Arbitrage Rebate Services_Berens Tate ConsultingTHE CITY OF
DUB E
Masterpiece on the Mississippi
MEMORANDUM
November 14, 2007
TO: The Honorable Mayor and City Council Members
FROM: Michael C. Van Milligen, City Manager
SUBJECT: Arbitrage Rebate Services
Finance Director Ken TeKippe is recommending that the City of Dubuque contract with
the Berens-Tate Consulting Group to prepare arbitrage calculations for the City of
Dubuque related to City debt issuance. The fees are anticipated to be approximately
$6,000, which will be paid with consultant fees budgeted in the Finance Department.
I concur with the recommendation and respectfully request Mayor and City Council
approval.
Michael C. Van Milligen -
MCVM/jh
Attachment
cc: Barry Lindahl, City Attorney
Cindy Steinhauser, Assistant City Manager
Ken TeKippe, Finance Director
THE CITY OF
DuB E MEMORANDUM
~-~-~
TO: Michael C. Van Milligen, City Manager
FROM: Ken TeKippe, Finance Director j~ ~ ~`
SUBJECT: Arbitrage Rebate Services
DATE: November 14, 2007
INTRODUCTION
In the past, the City of Dubuque has never retained a firm to prepare arbitrage
calculations for the City. Since the City of Dubuque has become a more frequent
borrower in recent years, arbitrage can become a factor and should be evaluated.
BACKGROUND
The calculation, monitoring, and reporting of arbitrage is complex and, as with most
issues regulated by the Internal Revenue Service, not to be taken lightly. Arbitrage, in
the context of municipal securities, is the difference between the rate at which the
proceeds were borrowed and the rate at which the proceeds were invested. A failure to
pay arbitrage when due (called "rebate") can result in the bonds being declared taxable.
Rebate payments generally are due every five years and within 60 days after the bonds
are refunded.
DISCUSSION
There are a number of exemptions that would allow the City to be exempt from arbitrage
issues. One exemption is available for issuers which issue less than $5 million of tax
exempt bonds in a calendar year. Two other exemptions relate to the length of time the
issuer takes to spend down the proceeds. If all proceeds of the bonds are not spent
within the required period for these exemptions (18 months or two years), there can be
exposure to arbitrage. Typically cities engage a firm to track and periodically report
arbitrage exposure.
Proposals were received from the PFM Group and Berens-Tate Consulting Group. The
work by the PFM Group would be performed by a division of PFM located in Harrisburg,
Pennsylvania. The Berens-Tate Group is based out of Omaha, Nebraska. The fees
should be in the $5,000-6,000 range to review two or three bond issues that do not
meet the $5 million annual exemption. There may be additional issues reviewed during
next fiscal year.
The Berens-Tate firm has worked with the City in the past on escrow verification issues
for bond refinancing. The firm has an extensive list of Iowa city, county and local
subdivision clients. A copy of the proposal received from Berens-Tate, as well as a list
of Iowa clients and a brochure describing "Arbitrage Rebate and Escrow Verification
Services" is enclosed. Bill Noth, city bond attorney, supports the selection of the
Berens-Tate firm.
RECOMMENDATION
Funding for the arbitrage services will be paid with consultant fees in the Finance
Department budget. Approval for engaging the Berens-Tate firm would be appreciated.
The work should be completed within 60 days of the most recent refunding.
KT/jg
Enclosures
_ BERENS-TATE CONSULTING GROUP
~ SPECIALIZING IN PUBLIC SECTOR ACCOUNTING AND FINANCE
October 4, 2007
Mr. Ken TeKippe
City of Dubuque
50 West 13th Street
Dubuque, IA 52001-4864
Dear Mr. TeKippe:
Thank you for the opportunity to provide arbitrage rebate services to City of Dubuque ("City").
This letter outlines my understanding of the services to be provided.
SCOPE
We will provide arbitrage rebate consulting services for the City's tax-exempt debt. This will
include analyzing the City's bond issues to determine if they are subject to rebate, completing the
appropriate calculations and reports, and keeping the City infoT~rned on changes in the related
Regulations.
PROCEDURES
We will perform the following procedures when it is necessary to perform a detail calculation:
• Review of bond documentation (official statement, arbitrage certificate, investment
information, IRS Form 8038, etc.).
• Determine the bond yield.
• Compute the rebate amoturt (based upon the net fixture value of the non-purpose
investments or the "cash flow method").
