STATE OF NEW YORK MUNICIPAL BOND BANK AGENCY Recvery Act Bnd Prgram Written Prcedures fr Tax Cmpliance and Internal Mnitring, adpted September 12, 2013 PROGRAM OVERVIEW The State f New Yrk Municipal Bnd Bank Agency ( MBBA ) instituted its Recvery Act Bnd Prgram (the Prgram ) in 2009 in rder t facilitate access t the capital markets fr New Yrk State municipalities seeking t take advantage f certain prvisins f the American Recvery and Reinvestment Act f 2009 ( ARRA ). Under the Prgram, MBBA purchased full faith and credit general bligatin bnds issued by New Yrk State municipalities fr ARRA purpses. MBBA, in turn, sld its Recvery Act Bnds t raise funds t finance these purchases. Build America Bnds ( BABs ) and Recvery Zne Ecnmic Develpment Bnds ( RZEDBs ) were created by ARRA as an alternative t tax-exempt gvernmental bnds. The BABs referred t herein are tax-advantaged bnds issued as described in Sectin 54AA(g) f the Internal Revenue Cde f 1986, as amended (the "Cde"). Issuers f BABs may receive a refundable credit payment equal t 35% f the interest payable n such bnds n each interest payment date. The taxadvantaged status f BABs remains thrughut the life f the BABs if all applicable federal tax laws are satisfied while the BABs are utstanding. In additin t BABs, ARRA created anther alternative t tax-exempt gvernmental bnds knwn as Recvery Zne Ecnmic Develpment Bnds ( RZEDBs ). RZEDBs are similar t BABs with tw imprtant exceptins. First, issuers f RZEDBs receive a credit equal t 45% f the interest payment n such bnds. Secnd, the authrity t issue RZEDBs was limited t specific allcatins made by the federal gvernment t every Cunty in the United States and t every ther municipal gvernment with a ppulatin f 100,000 r mre. BABs and RZEDBs (hereafter cllectively referred t as BABs ) als have special requirements that must be fllwed, in additin t ther requirements under the Cde and the Treasury Regulatins (the "Regulatins") which apply generally t tax-exempt gvernmental bnds, including specifically: De Minimis Premium Rule The issue price f BABs must nt have mre than a de minimis amunt (determined under rules similar t the rules f Sectin 1273(a)(3)) f premium ver the stated principal amunt f the bnd. 2% Csts f Issuance Limitatin Csts f issuance financed by the issue must nt exceed 2% f the prceeds f sale. Crrect Calculatin f "Available Prject Prceeds" The term "Available Prject Prceeds" means sale prceeds, less nt mre than tw percent f such prceeds used t pay bnd issuance csts, plus investment prceeds theren. Capital Expenditure Requirement All prceeds f BABs, ther than prceeds depsited in a reasnably required reserve fund, if any, r used t pay csts f issuance, must be spent n capital expenditures. F:\LEGAL\LV\2013\BAB Plicies\2013 06 13 Revised Draft f BAB Plicies gbcmparedtdesmndversin_final.dcx 1
Irrevcable Electin The issuer f BABs is required t make an irrevcable electin t have sectin 54AA(g) f the Cde apply. Crrect and Timely 8038-CP Filing The Issuer must timely file a crrectly cmpleted Frm 8038-CP in rder t receive payment f the credit. T cmply with all applicable federal tax requirements, issuers f BABs must ensure that the rules are met at the time the BABs are issued and thrughut the term f the BABs. Generally this includes cntinued maintenance f recrds sufficient t establish cmpliance with all applicable federal tax requirements, including recrds related t perids befre the BABs are issued (e.g., in the case f reimbursement f prir expenditures) until three years after the final maturity date f the BABs. MBBA is the issuer f the BABs and RZEDBs n behalf f the participating lcal gvernments and as such is bligated t cmply with relevant federal, State and lcal laws as well as its internal prcedures. In rder t ensure cmpliance and timely receipt f relevant subsidy payments, MBBA has established the fllwing prcedures. PURPOSE These Internal Management Plicies are designed t set frth prcedures t ensure that MBBA (a) applies fr each interest subsidy payment with respect t BABs in an accurate and timely manner, (b) utilizes the prceeds f the BABs in accrdance with all applicable federal tax guidelines, and (c) cmplies with all ther applicable federal guidelines with respect t the BABs. MBBA's Chief Financial Officer r Chief Executive Officer will identify the fficer r ther emplyee(s) wh will be respnsible fr each f the prcedures listed belw, ntify the current hlder f that ffice f the respnsibilities, and prvide that persn a cpy f these prcedures. Upn emplyee r fficer transitins, MBBA s Chief Financial Officer will advise the new persnnel f their respnsibilities under these prcedures and ensure they understand the imprtance f these prcedures. If emplyee r fficer psitins are restructured r eliminated, MBBA's