John R. Hernandez - Page 7

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          Edison's tax prepayments, but instead was exercising its power to           
               As discussed in Hernandez I, Florida tax certificates are              
          sold at auction to the bidder who will pay the outstanding taxes,           
          interest, costs, and other charges and is willing to accept the             
          lowest rate of interest.  The issuer, Pasco County in the case at           
          hand, has no stake in the outcome of such an auction, other than            
          seeing to it that all tax certificates are sold, as in every case           
          in which a certificate is sold the issuer will receive payment in           
          full up front at the time of sale.  The auction process                     
          determines the rate of interest to be paid by the delinquent                
          property owner to redeem the certificate.  The system so                    
          described above is consistent with our characterization of the              
          sale of a Florida tax certificate as a collection activity in               
          exercise of the issuer's sovereign taxing power.                            
               As pointed out in Hernandez I, the requirement that an                 
          obligation be issued in exercise of sovereign borrowing power in            
          order to qualify as a section 103(c)(1) obligation "derives from            
          the notion that the purpose of the section 103 exclusion is to              
          enable States and localities to obtain capital at lower than                
          market rates of interest".  In the municipal bond market, "the              
          exclusion causes purchasers of tax-exempt bonds to accept                   
          interest at lower rates equal to the lower after-tax rates of               
          interest earned by holders of taxable bonds of equivalent risk."            
          Hernandez v. Commissioner, T.C. Memo. 1998-46.  But the market              

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