Current through all regulations passed and filed through September 16, 2024
(A)
Purpose
This policy provides a framework for complying with federal
regulations relating to the post-issuance monitoring of tax-exempt debt. The
policy identifies compliance areas and defines practices for College
departments involved with tax-exempt debt compliance so that they understand
and are able to carry out their roles.
(B)
Organizational
responsibility
The Treasurer has primary responsibility for ensuring and
monitoring post-issuance compliance with tax-exempt debt regulations, but these
functions may be delegated to others as he/she deems appropriate.
(C)
Expenditure of debt proceeds
(1)
Debt proceeds can only be used for eligible project
costs in accordance with applicable federal law and the restrictions of the
debt documents. Debt proceeds shall only be disbursed for project costs,
capitalized interest, and issuance costs.
(2)
All contracts for
debt-financed capital expenditures are approved by the Treasurer, or in his/her
absence, his/her designee. All purchase orders are approved in accordance with
the college's purchasing policy.
(3)
All spending of
funds for a capital project, as well as sources of funds for such expenditures
(e.g., debt proceeds, state capital funds, college funds) are to be identified
and tracked separately in the college's accounting system. If more than one
debt issue is involved, activity is recorded on an issue-by-issue
basis.
(D)
Investment of debt proceeds
(1)
All debt proceeds
will be invested in accordance with the bond documents and the college's
investment policy. To ensure liquidity, investment maturities will be staggered
to match the project's draw schedule.
(2)
Yield restriction
requirements may apply if debt proceeds are not spent within the allowable
temporary period, which is three years for capital projects funding. Bond
counsel will be consulted if it appears that debt proceeds will not be spent
within the allowable temporary period.
(E)
Private business
use
(1)
The use
of a facility financed with tax-exempt debt by any person or entity that is not
a state or local government entity may result in private business use of the
property.
(2)
Pursuant to the private business use test, the
tax-exempt status of a debt issuance is jeopardized if more than
ten per cent of
the proceeds are used for private business use.
(3)
Generally, most
private business Use in a tax-exempt financed facility arises from the
following types of arrangements:
(a)
Ownership: a sale or transfer of ownership to a
non-governmental person or entity of tax-exempt financed
property.
(b)
Leases: any arrangement where the College leases a
tax-exempt financed property to a non-governmental person or
entity.
(c)
Management Contracts: Any arrangement whereby a
non-governmental person or entity actively manages the operations of a
tax-exempt financed property, or any portion or any function
thereof.
(d)
Sponsored Research Agreements: Any research that is
sponsored by a non-governmental person (including the federal government). The
rules for determining when sponsored research is not considered a "bad use" are
set forth in IRS Revenue Procedure 2007-47.
(e)
Other Actual or
Beneficial Use: Any other arrangement that conveys special legal entitlements
for beneficial use of tax-exempt financed property.
(4)
The college
generally complies with these provisions by limiting private Business use of
its facilities. The checklist found in Exhibit A will be used to monitor
private business use of college facilities, and bond counsel will be consulted
if potentially impermissible use is identified.
(F)
Spending
requirements and arbitrage rebate
(1)
There are restrictions on the timing of the expenditure
of debt proceeds. Generally, proceeds must be spent within three years of debt
issuance. If it appears that all proceeds will not be spent within the three
year period, bond counsel will be consulted.
(2)
Tax rules require
borrowers to calculate and pay or "rebate" to the U.S. government any
"arbitrage profit" earned on the investment of debt proceeds prior to their
expenditure. Arbitrage is earned when the proceeds of a debt issue are used to
acquire investments that earn a yield higher than the yield on the debt issued.
There are several rebate exceptions if debt proceeds are spent
promptly.
