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City staff say Miami Forever bond dollars must be spent faster to avoid IRS arbitrage issues
Summary
City staff told the Capital Improvements Oversight Board that Miami Forever bond proceeds must be spent faster, with a target of roughly 80% expended by June 2027, because investment returns on unspent bond proceeds have created potential IRS arbitrage concerns.
City staff told the Capital Improvements Oversight Board on a capital-program update that Miami must accelerate spending of Miami Forever bond proceeds to avoid tax-law penalties tied to earnings on invested bond proceeds.
The city’s presentation showed roughly 22% of the bond funds expended to date. “We’re looking to get this really rolling forward — 80% expenditure by that [June 2027] time frame,” Hector Badia, assistant director of the Office of Capital Improvements (OCI), said during the meeting.
The city attorney explained the specific legal constraint: when a municipality issues tax-exempt bonds and earns investment income on the proceeds, the Internal Revenue Service limits the amount of time those proceeds can remain unspent without triggering arbitrage rules. “There are timelines. It usually is about three to five years,” the city attorney said. The attorney added that, when warranted, the city can work with bond counsel to justify extensions in fact-specific cases (for example, delays caused by natural disasters or permitting), and that swapping funds to shovel-ready projects is also an option.
Staff and project managers told the board several factors have delayed implementation and increased costs on projects, including the timing of grant approvals (many letters of intent for state and federal grants were executed in September 2023), lengthy environmental-clearance processes, construction cost inflation (some projects have increased 50%–90%), and limited contractor availability.
Board members pressed staff for reassurance that projects with completion dates after June 2027 can still have bond dollars spent in time. “A project can end in 2029, but as long as the actual bond dollars were spent in 2027, then there’s no issue,” the city attorney said. Staff said the city is prioritizing use of grant dollars first and sequencing bond draws so that bond funds are expended before the deadlines where possible.
Staff described other mitigations: seeking grant extensions when allowable, documenting delays (environmental/permitting) to justify extensions to bond counsel and the IRS, and reallocating bond dollars to shovel-ready projects if needed. Finance, legal and project teams said they are coordinating with bond counsel and tracking schedules closely.
Ending: Staff said they will return to the oversight board with more detailed status reports for projects that are at risk of exceeding the Miami Forever spending window and with a schedule of planned reimbursements and obligating actions.
