The administrator of municipal financing pools in Tennessee overbilled 150 municipal borrowers by about $400,000 for the first four months of the year.
The Tennessee Municipal Bond Fund, a nonprofit arm of the Tennessee Municipal League, serves as administrator for a number of variable-rate financings for municipalities in the state.
The Tennessean, a daily newspaper in Nashville, compared the rates reported by the remarketing agent on some bonds with the rates the TMBF was charging municipalities. The newspaper found the fund was charging 10 basis points too much.
Alerted to the error, the fund sent letters to 150 borrowers. The fund explained it incorrectly charged the municipalities for arbitrage rebates.
Municipal borrowers are not permitted to earn more by investing bond proceeds than they pay on the bonds. Any arbitrage from these earnings must be reimbursed to the U.S. Treasury.
The TMBF charged the municipalities for arbitrage, even though the fund does not subject its borrowers to arbitrage rebates.
Wade Morrell, chief financial officer of the the TMBF, said the fund invests its pooled proceeds in guaranteed investment contracts, and usually transfers arbitrage profits into a separate fund.
In its letters to borrowers, the TMBF said charging them for the liability was inadvertent. The fund said it will credit the rebates back to the municipalities for the May invoices.
