Title
Resolution Authorizing the Appropriation of $7,000 from the Capital Project Fund - State and Local Government Series Demand Deposit Securities (SLGS) Interest Revenue to the Capital Project Fund - Bond Custodial Fees to Fund the Annual Custodial Fees
Purpose
PURPOSE/BACKGROUND
After the City of Hampton secures bond financing, the bond funds are deposited into investment accounts where they can earn interest until the funds are needed for capital projects. Historically, these funds were invested in the State Non-Arbitrage Program (SNAP). In recent years, SNAP investment yields have increased to levels that exceed the interest rate (bond yield) paid on the City's bonds. When investment earnings exceed the bond yield, the excess earnings are considered arbitrage under Federal tax regulations. These excess earnings must be returned to the U.S Treasury. However, bond funds invested in State and Local Government Series (SLGS) Demand Deposit Securities generally earn lower interest rates and are not subject to arbitrage payments. This allows interest revenue to be used to fund the annual custodial fees of the same SLGS accounts, instead of being returned to the U.S Treasury.
Discussion:
City Council approval is required to appropriate interest revenue from the Capital Project Fund - State and Local Government Series Demand Deposit Securities (SLGS).
Impact:
Retains interest earnings in City funds; and provides a funding source for certain custodial fees charged to the City.
Recommendation:
Rec
Approve Resolution
Body
WHEREAS, the bond proceeds related to the 2022A General Obligation bonds have been invested in State and Local Government Series Demand Deposit Securities (SLGS); and
WHEREAS, interest on those SLGS is not subject to arbitrage liability payments and can be used by the City to fund the annual custodial fees on the SLGS account; and
WHEREAS, a portion of the interest earned will be used to fund the custodial fees related to the 2022A custodial accounts.
NOW THEREFORE BE IT RESOLVED, by the City Council of the City of Hampton authorizes the transfer and appropriation of $7,000 from the Capital Project Fund - State and Local Government Series Demand Deposit Securities (SLGS) interest revenue to the Capital Project Fund - Bond Custodial Fees to fund the annual custodial fees.