Hrmm, I think I'd go with something like
"I don't understand, officer. I'm sorry what was your name? Officer Smith. We have a permit for our event from the City. Here it is. When I picked it up I asked the person if there was anything else I should know. They said have the permit with you, and don't go over the allowed sound limits. We're being real careful about that, we've got a meter that one of the band is always checking. I'm confused."
Let the officer be helpful, instead of pushing him into a corner.
This is more or less what happened. When the cops showed up, we asked questions and tried to understand what we needed to do to comply.
Cops: We received a complaint.
Us: A complaint about what? The street being blocked off? The music? We have a permit for 2-5pm...here it is, how are we not complying with the permit?
Cops: All we know is that we received a complaint.
Us: You received a complaint, what does that mean? We feel the complaint is not reasonable. We do not agree that we are too loud or disturbing the peace. As you can see, there are 100 people from the neighborhood here enjoying themselves. And we will be done in an hour. What do we need to do to comply? What if we turn it down a bit? What is the maximum decibel level allowed under the city ordinance? What can we do to make this work?
Cops: ¯\_(ツ)_/¯
Us: What happens if we keep playing.
Cop #1: If we receive another complaint, we can start writing tickets.
Cop #2: (less friendly, more impatient) And we can confiscate your gear.
Us: (Getting incredulous) Show us in the ordinance or on the permit that says you can confiscate our gear.
Cops: Uhh, we don't have the ordinance. (After 5 minutes of fumbling with their phones trying to find the ordinance, they admitted the confiscation part was "not accurate," but they could write tickets.)
Cop #2 cop decided that 61 dB was the limit. (For the record, 61 dB is the sound of a squirrel farting, 4 blocks away).
Us: So, because of one complaint, despite the fact that we have a permit and it's 3:45 in the afternoon on Halloween, we have to stop even though you can't tell us how we are in violation or how to comply?
Cops: ¯\_(ツ)_/¯
After 10+ minutes of this circle jerk, we just decided to bag it. By now there were 5 cops there, and not a single one was showing any inclination of advising us how we could continue. Had there been fewer kids around, maybe we would have made more of a stink – or just started playing again despite the warning/threats.