• Work closely with bond counsel to resolve any questions which may arise.
• Work with you to determine the appropriate investrr~ent strategy for each bond
issue/account. as well as the funding -~f and accounting for any rebate liability which might
exist.
lOOSO REGENCY CIRCLE /SUITE 4OO OMAHA, NEBRASKA 68114 (402) 391-6188 FAX <402) 391-7363
~'
J
REPORTS
We will prepare the following reports when a detail calculation is performed:
• Summary report -describes procedures performed and the amount of any rebate owed.
• Arbitrage rebate report -includes details of all transactions, sources of information,
assumptions, as well as the calculation.
IRS Form 8038-T -prepare the proper IRS Form if any rebate is owed and paid at this time.
In order to keep the City informed on the rebate status of its tax exempt debt, we will periodically
issue the following report:
Executive Summary - Provides a summary of the arbitrage rebate status of all tax exempt debt. This
summary would also include practical suggestions and open issues or actions that will help the City
to better manage the bonds, including recordkeeping and investments.
CITY'S RESPONSIBILITIES
The City is responsible for providing the Consulting Grroup with the documentation necessary to
complete the calculation. This would include bond documentation (official statement, arbitrage
certificate, 8038, etc.), as well as expenditure and investment information (trust statements/activity
summary by fund, investment summary, disposition of bond proceeds, etc.). In determining the
rebate amount for the Bonds, we will rely on the information provided by you without independent
verification. We will retain copies of the records you have supplied us, along with our work papers
for your engagement. However, our work papers and files are not a substitute for the original
records of the client.
FEES
We estimate our fees will be the following, plus actual out-of-pocket expenses (travel, delivery
charges, etc.), when detail calculations are required:
Scone Fees
Rebate Calculation (1-2 years) $2,000 - 2,500
Rebate Calculation (3-5 years) $2,500 - 3,000
Spend down Calculation (24 month) $2,000 - 3,000
...ia
Fees will be due within 30 days of completion of the project. This arrangement is cancelable within
thirty days written notice of either the City or the Consulting Group. While we do not anticipate
any problems, if unexpected problems arise which are beyond the scope of our work and would
affect our fee quote, we would discuss these with you and obtain the necessary authorization from
you before performing any additional procedures.
We look forward to working with the City of Dubuque and appreciate this opportunity to serve you.
Sincerely,
BERENS-TATS CONSULTING GROUP
C~ a~-
Chris D. Berens
If you agree with the services outlined in this letter, please sign in the space provided below and
return a copy to me.
Accepted by:
Date:
t
BERENS-TATE CONSULTING GROUP
SPECIALIZING IN PUBLIC SECTOR ACCOUNTING AND FINANCE
October 4, 2007
Mr. Ken TeKippe
City of Dubuque
50 West 13th Street
Dubuque, IA 52001-4864
Dear Mr. TeItippe:
Thank you for the opportunity to propose on the arbitrage rebate services to the City of Dubuque
("City"). The enclosed proposal addresses the requirements of the Request for Proposal.
We believe that not all arbitrage rebate consultants are created equal. The following reasons
describe why the Berens-Tate Consulting Group ("BTCG") stands out above the rest:
COMMITMENT TO IOWA: We have been serving clients in the State of Iowa for over
fifteen years and are committed to continue providing the best resources available to serve
the State. We currently serve as the rebate consultants and escrow verification agents for
over 240 issuers in Iowa, which is more than all other analysts combined.
WE HELD MANAGE BONDS: We do more than just complete rebate calculations -- we
will help you manage the bonds. Our procedures have included reviewing your investment
strategy, fund operation, and answering your accounting and financial reporting questions.
PROVEN COST SAVINGS: We have a proven track record for helping clients save
money, in some instances literally millions of dollars. W e will help you to minimize your
rebate liabilit}~ and challenge your investment strategies.