Chief Financial Officer will reassign respnsibilities as necessary t ensure that all prcedures hereunder have been apprpriately assigned. Prcedures Maintenance f Recrds. Prgram participants must maintain detailed recrds regarding the expenditure f the BABs prceeds, and make them available upn request r n the ccasin f risk f nncmpliance t MBBA. 100% f Prceeds Must Be Fr Capital Expenditures Federal law prvides that all prceeds f BABs, ther than prceeds depsited in a reasnably required reserve fund (if any, as defined in the Tax Certificate), r used t pay csts f issuance are t be spent n capital expenditures. Such amunt includes earnings n the riginal prceeds f the BABs. Capital expenditures are defined in the Tax Certificate but generally means: a cst f a type prperly chargeable t the capital accunt f a prject under general federal incme tax principles. Generally, Capital Expenditures are csts t acquire, cnstruct, r F:\LEGAL\LV\2013\BAB Plicies\2013 06 13 Revised Draft f BAB Plicies gbcmparedtdesmndversin_final.dcx 2
imprve prperty, r t adapt the prperty t a new r different use. The prperty must have a useful life lnger than ne year. Capital Expenditures include design and planning csts related t the Prject, and include architectural, engineering, surveying, sil testing, envirnmental, and ther similar csts incurred in the prcess f acquiring, cnstructing, imprving r adapting the prperty. Capital Expenditures d nt include perating expenses f the prjects r incidental r rutine repair r maintenance f the Prject, even if the repair r maintenance will have a useful life lnger than ne year. This definitin f Capital Expenditures may differ frm state law definitins f capital csts r capital expenditures. MBBA will require prject participants wh make use f the prceeds generated by MBBA bnds t send a letter t MBBA, at least annually, t certify that prceeds frm BABs, including investment earnings generated frm such prceeds, are used slely fr capital expenditures. Investment Restrictins; Arbitrage Yield Calculatin; Rebate (t be mnitred by Treasury Department) Investment Restrictins Investment restrictins generally are set frth in the Tax Certificate. MBBA shall require that prject participants wh make use f the prceeds generated by MBBA bnds maintain detailed recrds regarding the investment f prceeds. These recrds shall be made available upn request r upn risk f nncmpliance t the finance persnnel at MBBA, wh will mnitr the investment f any BAB prceeds. Arbitrage Yield Calculatin The yield n the BABs must be calculated net f the expected subsidy. Rebate MBBA shall make use f an arbitrage rebate cnsultant t perfrm rebate calculatins that may be required t be made frm time t time with respect t MBBA s bnds. MBBA shall prvide the arbitrage rebate cnsultant with requested dcuments and infrmatin upn request n a prmpt basis, shall review applicable rebate reprts and ther calculatins and shall generally interact with the arbitrage rebate cnsultant t ensure the timely preparatin f rebate reprts and payment f any rebate. Arbitrage rebate services shall be mnitred t assure cmpliance with required rebate payments, if any, which need t be paid n later than the fifth year after issuance and each 5-year perid thereafter thrugh the term f the BABs. A final rebate payment must be made within 60 days f the final maturity r redemptin date f the issue. The arbitrage rebate cnsultant shall be cnsulted t determine whether MBBA is meeting any spending exceptin. Available spending exceptins are in perids f 6 mnths, 18 mnths and tw years (fr cnstructin nly), with the 18-mnth and 2-year exceptin subject t six-mnth internal benchmarks. See the Tax Certificate r cnsult the rebate cnsultant fr mre details regarding the spending exceptins. Cpies f all arbitrage reprts, related return filings with the IRS, cpies f cancelled checks with respect t any rebate payments and infrmatin statements shall be retained as described belw. In general, MBBA MBBA staff will fllw the prcedures set frth in the Tax Certificate entered int with respect t any BABs that relate t the cmpliance with the rebate requirements. F:\LEGAL\LV\2013\BAB Plicies\2013 06 13 Revised Draft f BAB Plicies gbcmparedtdesmndversin_final.dcx 3
