1. Post-Issuance Compliance for Bonds Alaska Government Finance Officers Association November 17, 2015 Marc Greenough, greem@foster.com Joe Levesque, joe@levesquelawgroup.com

2. Tax Law Private Activity Arbitrage

3. Private Activity Private use and private payment 10% use of bond proceeds (5% unrelated) Measured over life of bonds, with $15 million cap

4. Private Activity Building use generally measured by space Equity may be allocated to private use Management contracts must be qualified

5. Private Activity Ownership or unqualified management contract Lease, preferential use or naming rights Federal government or nonprofits

6. Private Activity General public use not in trade or business Uniformly applied rate schedule Qualified management contracts Certain short-term and incidental use

7. Arbitrage Earnings on investment of bond proceeds Earnings on investment of certain restricted funds Rebate of excess earnings

8. Post-Issuance Compliance IRS Form 8038-G 43 If the issuer has established written procedures to ensure that all nonqualified bonds of this issue are remediated according to the requirements under the Code and Regulations (see instructions), check box.... ▶ 44 If the issuer has established written procedures to monitor the requirements of section 148, check box.... ▶

9. Post-Issuance Compliance Designate officer to ensure continuity of attention Prevent or avoid violations Early discovery of potential violations

10. Post-Issuance Compliance Enables timely exercise of remedial action Waiver of 50% penalty on late rebate payment Favorable treatment under IRS VCAP

11. Post-Issuance Compliance: Private Activity Include in job description Educate users of property Ensure procedures can be used Implement timely and periodically

12. Post-Issuance Compliance: Arbitrage Spend bond proceeds first Deplete debt service fund annually Monitor debt service reserve funds

13. Post-Issuance Compliance: Arbitrage Records to keep: Bond transcript Purchases and sales of investments of bond proceeds and earnings on investments Expenditures of bond proceeds

14. Securities Law Rule 10b-5: Full and fair disclosure Rule 15c2-12: Official Statement Continuing disclosure

15. Rule 10b-5 Unlawful, in connection with the purchase or sale of securities in interstate commerce, (a) to employ any device, scheme, or artifice to defraud, (b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

16. Full and Fair Disclosure Speaking to the market Release of information that may reasonably be expected to reach investors

17. Full and Fair Disclosure Materiality: Objective standard Substantial likelihood that, under all the circum- stances, a fact would assume actual significance in the deliberations of a reasonable investor

18. Rule 15c2-12: New Issue Disclosure Applies to public offerings >$1 million Applies to public offerings >$1 million Prior to purchase, underwriter must obtain and review official statement Prior to purchase, underwriter must obtain and review official statement

19. Official Statement A document prepared by an issuer of municipal securities that sets forth information concerning the terms of the proposed issue of securities, including financial information or operating data concerning such issuer and those other entities, enterprises, funds, accounts, and other persons material to an evaluation of the securities.

20. Rule 15c2-12: Continuing Disclosure Applies to public offerings >$1 million Applies to public offerings >$1 million Underwriter must obtain undertaking to provide disclosure Underwriter must obtain undertaking to provide disclosure Annual disclosure of financial information and operating data Annual disclosure of financial information and operating data Timely disclosure of listed events Timely disclosure of listed events Official statement must disclose past noncompliance with prior undertakings Official statement must disclose past noncompliance with prior undertakings

21. Continuing Disclosure: EMMA EMMA (emma.msrb.org) Is Your Friend

22. SEC Enforcement Increased initial and continuing disclosure Protection of individual investors Regulation of states as issuers Enforcement in the absence of defaults

23. SEC Enforcement: MCDC Initiative

24. SEC Enforcement: Case Studies New Jersey Harrisburg South Miami West Clark Allen Park

25. Case Study: New Jersey No written policies for offering documents Pension accounting not disclosed: One-time use of mark-to-market and subsequent use of five-year smoothing From 2002 to 2007, UAAL grew to 100% of payroll

26. Case Study: Harrisburg Near bankrupt and under state receivership No continuing disclosure: information vacuum Statements in budget and financial reports

27. Case Study: South Miami Tax-exempt bond-financed public/private parking Subsequent revisions to lease violated tax law No procedures to ensure continuing compliance

28. Case Study: West Clark Community Schools OS: In compliance with prior 15c2-12 undertakings No diligence to uncover noncompliance Underwriter also charged

29. Case Study: Allen Park Mayor active proponent and “control person” Project plans deteriorated prior to issuance Outdated financial information in OS

30. Post-Issuance Compliance: Continuing Disclosure Avoid information silos Make EMMA your friend Ensure procedures can be used Consider including in audit Investor website Encourage periodic training

31. Questions?

32. Post-Issuance Compliance for Bonds Alaska Government Finance Officers Association November 17, 2015 Marc Greenough, greem@foster.com Joe Levesque, joe@levesquelawgroup.com