Opinion ID: 1702325
Heading Depth: 2
Heading Rank: 4

Heading: Financing

Text: To pay for the District's proposed on-site improvements within the Club, the Board adopted a general bond resolution that authorizes issuance of Water Control and Improvement Bonds in a principal amount not to exceed $16,312,500. The resolution provides that the bonds shall not be general obligations or indebtedness of the District, but shall instead be special obligations payable solely from, and secured by, a first lien and pledge of the proceeds of a drainage tax levied on the lands of the Club. The Board subsequently adopted a resolution levying a $42,625,000 drainage tax on the lands of the Club in proportion to the benefits to be derived from the construction of the improvements. The tax, which consists of an initial assessment of $18,125,000 plus $24,500,000 interest expected to accrue on the bonds, will be paid solely by the landowners within the Club. The landowners will thus ultimately foot the bill for the District's proposed roadway improvements within the Club. The bonds will be issued in the denomination of $5,000, or multiples thereof, will mature within 30 years, and significantly, will pay interest periodically (twice a year) from the District to bondholders at a rate to be determined later. In paying this interest, the Board covenants that it will comply with specific requirements of the federal tax code concerning the tax status of certain government bonds. These provisions, which are designed to stimulate funding for public projects, specify that interest payments by state and local governments to their investors may be tax-exempt for the investors. The Board's bond resolution states: Section 4.08. Compliance with Tax Requirements. The Issuer hereby covenants and agrees, for the benefit of the Owners from time to time of the Bonds, to comply with the requirements applicable to it contained in Section 103 and Part IV of Subchapter B of Chapter 1 of the Code and to the extent necessary to preserve the exclusion of interest on the Bonds from gross income for federal income tax purposes. Because the District's interest payments to bondholders will be tax-exempt for the holders, the bonds will be readily marketable even though the District may offer the bonds at an interest rate substantially below that of privately-issued, taxable securities. This reduced interest rate will minimize the District's financial obligations to bondholders and the resulting tax obligations of the Club's landowners.