IRS: Rec Center bonds retain tax-exempt status
Special to the Sky-Hi News
Two financial issues involving the Fraser Valley Metropolitan Recreation District and the Grand Park Community Recreation Center were resolved recently.
On Oct. 24, Recreation District Executive Director Scott Ledin received a letter from the Internal Revenue Service notifying the District about the “official no-change determination” concerning $19.5 million in general obligation bonds issued to build the Grand Park Community Recreation Center.
The determination, announced initially by rec district board president Dan O’Connell, puts the issue to rest.
According to Robert E. Henn, IRS Field Operations manager, Tax-Exempt Bonds, “We have recently completed our examination of the bond issue. As a result, we have made a determination to close the examination with no-change to the position that the interest received by the beneficial owners of the bonds is excludable from gross income under section 103 of the Internal Revenue Code.”
“In December of last year,” Ledin explained, “the IRS started what they called a debt issuance examination, a process that was brought upon by letters they had received from a concerned citizens group to look at the land dedication agreement for the Grand Park Community Recreation Center, the property it sits on and the agreement to donate that property.”
“This determination finally puts to rest this issue,” added O’Connell. “Frankly, we’re all glad it’s done. We’ve done our due diligence by fully and satisfactorily addressing everyone’s concerns.”
Rec Center electric billing
The second financial issue entails the resolution and payment of the electric bill with Mountain Parks Electric, Inc.
The Grand Park Community Recreation Center, which opened for business in December 2009, operated for the next 18 months unaware the center was being under-billed for electricity.
In late-May this year, Mountain Parks replaced the recreation center’s electric meter. When the June bill arrived, District staff discovered a large discrepancy, immediately notifying Mountain Parks.
The inquiry, initiated by the District, revealed that since the December 2009 opening, they had been undercharged by $106,298 for electric use.
Ledin explained that as the district was going through the process of building the new recreation center, his staff gathered data from comparable buildings in order to estimate the building’s future electric costs. Those estimates, in turn, were factored into the soon-to-be opened facility’s estimated operating budget.
The staff at Mountain Parks quickly ascertained that the problem was caused by a “meter glitch” on the original electric meter.
As explained by O’Connell, “When we notified Mountain Parks of the problem, they came out in late May and replaced the meter.
“And after studying the problem, they informed us that the original meter kept resetting itself every 100 kilowatts of usage,” he added. “This resulted in our being under-charged for our electricity for the first 18 months.”
Ledin and O’Connell went on to explain that the District retained an outside consultant to assist them in both evaluating and solving the problem. Mountain Parks absorbed the costs for the consulting firm, which ultimately validated Mountain Parks’ claim.
O’Connell and the board worked with staff on solutions to the issue. Four separate payment options were offered, from a 100-month installment plan to a negotiated one-time lump-sum payout.
The Board of Directors of Mountain Parks came up with a one-time, net present value pay-off of $62,000, which was calculated on a payment stream of $1,000 per month for 100 consecutive months at a discount rate of about 5 percent.
“After reviewing everything,” explained O’Connell, “the Board of Directors decided on the one-time, net-present value pay-off of this obligation. Although Mountain Parks wasn’t charging the District any interest on this obligation, we did not want to stretch this out for over an eight year time frame.”
“Fortunately, we had the funds available in our reserve account,” Ledin said, “so when the Board authorized it, we wrote the check. Paid in full.”
“We are happy to have both issues resolved,” O’Connell concluded.
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