UNEQUALED QUALIFICATIONS: Chris Berens has served as *he arbitrage rebate and
verification consultant on over $SU billion dollars in debt. In addition, Elliot Stem, who
literally "wrote the book" on arbitrage rebate, is a member of the service team. No other
firm can provide you a true expert on the local level and allow you access to the foremost
authority i,n atbitrag~ rebate in the United States.
lOOSO REGENCY CIRCLE /SUITE 40O OMAHA, NEBRASKA 68114 (4O2) 391-6188 FAX (4O2) 391-?363
s
'r
SPECIALIZED REFUNDING ANALYSIS: There are often many arbitrage
opportunities and pitfalls in structuring refunding bonds. Due to our experience with both
escrow verification and arbitrage rebate, we analyze proposed refundings for arbitrage
rebate opportunities. We have the ability to challenge the refunding structure to try and
minimize the arbitrage rebate impact on both the refunding and refunded bonds. In fact, we
completed the escrow verification report for the City's 2006 GO Refunding Bonds.
Thank you again for the chance to propose on the arbitrage rebate services. After you review the
proposal, I hope you will agree that the Berens-Tate Consulting Group is the right choice for the
City of Dubuque!
Sincerely,
BERENS-TATE CONSULTING GROUP
(' D ~-
Chris D. Berens
Enclosure
M
y BERENS-TATE CONSULTING GROUP
ARBITRAGE REBATE AND ESCROW VERIFICATION CLIENT LIST
CITIES, COUNTIES, AND LOCAL SUBDIVISIONS IN IOWA
City of Dubuque, Iowa
City of Des Moines, Iowa
City of Sioux City, Iowa
Des Moines Water Works
City of Ames, Iowa
City of Waterloo, Iowa
City of Davenport, Iowa
City of Council Bluffs, Iowa
City of Thompson, Iowa
Winneshiek County, Iowa
City of Lemars, Iowa
City of Britt, Iowa
City of Atlantic, Iowa
City of Orange City, Iowa
City of Fayette, Iowa
City of Denison, Iowa
City of Pleasant Hill, Iowa
City of Clarinda, Iowa
Polk County, Iowa
City of Iowa City, Iowa
Buena Vista County, Iowa
City of Mount Vernon, Iowa
Pottawattamie County, Iowa
City of Jesup, Iowa
City of Postville, Iowa
Cedar County, Iowa
City of Nevada, Iowa
City of Lenox, Iowa
City of Windsor Heights, Iowa
City of Cedar Falls, Iowa
City of Pella, Iowa
City of Wilton, Iowa
Cedar Falls, Iowa Utilities
Council Bluffs, Iowa Water Works
City of Marshalltown, Iowa
Marshalltown Water Works, Iowa
City of Estherville, Iowa
City of Madrid, Iowa
Winterset Municipal Utilities, Iowa
City of Cedar Rapids, Iowa
City of Mason City, Iowa
Urbandale Sanitary Sewer District, Iowa
City of Urbandale, Iowa
City of Sioux Center, Iowa
City of Burlington, Iowa
i
City of Grimes, Iowa
City of Ft. Dodge, Iowa
Boone County, Iowa
City of Coralville, Iowa
City of LeClaire, Iowa
City of Newton, Iowa
City of Hawarden, Iowa
City of Story City, Iowa
City of Cherokee, Iowa
City of Indianola, Iowa
Indianola Municipal Utilities
Keokuk Municipal Waterworks, Iowa
Keokuk County, Iowa
City of Spencer, Iowa
City of Huxley, Iowa
Des Moines Metropolitan Wastewater Reclamation Authority, Iowa
Hardin County, Iowa
Marshall County, Iowa
City of Adel, Iowa
O'Brien County, Iowa
City of Maquoketa, Iowa
Mitchell County, Iowa
City of Creston, Iowa
Kossuth County, Iowa
City of Logan, Iowa
City of DeWitt, Iowa
City of Amolds Park, Iowa
City of Okoboji, Iowa
Stuart Municipal Utilities
City of Keokuk, Iowa
City of Oelwein, Iowa
City of Mount Pleasant, Iowa
Alta Municipal Utilities, Iowa
City of Primghar, Iowa
City of Ottumwa, Iowa
Dickinson County, Iowa
City of Lake Park, Iowa
City of Storm Lake, Iowa
City of Johnston, Iowa
BERENS-TATE CONSULTING GROUP
SPECIALIZING I N PUBLIC SECTOR ACCOUNTING AND F I N A N C E
ARBITRAGE REBATE
AND
ESCROW VERIFICATION SERVICES
10050 REGENCY CIRCLE /SUITE 400
OMAHA, NEBRASKA 68114
TEL (402) 391-6188
FAx (402) 391-7363
THE ABC'S OF ARBITRAGE REBATE
WHO IS SUBJECT?
