(A) Federal.
(1) The Internal Revenue Code (IRC) of 1986 as amended and its arbitrage and rebate regulations govern the tax-exempt status of the interest on municipal bonds. Upon issuance of any municipal bonds, the city will covenant to follow certain Federal rules and regulations in order to maintain the tax-exempt status of the interest on the bonds. To receive these benefits, the city must ensure that the requirements under the IRC are met, generally for as long as the bonds remain outstanding.
(2) These requirements include, but are not limited to:
(a) File Internal Revenue Service (IRS) Form 8038-G, Information Return for Tax-Exempt Governmental Bonds ($100,000 issue price or greater) or Form 8038-GC, Information Return for Small Tax-Exempt Governmental Bond Issues, Leases, and Installment Sales (less than $100,000 issue price);
(b) Bond proceeds must be used to finance activities of, or facilities owned, operated or used by, the city for its purpose or another state or local government for its own purposes;
(c) Allocate to expenditures not later than 18 months after the later of the date each expenditure is paid or the date the project, if any, that is financed by the issue is placed in service; and
(d) Rebate to the IRS for investments earning a yield materially higher than the yield of the bond issue (arbitrage).
(B) U.S. Securities and Exchange Commission (SEC). Congress passed the Securities Act of 1933 with the objective of providing investors full disclosure of material facts about securities offered and sold. In 1934, Congress passed the Securities Exchange Act of 1934 (the “1934 Act”) that created the Securities and Exchange Commission (SEC) and empowered the SEC with broad authority over most aspects of the securities industry. Although municipal securities are exempt from many of the requirements, the city is still subject to:
(1) Rule 10b-5 of the 1934 Act. Sets out the general statement of federal intent to protect investors against misleading statements or omissions of important facts in official statements or other documents pertaining to the bond issuance; and
(2) Rule 15c2-12 of the 1934 Act. Governs the preparation and distribution of official statements for municipal securities and satisfying continuing disclosure requirements.
(C) State. The Illinois Compiled Statutes (ILCS) authorize and govern the issuance of municipal bonds. The key laws include, but are not limited to:
(1) The Bond Authorization Act (ILCS Ch. 30, Act 305) allows for the issuance of bonds by cities.
(2) The Illinois Municipal Code (ILCS Ch. 65, Act 5, § 8-5-1) subjects cities to a legal limitation of general obligation bonded indebtedness of 8.625% of the total assessed equalized value of real property within the city (the “city's debt limit”).
(3) The Local Government Debt Reform Act (ILCS Ch. 30, Act 350, § 15) allows for the issuance of alternate bonds in lieu of revenue bonds. In addition, alternate bonds are not subject to the city's debt limit.
(4) The Illinois Property Tax Extension Limitation Law (ILCS Ch. 35, Act 200, § 18-185) (“PTELL”) allows the issuance of an amount of general obligation bonds equal to the aggregate extension for principal and interest payments for non-referendum bonds that cities issued prior to January 1, 1997 (debt service extension base). The following bonds are not subject to PTELL limitations: alternate bonds; and
(5) Revenue obligations issued to refund or to continue to refund operations initially issued pursuant to referendum. As a home rule unit of local government, the city is not subject to any debt limitation nor is it subject to the limitations of PTELL.
(Ord. 19-012, passed 5-2-19)