Fiscal advisor warns commissioners about note timing, IRS arbitrage and near‑term interest payments
Summary
The county’s financial advisor said the April issuance of $35 million in capital outlay notes generated $37,051,767 in proceeds that are invested, but cautioned that tax rules and spending timelines create legal and budgetary pressure and an expected first interest payment of roughly $745,167.92 in October.
Stephen L. Bates, the county’s financial advisor and president of Guardian Advisors, summarized the financing structure and the time constraints linked to the capital outlay notes the county issued.
"We received $37,051,767 for those $35,000,000 notes," Bates said, reporting the proceeds and how they are invested. He explained the county anticipated interest income on the note proceeds and estimated roughly $38.6M available for construction after projected earnings. Bates warned of IRS rules on arbitrage (penalties if tax‑exempt proceeds are invested and earn profits beyond permitted uses) and said failure to spend the proceeds in required windows could create costly penalties.
Bates noted the county’s first interest payment on the notes is scheduled for October and estimated that payment at about $745,167.92. He urged the commission to move funds toward project spending or plan remedial steps to avoid IRS arbitrage liability and said that, if bids exceed budget, the commission should return to the budget committee to identify options rather than indefinitely delaying spending.
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