(3)
As a general rule, the college will seek to finance
construction projects when proceeds will be spent within two years, and thus,
attempt to meet the two year spending rebate exception. The two year spending
exception requires that proceeds be spent as follows:
(a)
Ten per cent within
six months of issue
date
(b)
Fourty five per cent
within
twelve months of issue date
(c)
within seventy five per cent
eighteen months
of issue date
(d)
hundred per cent (less
"reasonable retainage") within 2
two months of issue
date
(4)
In cases where no rebate exception applies, the college
will calculate the amount of any rebate due, and will remit payment to the
internal revenue service along with IRS Form 8038-T. Generally, such payments
are due within
sixty days after the end of the fifth bond year. Bond
counsel or other outside firms may be used to assist with the
calculation.
(G)
Continuing disclosure
(1)
In connection
with the issuance of debt, the college may sign one or more continuing
disclosure agreements ("CDAs"). The CDAs require the college to file certain
annual financial and operating information with the electronic municipal market
access system ("EMMA") maintained by the municipal securities rulemaking board.
The CDAs also require the College to disclose through EMMA certain "material
events," such as bond defaults and rating changes, as provided under SEC rule
15c2-12.
(2)
The college will comply with all continuing disclosure
requirements, and will file all reports required by CDAs, including event
disclosures, within the time periods specified.
(H)
Record retention
(1)
It is the
college's policy to retain all records relating to tax-exempt debt financings
for the time required to comply with IRS regulations. Currently, records must
be retained for the life of the debt plus three years. This policy supersedes
any other record retention policy of the college.
(2)
Generally,
records refer to all documents, reports, accounts and certifications relating
to the:
(a)
Issuance of tax-exempt debt
(b)
Investment of
debt proceeds
(c)
Expenditure and allocation of debt
proceeds
(d)
Use of debt-financed property
(e)
Disclosure and
other filing requirements
(I)
Remedial
action
In the event that a change in use may result in the transfer
of ownership of debt-financed property to a non-governmental person or entity,
the College will consult with bond counsel about the possibility of utilizing
rules under Treasury Regulation 1.141 -12 which provide for "remedial
action."
(J)
Training
The Treasurer, or his/her designee, will develop training
materials for employees in departments that are impacted by this
policy.
(K)
Policy Review
The Treasurer, or his/her designee, will review this policy
at least biannually, and will recommend changes needed to ensure the College's
compliance with all applicable laws and regulations.
Exhibit A
Private Business Use Contract Review
Worksheet
Contracting Parties:
____________________________________________________________________
Agreement Not Subject to Private Use
Limitation
_____ Relates solely to construction of bond-financed
facility
_____ Relates to property that was not financed with proceeds
of a bond issue
_____ Does not relate to use or function of property
_____ Includes incidental services only (janitorial or similar
services)
_____ Compensation consists solely of reimbursement of actual
expenses incurred by service provider
Agreement Satisfies Safe Harbors for Management/Service
Contracts
_____ Service provider is not an agent or related party,
and
_____ Payments are reasonable in amount and are not based in
whole or in part on share of net profits, and
_____ Compensation meets one of the following sets of
criteria:
_____ at least 95% periodic fixed fee; maximum term of 15
years
_____ at least 89% periodic fixed fee; maximum term of 10
years
_____ at least 50% periodic fixed fee, 100% capitation fee, or
combination; maximum term of 5 years; terminable without penalty or cause after
3 years
_____ per unit fee or combination periodic fixed fee and per
unit fee; maximum term of 3 years;
terminable without penalty or cause after 2 years
_____ percentage of fees charged or combination of per unit fee
and percentage of gross revenues or expenses (but not both); maximum term of 2
years; terminable without penalty or cause after 1 year; and one of the
following must apply:
_____ service provider primarily provides services to third
parties
_____ agreement involves a facility during an initial start-up
period for which there have been insufficient operations to establish a
reasonable estimate of the amount of annual gross revenues and expenses
Agreement Requires Further Review by Bond
Counsel
_____ Ownership (including agreement that transfers title at
end of the term)
_____ Lease, license or any other agreement which creates
exclusive or priority rights to use any portion of a bond-financed property or
which creates an economic benefit for the third-party user
_____ Agreement with governmental entity or 501(c)(3)
organization
_____ Research agreement
_____ Management or services contract falling outside safe
harbors listed above
Reviewer: ______________________________
Date: __________________________________
