Finance staff: Spring Hill owes just over $100,000 in arbitrage on 2020 bonds; advisers recommend rebating to resolve matter

The Budget and Finance Committee was told an arbitrage study of the city's 2020 bonds found the municipality owes a little more than $100,000 in excess earnings that must be rebated to the federal government.

"Arbitrage basically means you earned too much on the bond proceeds," Miss Holden said, adding that the payment "is not a penalty" but rather a rebate to the Internal Revenue Service for interest earned the city should not have kept.

John Warner of Cumberland Securities, the adviser who reviewed the bonds, told the committee that COVID-related delays and contractor shortages prevented the city from meeting federal spend-down requirements when the bonds were issued. "At the end of the day, in 2020, when Spring Hill borrowed the money, they had no idea that we were gonna have the problems that we had with COVID," Warner said, and recommended the city "go ahead and rebate the difference and ... just resolve the matter as done."

Committee members and staff described the underlying issue as incomplete documentation rather than missing funds. Holden said the previous finance office did not keep sufficiently detailed records to trace every movement of bond proceeds. "We just don't think documentation was where it needed to be," she said, and described a new monthly Excel tracking spreadsheet she will use to monitor spend-downs on future bond issues.

Warner advised prompt payment and a brief explanatory letter to the IRS. "Payment is due soon," he said, adding that a letter noting the delay was an oversight and not malicious should accompany the rebate.

The committee did not take a formal vote on payment at the meeting; members accepted the recommendation to remit the rebate and to strengthen recordkeeping going forward. The arbitrage item will be noted in the audit MD&A footnotes but, according to Holden, is not expected to be an audit finding.