03-a-018 - Expenditure Sub-object Code for reporting arbitrage rebate expense (April 11, 2003)
Posted on October 21, 2021 at 12:49 PM by Kansas Department of Administration
|INFORMATIONAL CIRCULAR NO. 03-A-018|
|DATE:||April 11, 2003|
|SUBJECT:||Expenditure Sub-object Code for reporting arbitrage rebate expense|
|EFFECTIVE DATE:||July 1, 2003|
|A & R CONTACT:||Financial Integrity Team:|
|Brett Bauer||(785) 296-4903||(firstname.lastname@example.org)|
|SUMMARY:||Establishment of additional expenditure sub-object code for Arbitrage Rebate Expense on Revenue Bond Debt|
The interest paid on most debt issued by state and local governments is exempt from federal income tax. As a result, purchasers of state and municipal debt are willing to accept lower interest rates than they would on taxable debt. When state and local governments temporarily reinvest the proceeds of such tax-exempt debt in materially higher-yielding taxable securities, the federal tax code refers to this practice as arbitrage. In certain specific situations known as "safe harbors", governments are permitted to keep the extra earnings that result from arbitrage. Otherwise, any excess earnings resulting from arbitrage must be rebated to the federal government. The following new expenditure sub-object code under the category of "Interest and Service Charges" has been established to record payments remitted (rebated) to the federal government:
6195 Arbitrage Rebate Expense on Revenue Bond Debt
Please note this new expenditure sub-object code should be used only for actual remittances to the federal government. It should not be used for transfers from the agency budgetary accounts into bond rebate accounts.
This revision will be reflected in the Uniform Expenditure Classification of Expenditure Sub-object Codes filing (PPM No 7,002) on the Division of Accounts and Reports web site http://www.da.ks.gov/ar/ppm/.