City Owes IRS for Profiting on Wastewater Bonds

San Angelo's City Council will consider a report from staff regarding its 2019 Wastewater and Sewer Bonds.  The city made more money on investment proceeds from those bonds than is allowed. 

Since the bonds were issued in 2019 the city made millions in interest revenue, i.e. they made a greater return on the unused funds than they paid out in the bond's 2% coupon (interest expense to the city).

Investopedia notes:

Tax-exempt municipal bond issuers are subject to strict federal arbitrage compliance rules as a condition of issuance requirements, such as bond covenants. Any computed profits, which are called rebates, must be paid to the federal government. Federal arbitrage rules are designed to prevent issuers of tax-exempt bond debt from obtaining excessive or premature debt and therefore profiting from the investment of bond proceeds in income-generating investments.

Money borrowed for projects normally does not sit around for a long period of time, like five years.  The time frame for the borrowing can relate to the asset's future life as revenues from the project are designated to pay associated capital costs, fees, interest and principal repayment.  

Council has this item on the regular agenda under a budget amendment ordinance.  I don't expect much discussion. although it does fit under Council's strategic oversight.  What happened for the funds to sit unused longer than expected so the city could earn over $3.2 million?  

Are there other similar situations where the city has/had outstanding borrowings where the funds sit/sat mostly unused?  Hint:  In February 2023 City Council discussed and later approved borrowing $2 million to renovate the Animal Shelter and install a traffic light.  City Council minutes from 2-21-23 state:

Neighborhood and Family Serves Assistant Director Morgan Chegwidden gave overview of proposed improvements to the Animal Shelter 

Direction:   Consensus of Council was to proceed with the proposed plan of finance as presented.

Staff cited the need for an urgent shelter update due to multiple problems with the facility.  Nearly two years later, this urgent project is yet to go out for bids.