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Board clarifies bond advisory vs. IRS arbitrage monitoring contracts; approves both
Summary
Trustees discussed two consent items: a financial-advisory contract for future bond issuance and an arbitrage‑monitoring contract to ensure IRS compliance on past bond proceeds. Staff explained the advisory contract is used for new issuances and may be used for refinancings; the arbitrage contract performs annual compliance calculations.
The Temecula Valley Unified School District Board of Education reviewed and approved two finance-related consent contracts July 22: a financial advisory services agreement that the district uses when issuing new bonds or refinancing existing debt, and a separate arbitrage monitoring contract that performs IRS-required calculations for outstanding tax-exempt bonds.
Trustee Jennifer Wiersma asked whether the advisory contract applied to past bond issuances or only future debt. District financial staff explained advisors typically assist with new bond issuances and underwriter selection but could be engaged for optional refinancing opportunities if market conditions make that advantageous. Regarding the arbitrage monitoring vendor (an IRS compliance service), staff said there was an RFP process and the vendor was a long-standing provider; the service performs annual calculations to determine whether interest earned on bond proceeds exceeds permitted yields and, if so, computes amounts that must be rebated to the federal government. ‘‘If you do [earn in excess], the calculation will show that you have to pay money back,’’ staff said in explanation.
Why it matters: The two contracts serve distinct roles — one assists with market transactions and issuance planning, the other provides annual compliance calculations to avoid tax liabilities tied to tax-exempt debt. Trustees sought and received clarification about scope and vendor selection before voting to approve the items.
Next steps: The board approved both items as consent items; staff will continue standard oversight of these contracts and will use financial advisors when the district next issues or refinances debt.
