment. Appendix 1-5 (7) Specially Developed Computer Software shall mean any programs or routines used to cause a computer to perform a desired task or set of tasks, and the documentation required to describe and maintain those programs, provided that the software is specially developed andis functionally related and subordinate to Real Property or other Constructed Personal Property. (8) Tangible Personal Property shall mean any tangible personal other than Real Property, including interests in tangible personal property. For example, Tangible Personal Property includes machinery that is not a structural component of a building, subway cars, fire trucks, automobiles, office equipment, testing equipment, and furnishings. (i) Special Rules Relating to Refundings. (1) Transferred Proceeds. In the event that a prior issue that might otherwise qualify for one of the spending exceptions is refrmded, then for purposes of applying the spending exceptions to the prior issue, proceeds of the prior issue that become transferred proceeds of the refunding issue continue to be treated as unspent proceeds of the prior issue; if such unspent proceeds satisfy the requirements of one of the spending exceptions then they are not subject to rebate either as proceeds of the prior issue or of the refunding issue. Generally, the only spending exception applicable to refunding issues is the six-month exception. In applying the six-month exception to a refunding of a prior issue, only transferred proceeds of the refunding issue from a taxable prior issue and other amounts excludedfrom the definition of gross proceeds of the prior issue under the special definition of gross proceeds contained in section (b) above are treated as gross proceeds of the refunding issue and so are subject to the six-month exception applicable to the refunding issue. (2) Series of Refundings. In the event that an issuer undertakes a series of refundings for a principal purpose of exploiting the difference between taxable and tax-exempt interest rates, the six-monthspending exceptionis measured for all issues in the series commencing on the date the first bond of the series is issued. (j) Elections Applicable to Pool Bonds. An issuer of a pooled financing issue can elect to apply the spending exceptions separately to each loan from the date such loan is made or, if earlier, on the date on year after the date the pool bonds are issued. In the event this election is made, no spending exceptions are available and the normal Rebate Requirement applies to Gross Proceeds prior to he date on which the applicable spending periods begin. In the event this election is made, the issuer may also elect to make all elections applicable to the two-year spending exception, described in section (g) above, separately for each loan; any such elections that must ordinarily be made prior to the issue date must then be made by the issuer before the earlier of the date the loan is made or one year after the issue date. Appendix I-6