The Indian Wells, Calif., Redevelopment Agency disclosed late Tuesday that the Internal Revenue Service has initiated an audit of $68 million of tax-allocation bonds it competitively sold in 2006.
The agency made the disclosure in a material event notice filed with the Municipal Securities Rulemaking Board’s EMMA system, but said it “does not anticipate any adverse impact with regard to the tax status of the bonds.”
The IRS told the agency in the Oct. 22 letter announcing the examination that it “routinely examines municipal debt issuances.”
The redevelopment agency said it is taking steps to respond to a document request from the IRS and plans to cooperate fully with the service for the duration of the audit.
The bonds were issued in October 2006 to finance public capital improvements to the Consolidated Whitewater Redevelopment Project Area, which consists of 3,100 acres, and is 90% residential but also includes a number of hotel resorts and several “significant golf championship venues,” according to bond documents.
The city of Indian Wells, which is located in Riverside County, about 20 miles from Palm Springs, plays host to “major sporting events” each year, including the Pacific Life Open tennis tournament, according to bond documents.
At the time the bonds were issued, the agency and city were reconstructing two championship-quality 18-hole golf courses and a clubhouse owned by the agency. The golf courses and clubhouse were known as the Indian Wells Golf Resort.
The bond documents were not specific about the use of the proceeds, but rather only generally stated that $41 million would be put in a redevelopment fund and used for the reconstruction of “public recreational facilities.”
The agency also planned to set aside $25 million of proceeds in escrow to advance refund approximately 69% of $41.1 million of tax-allocation bonds it issued in 2003.
The remaining $1.6 million in proceeds were budgeted for issuance costs.
City officials could not be reached for comment.
The tax allocation bonds were competitively awarded to Stone & Youngberg LLC. Orrick, Herrington & Sutcliffe LLP was bond and disclosure counsel on the deal, and Best Best & Krieger LLP was counsel to the agency. Ambac Financial Group Inc. provided bond insurance for the transaction.