All issuers oftax-exempt debt.
WHAT IS ARBITRAGE REBATE?
"Arbitrage" is the profit from investing the bond proceeds at a yield (i.e. interest rate) that is higher
than the yield on the bonds. "Rebate" is the process of returning these profits back to the IRS.
WHERE DO YOU FILE THE IRS FORMS?
All IRS forms and rebate payments are filed with the Odgen, Utah service center.
WHEN DOES IT HAVE TO BE DONE?
Completion of the arbitrage rebate calculation, filing of the appropriate tax forms, and payment of
the rebate must be done within sixty days of the end of each fifth bond year or upon retirement of
the bonds. If no rebate is owed, nothing has to be filed with the IRS.
WHY SHOULD YOU COMPLY?
Penalties for failure to comply can be significant -ranging from a substantial cash "fine" to loss of
tax-exempt status. For most issuers it is not a question of if they are going to comply, but rather
how are they going to comply.
BERENS-TATS CONSULTING GROUP
S P E C I A I. R I N G I N P U R L I C S E C T O R ACCOUNTING AND F I N A N C E
WHY THE BERENS-TATE CONSULTING GROUP?
Arbitrage rebate and escrow verification consultants are not created equal. The following reasons
describe what sets the Consulting Group apart from the rest.
WE HELP MANAGE BONDS: We do more than just complete rebate calculations - we
will help you manage the bonds. Our procedures include reviewing your investment
strategy and fund operation, answering your accounting and financial reporting questions,
and projecting future rebate liabilities. On an as-needed basis we can complete yield
restriction analyses and certification of debt service coverage.
UNSURPASSED CLIENT SERVICE: We are fervent about client service. "Client
service" is not just a marketing slogan to us - it is woven into the fabric of our daily
operations. We provide unsurpassed client service and are committed to serving each and
every client.
PROVEN COST SAVINGS: We have a proven track record for helping clients save
money, in some instances literally millions of dollars. We will help you to minimize your
rebate liability and challenge your investment strategies.
UNIQUELY QUALIFIED: Chris Berens has served as the arbitrage rebate and
verification consultant on over $50 billion in bonds. In addition, Elliot Stern, who literally
"wrote the book" on arbitrage rebate, is a member of the service team. We provide you
experts at the project level and allow you access to one of the foremost authorities on
arbitrage rebate in the United States.
SPECIALIZED REFUNDING ANALYSIS: There are often many arbitrage
opportunities and pitfalls in structuring refunding bonds. Due to our experience with both
escrow verification and arbitrage rebate, we analyze proposed refundings for arbitrage
rebate opportunities. We have the ability to challenge the refunding structure to try and
minimize the arbitrage rebate impact on both the refunding and refunded bonds.
PERSONALIZED, FLEXIBLE SERVICE: We do not believe that "one size fits all"
when it comes to arbitrage rebate and escrow verification services. Our services are truly
tailored to each organization's needs.
BERENS-TATE CONSULTING GROUP
SPECIALI7.ING IN PUBLIC SECTOR ACCOUNTING AND FINANCE
r
PROFESSIONAL QUALIFICATIONS
We have assembled nationally recognized experts in the area of arbitrage rebate. Each member of
the service team is dedicated solely to arbitrage rebate and escrow verification services.
CIiRIS D. BERENS will manage all services performed by BTCG. Chris will participate
in client meetings, review calculations and reports, and provide
technical expertise.
For sixteen years Chris has served as the arbitrage rebate and
verification consultant for over 600 public sector entities throughout
the country. His work has encompassed over 2,000 bond issues in
excess of $50 billion dollars. He holds a Certified Public
Accountant's Certificate, and prior to joining the Consulting Group
he was the Public Sector Industry Director for the Nebraska/Iowa
practice of an international accounting firm.
JEFFREY A. KOSTAL will supervise the day-to-day delivery of the arbitrage and escrow
verification services. He will review the detail computations and
participate in complex analyses related to transferred proceeds, parity
funds, universal cap, and variable yield bonds.
During his fifteen years in the arbitrage rebate field Jeff has reviewed
or prepared literally thousands of calculations. In addition, he has a
broad municipal finance background including continuing
disclosure, special financing districts, budgeting, and forecasting.
Prior to joining the Consulting Group he was a Manager for the
Arbitrage Rebate Services Practice of an international accounting
firm.
