April 18, 2011 4:31 PM
Brooke Edwards

VICTORVILLE • The city owes $82,628 to the Internal Revenue Service, including $14,330 in late fees for a refund that should’ve been made nearly four years ago.

The overdue payment up for approval during Tuesday night’s City Council meeting stems from an $83 million bond Victorville issued to help build the Foxborough power plant, a project that stalled soon after and has now been dismantled.

In May 2007, Victorville used revenue from that bond to pay off a $23 million bond series it had taken out the year before. When that refund occurred, the city should have performed an analysis to determine whether Victorville owed the IRS an arbitrage rebate as a result of the deal, according to federal regulations.

No analysis was performed in 2007, the city staff report states. Former City Manager Jon Roberts and former Finance Director Adair Patterson were at the helm then, with Patterson retiring a couple months after the bonds were refunded.

A rebate analysis was recently completed by consulting firm Bond Logistix at the request of City Treasurer Doug Robertson and Assistant Director of Finance Adele Mosher, according to the agenda.

That analysis showed Victorville should have paid $68,297 in arbitrage to the IRS because the interest rate the city was paying on the bond series was lower than the interest it was collecting on invested bond funds. And since that payment is nearly four years late, the agenda states Victorville also now owes $14,330 in interest.

Because tax-exempt municipal bonds are essentially subsidies from the federal government, documents from Bond Logistix state cities aren’t generally allowed to borrow low and invest high without paying a rebate to the IRS. The law is intended to discourage cities from taking out excessive bonds, or from taking them out sooner or leaving them outstanding longer than needed in order to collect interest, Bond Logistix explains.

The rebate is up for a vote during the meeting that starts at 7 p.m. Tuesday in City Hall, at 14343 Civic Drive. Live video from the meeting will be streamed at the city’s website, www.ci.victorville.ca.us.

Brooke Edwards may be reached at (760) 955-5358 or at bedwards@VVDailyPress.com.

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