Item 38 - Water Revenue Bonds - Laserfiche WebLink

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Federal Tax -Exempt Status of the Bonds The Internal Revenue Code of 1986, as amended (the "Code") imposes a number of requirements that must be satisfied for interest on state and local obligations, such as the Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of Bond proceeds, limitations on the investment earnings on Bonds proceeds prior to expenditure, a requirement that certain investment earnings on the Bond proceeds be paid periodically to the United States and a requirement that the issuers file an information report with the Internal Revenue Service (the "IRS"). The Authority and the City have covenanted in certain of the documents referred to herein that they will comply with such requirements. Failure to comply with the requirements stated in the Code and related regulations, rulings and policies may result in the treatment of interest on the Bonds as taxable, retroactively to the date of issuance of such Bonds. IRS Audit of Tax -Exempt Issues The IRS has initiated an expanded program for the auditing of tax-exempt issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds (or by an audit of similar obligations). Taxpayer Protection and Government Accountability Act Initiative A voter initiative, designated as Initiative 1935 and otherwise known as "The Taxpayer Protection and Government Accountability Act" ("Initiative 1935"), has been determined to be eligible for the State's November 5, 2024 statewide general election, and, unless withdrawn by its proponent prior to June 27, 2024, or removed pursuant to the emergency petition for writ of mandate filed by the Governor of California seeking such removal, will be certified as qualified for the ballot in such election. If it were to be approved by the voters in the election, Initiative 1935 would amend Article XIIIC of the State Constitution to, among other things, provide that every levy, charge or exaction of any kind imposed by a local government after January 1, 2022 is either a tax or an exempt charge. Charges for government services provided directly to the payor would be "taxes" subject to voter approval unless the local government can prove by clear and convincing evidence that the charge is reasonable and does not exceed the "actual cost" of providing the service or product to the payor. "Actual cost" is defined in Initiative 1935 to mean "(i) the minimum amount necessary to reimburse the government for the cost of providing the service or product to the payor and (ii) where the amount charged is not used by the government for any purpose other than reimbursing that cost." Initiative 1935 further states that "[i]n computing "actual cost" the maximum amount that may be imposed is the actual cost less all other sources of revenue including, but not limited to taxes, other exempt charges, grants, and state or federal funds received to provide such service or product." Initiative 1935 would also amend Article XIIIC to state that any tax or exempt charge adopted after January 1, 2022, but prior to the effective date of Initiative 1935, which was not adopted in compliance with the requirements of Initiative 1935 is void 12 months after the effective date of Initiative 1935, if adopted, unless the tax or exempt charge is reenacted in compliance with the provisions of Initiative 1935. Initiative 1935 would require an exempt charge to be imposed by ordinance of the local government's governing body. The City's rates are currently adopted by the City Council to be reasonable and follow cost of service. Accordingly, the City's rate structure would still be subject to the exemptions provided for charges that are not subject to voter approval. However, the City Council would now be required to adopt the rates for service by a 2/3 majority. Additionally, the new scope of exempt charges as limited to recover "actual" costs and the heightened burden of proof to demonstrate the applicability of an exemption, would place greater burden on the City in defending litigation challenging the validity of its rates and charges. If submitted to, and approved by the voters, Initiative 1935 would be subject to judicial interpretation. Global Health Emergencies and Considerations; Infectious Disease Outbreak Global health emergencies, such as COVID-19 pandemic, can negatively affected economic activity throughout the world, including the United States and the State of California. The initial impacts of the stay at home orders globally was unprecedented, with commerce, travel, asset values, and financial markets experiencing 36