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The Tax Reform Act of 1986 provides calculation requirements on the County's yield from investing tax-exempt General Obligation and Revenue bond and temporary note proceeds and debt service funds. These new arbitrage rebate provisions require that the County compute earnings on investments from each issue of bonds on an annual basis to determine if a rebate is required. To determine the County's arbitrage position, the County is required to calculate the actual yield earned on the investment of the funds and compare it to the yield that would have been earned if the funds had been invested at a rate equal to the yield on the bonds sold by the County. The rebate provisions state that periodically (not less than once every five years, and not later than sixty days after maturity of the bonds), the County is required to pay the U.S. Treasury a rebate of any excess earnings. These restrictions require extreme precision in the monitoring and record keeping of investments, particularly in computing yields to ensure compliance. Failure to comply can dictate that the bonds become taxable, retroactively from the date of issuance.

The County's investment position relative to arbitrage restrictions is to continue pursuing the maximum yield on applicable investments while ensuring the safety of capital and liquidity. It is a fiscally sound policy to continue maximization of yield and to rebate excess earnings, if necessary.

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