BERENS-TATE CONSULTING GROUP
~rpyk. SPECIALI Zi NG f N Pl!BLI C SECTOR ACCOUNTING AND FINANC E
KATHLEEN A.
FERRAZZO is a staff consultant for BTCG and is available to complete the detail
arbitrage rebate calculations and escrow verification reports.
Kathy has completed thousands of rebate calculations and escrow
verification reports over the past ten years. She has a wealth of
experience in performing calculations, ranging from basic to very
complex bond structures. In addition, she has worked with all types
of bond issuers including state & local governments, health care
providers, colleges and universities, public power and utilities,
secondary education, and not-for-profits.
FREDERICK R.
RIESER is a staff consultant for BTCG and is available to complete the detail
arbitrage rebate calculations and escrow verification reports.
Fred has prepared numerous arbitrage rebate calculations and escrow
verification reports and performed complex analyses related to
transferred proceeds, parity funds, and variable yield bonds. He
brings significant investment experience to BTCG as he was an
investment accountant for a large insurance company.
ELLIOT M. STERN of Ruden, McClosky, Smith, Schuster & Russell, P.A., Ft.
Lauderdale, Florida, is the technical advisor for BTCG. He is
available to review reports and provide interpretations of the
regulations on an as-needed basis
Elliot developed the REBATECALC and @BOND software, which
will be used for all arbitrage rebate calculations. From 1986 to 1989
Elliot worked in the United States Treasury Department and was
directly involved in the development and drafting of the tax-exempt
bond provisions of the 1986, 1987, and 1988 Tax Acts. In addition,
he was the principal author of the arbitrage rebate regulations
published by the Treasury Department in May 1989.
BERENS-TATE CONSULTING GROUP
SPEC IALI7.ING IN P11gLIC SECTOR ACCOUNTING AND FINANCE
DESCRIPTION OF THE ARBITRAGE REBATE SERVICES
With the Berens-Tate Consulting Group, you decide the level of service that best fits your needs.
We can help you determine the option that is right for you and customize our service to fit your
needs. The following procedures and reports will be completed:
• Review of bond documentation to determine how the regulations should be applied.
• Determine the bond yield.
• Compute the rebate amount.
• Work with your finance officer and/or trustee to challenge the investment strategy for each bond
issue.
• Discuss the appropriate funding of, and accounting for any rebate liability which might exist.
• Resolve any issuance questions which may arise with your bond counsel.
REPORTS
• Arbitrage rebate report - Prepare a report in an easily understood format, which describes the
procedures which were performed and the amount of any arbitrage rebate owed.
• IRS Forms -Prepare the proper IRS form to accompany any required payment to the federal
government.
• Executive Summary - Provides a condensed summary of the arbitrage rebate status of the
bonds, including recommendations related to managing the bonds.
BERENS -TATS CONSULTING GROUP
$PE(;IA L17.I NC 1 N P1~ RI.I (' SPf Tf1R A('('(111NT1 Nf. 4 N n FIN e Nrc
DESCRIPTION OF THE ESCROW VERIFICATION SERVICES
Our services consist of verification of the mathematical accuracy of certain computations relating to
the refunding bonds contained in schedules provided to us by the financial advisor or underwriter.
The purpose of our testing is to conclude that:
1) The anticipated receipts from the escrow investments together with an initial cash
deposit to be held in the escrow, will be sufficient to pay the principal, interest, and
call premium requirements of the refunded bonds.
2) The yield on the investments purchased with proceeds of the refunding bonds is less
than the yield on the refunding bonds, which supports the conclusion that the bonds
aze not "arbitrage bonds" under Section 148 of the Internal Revenue Code.
PROCEDURES
• Calculate the future cash receipts from the escrow investments.
• Calculate the escrow requirements relating to the refunded bonds.
• Determine if there will be sufficient receipts to pay the escrow requirements.
• Calculate the yield on the refunding bonds and compaze it to the yield calculated on the escrow
investments.
• Compaze the detailed information contained in our analysis to independent information, such as
official statements, escrow agreements, SLG Subscription Forms, etc.
REPORTS
Prepare a report in an easily understood format, which describes the procedures which were
performed and the results of our testing. This report is provided to the bond counsel, who
coordinates the distribution of bond documents.
BERENS-TATE CONSULTING GROUP
S P E C I A L I Z I N G I N PUBLIC SECTOR ACCOUNTING AND F I N A N C E