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TO : HONORABLE BOARD OF COUNTY COMMISSIONERS DATE : MAY 29 2001 SUBJECT : ARBITRAGE REBATE REFUND CONTRACT THROUGH : JOSEPH A. BAIRD, ASSISTANT COUNTY ADMINISTRATOR FROM : EDWIN M. FRY, JR , FINANCE DIRECTOR 14 BACKGROUND In October, 2000, the board of county commissioners approved a contract with Public Financial Management and Orrick, Herrington & Sutcliffe to provide arbitrage rebate and opinion services on the county ' s various bond issues. Based on the work performed by Public Financial Management and Orrick, Herrington & Sutcliffe, it appears that the county has incurred negative arbitrage on the Solid Waste Disposal District, Series 1988 , Bonds, since 1993 . In 1993 , the county made a payment of $ 80, 100. 00 to the US Treasury for arbitrage earnings from the date of issuance of the Bonds to September, 1993 . Based on their work, the county would be entitled to a refund of $ 76, 130 . 30 . When the Bonds were issued in 1988 , the proceeds were invested in the Local Government Investment Account managed by the State Board of Administration (SBA) . Since the interest rates paid by the SBA from 1998 through 1993 were higher than the average interest rate paid on the Bonds, the County incurred positive arbitrage . Coopers & Lybrand performed the arbitrage rebate calculations for the county and determined that the county earned positive arbitrage of $ 80, 100. 00 . Since the Treasury regulations require that all positive arbitrage must be paid to the Treasury, or the bonds would be determined to be taxable, the county made a payment of $80, 100.00 to the Treasury. From 1993 through the time the Bonds were called on August 1 , 1997, the interest rates paid by the SBA were lower than the average interest rate paid on the Bonds and the county incurred negative arbitrage on the Bonds . From the date of issuance of the Bonds through the date the Bonds were called, the county incurred negative arbitrage. Therefore, the county should be entitled to a refund of the arbitrage rebate payment made in 1993 . I believe that it is in the best interest of the county to apply for a partial refund of the arbitrage rebate payment made in 1993 . Accordingly, I requested Public Financial Management and Orrick, Herrington & Sutcliffe to provide a proposal to pursue a refund. Public Financial Management and Orrick, Herrington & Sutcliffe have prepared a Letter of Engagement proposing that the refund request be separated into two different phases. The first phase would entail the preparation and submission of refund request documentation. If the Internal Revenue Service (IRS ) agrees that a refund is in order, then the second phase would entail communication with the IRS to explain and clarify aspects of the Bonds and the refund claim . REOL_TESTED ACTION Request the Honorable Board of County Commissioners authorize the Chair to sign the two enclosed Letters of Engagement with Public Financial Management and Orrick, Herrington & Sutcliffe . May 8 , 2001 15 814113 PG 116