Federal Subsidy Primary Respnsibility MBBA s Chief Financial Officer will be the primary persn respnsible fr applying fr the federal subsidy reimbursement. T ensure timely submissin f applicatin fr subsidy reimbursement, the Agency has appinted The Bank f New Yrk Melln as Calculatin Agent. MBBA recgnizes that the IRS des nt guarantee that the subsidy will be received prir t the debt service payment dates n any BABs. Applicatin Prcess; Accurate Cmpletin MBBA, in crdinatin with the Calculatin Agent, will apply fr the semi-annual federal subsidy by filing the Frm 8038-CP (Return fr Credit Payments t Issuers f Qualified Bnds) in accrdance with the applicable IRS guidelines (see attached Instructins fr Frm 8038-CP). In cmpleting the Frm 8038-CP, including the determinatin f the amunt f the requested subsidy payment, reference shuld be made t the Frm 8038-B that was filed fr the BABs. MBBA will verify with the bnd trustee the prper determinatin f the amunt f interest payable n each interest payment date and the prper amunt f refundable credit reprted n the Frm 8038-CP t ensure the accurate cmpletin theref. MBBA will elect in each Frm 8038-CP that the payment f the federal subsidy be depsited directly int the BABs interest subsidy subaccunt.. Thse subsidy funds shall then be distributed t lcal gvernments. Timely Filing The Frm 8038-CP must be submitted n later than 45 days prir t the interest payment dates n the BABs MBBA will establish a system t remind their staff f these filing dates. Recrd Retentin MBBA will maintain cpies f each Frm 8038-CP that is submitted. The frms will be maintained fr at least six years past the retirement f the applicable issue f BABs. In additin, cpies f all relevant dcuments and recrds sufficient t supprt that the requirements relating t the status f the BABs have been satisfied will be maintained by MBBA fr the term f the BABs plus three years, including the fllwing dcuments and recrds: Bnd clsing transcript and ther relevant dcumentatin, available t the Agency (in sme cases, dcumentatin will nly be btainable frm Prgram participants; (Prvided by Debt Issuance) All recrds f investments, investment agreements, arbitrage reprts, return filings with the IRS and underlying dcuments; (Treasury) Recrds will be kept in a cmbinatin f paper and electrnic frm. Treatment f Subsidy In its annual budget, MBBA will treat the subsidy payment as an ffset t debt service. MBBA will ask fr and receive letters frm the prject participants wh make use f the prceeds generated by MBBA bnds as t their expenditures. F:\LEGAL\LV\2013\BAB Plicies\2013 06 13 Revised Draft f BAB Plicies gbcmparedtdesmndversin_final.dcx 4
POST ISSUANCE COMPLIANCE In General MBBA will cnduct annual reviews f cmpliance with these prcedures and with the terms f the Tax Certificate t determine whether any vilatins have ccurred s that such vilatins can be remedied thrugh the "remedial actin" regulatins (Treas. Reg. 1.141 12) r the Vluntary Clsing Agreement Prgram described in IRS Ntice 2008 31 (r successr guidance). If any changes t the terms f a given BABs issue are cntemplated, MBBA will cnsult its Bnd Cunsel. MBBA maintains an nging relatinship with Bnd Cunsel t serve as a resurce fr advice regarding BAB cmpliance. Private Business Use (Treasury) BAB-financed assets are limited in the amunt f private business use such assets may have. Until such time as the prceeds are fully spent, MBBA will require prject participants wh make use f the prceeds generated by MBBA bnds t send a letter t MBBA, at least annually, t certify that there is n mre than the permitted amunt f private business use described in the Tax Certificate r therwise cnveyed t MBBA in cnnectin with BAB-financed assets. In general, the permissible amunt f private business use is n mre than the lesser f (i) 10% r (ii) $15 millin f the sale prceeds f an issue f BABs used in any trade r business carried n by any natural persn r any activity carried n by anyne ther than a natural persn r a state r lcal gvernmental unit. Fr purpses f the abve, the 10% limit shall be reduced t 5% fr any nn-gvernmental use which is either unrelated r disprprtinate t the gvernmental use financed by the issue f BABs. In the event the use f prceeds r the financed assets are different frm the cvenants and representatins in the Tax Certificate, MBBA will cntact Bnd Cunsel t ensure that there is n adverse effect n the status f the BABs and, where apprpriate, will wrk with Bnd Cunsel t remedy any vilatins thrugh the "remedial actin" regulatins (Treas. Reg. 1.141 12) r the Vluntary Clsing Agreement Prgram described in IRS Ntice 2008 31 (r successr guidance). EFFECTIVE APPLICATION OF PROCEDURES; MODIFICATION The prcedures set frth herein, as they may be amended frm time t time, will be effective s lng as the U.S. Treasury cntinues t prvide subsidy payments n BABs. MBBA will wrk with its Bnd Cunsel and Financial Advisr t mnitr changes frm the IRS relating t the subsidy reimbursement prcess and any ther guidelines applicable t BABs. If and when the IRS revises the prcess fr receiving the subsidy, MBBA will mdify these prcedures, as apprpriate and respnsive, t ensure cntinued cmpliance with the federal tax requirements applicable t BABs. F:\LEGAL\LV\2013\BAB Plicies\2013 06 13 Revised Draft f BAB Plicies gbcmparedtdesmndversin_final.dcx 5