DALLAS - The Oklahoma City school district hopes to reach an agreement with the Internal Revenue Service and its financial adviser, Stifel, Nicolaus & Co., in an arbitrage rebate dispute before its scheduled Dec. 2 sale of $90 million of bonds, the district's general counsel said yesterday.
Cleeta John Rogers, the school district's general counsel, said he is negotiating an indemnity agreement with Stifel that would help cover potential damages in connection with the IRS's claim for more than $1 million in arbitrage profits, penalties, and interest.
Rogers also said he plans to negotiate an agreement with the IRS if and when the Oklahoma attorney general's office gives an opinion on whether district payment of the rebate is legal under the state constitution.
"I expect an opinion in the short run," Rogers said.
Rogers' statements follow a meeting of the Oklahoma City school board on Monday, at which the board authorized the general counsel to proceed with the negotiations.
The talks represent the latest developments in a long-standing controversy over the district's participation in a 1990-91 cash management program. The IRS has maintained that the Oklahoma City school district appeared to have exaggerated its budget deficit when it sold $30 million in tax-exempt tax and revenue anticipation notes in the 1990-91 program, and as a result, the agency has demanded arbitrage rebate. The IRS also could demand rebate for the district's participation in the 1992-93 cash management program.
Rogers would not release details of the negotiations with Stifel or the IRS. But industry sources said the district and Stifel are talking about having the financial adviser pay for any damages the school district could incur if a judge ruled that payment of arbitrage rebate was not legal under Oklahoma state laws.
"Stifel would indemnify them against the risk in court," one source said.
The district has blamed Stifel for its involvement in the program, and has been concerned that using taxpayer money to pay the rebate would violate the Oklahoma Constitution because the funds would not go for a public purpose.
Last month, the district's board voted not to pay the rebate for that reason, but since then it appears to have changed its mind.
Industry observers said Oklahoma City school district officials are worried that failure to resolve the dispute could result in the market's exacting a penalty on the upcoming $90 million sale of general obligation capital improvement and equipment bonds.
The issue was approved by voters in mid-October, but was postponed as controversy brewed over the IRS rebate.