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Item Number: H.3. CITY COUNCIL REPORT SUBJECT: Arbitrage Rebate Payment, Series 2020 General Obligation Bonds MEETING DATE: August 26, 2025 TO: Mayor and Council FROM: Kevin Artz, Chief Financial Officer REVIEWED: Reyes Medrano Jr., City Manager PURPOSE: The Finance Department is requesting Council approval of an arbitrage rebate payment to the United States Treasury, in the amount of $116,746.04. BACKGROUND: In May 2020, the City issued $6,485,000 of tax-exempt General Obligation Bonds, Series 2020, to fund water improvements and to refund General Obligation Bonds, series 2006 and 2009A that were outstanding. The debt had a bond yield rate of 1.3768%. Federal Arbitrage rebate laws act as a mechanism to ensure that the benefits of tax-exempt debt are used to fund capital public projects, not to generate excess investment revenue for the entity. Arbitrage occurs when the City invests proceeds from a tax-exempt bond sale in higher-earning investments, effectively earning profit on the difference between the interest rate paid to the bondholders and the interest rate earned from City investments. Arbitrage rebate requires any excess earnings (profit) to be paid back or rebated to the US Treasury, five years after the issuance of the bonds. DISCUSSION: The Series 2020 Bond Yield for arbitrage purposes was 1.3768%. The allowable interest earnings totaled $46,962.12. The actual earnings on City investments totaled $163,085.03, resulting in $116,122.91 of positive arbitrage. In addition, the payment was due by May 28, 2025, resulting in interest of $623.13, which has been calculated through August 28, 2025. The total reimbursement due to the US Treasury is $116,746.04. The City has unspent investment income and fund balance, for the series 2020 bonds, in the amount of $181,564.72. Staff is requesting the Council authorize the rebate of these excess investment earnings to the US Treasury, in the amount of $116,746.04. The City's arbitrage rebate consultant, Hilltop Securities, performed the rebate calculation and has reduced their invoice to the City by the amount of the interest accrued due to late payment ($623.13). There will likely be another rebate payment due in 2030, after the next calculation is performed. The amount will be significantly smaller than the current rebate. BUDGET IMPACT: There is no impact to the budget, as the repayment is a rebate of excess investment earnings that the City has currently invested. RECOMMENDATION: Staff recommends that the Mayor and Council authorize the rebate of arbitrage on the Series 2020 bonds in the amount of $116,746.04, to the US Treasury. ATTACHMENTS: 1. Arbitrage report attachment