5480 - Post-Issuance Compliance Policies & Procedures for Tax-Exempt Bond Obligations

Policy: Post-Issuance Compliance Policies & Procedures for Tax-Exempt Bond Obligations	Policy Number: 5480
Date of Original Policy: 04/22/2020	Date Revision Adopted: 04/22/2020
Reviewed by Policy Committee: N/A	Date of Next Review: 04/22/2023
Replacement of Policy Number:

PURPOSE OF THIS POLICY

This Post-Issuance Compliance Policies and Procedures  (this "Policy and Procedures") sets forth specific policies and procedures of the Jordan-Elbridge Central School District, New York (the "District") designed to ensure the District complies with applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code") and the regulations promulgated thereunder (the "Treasury Regulations") applicable to tax-exempt bonds (the "Bonds") issued to finance District facilities.   

It is the District’s policy to fulfill all requirements that must be satisfied subsequent to the issuance of Bonds in order that interest on such obligations be, or continue to be, or would be but for certain provisions of the Code, excludable from gross income for federal income tax purposes.  The District recognizes that compliance with the applicable provisions of the Code and the Treasury Regulations is an on-going process, necessary during the entire term of the Bonds and is an integral component of the District’s debt management. Accordingly, the implementation of this Policy and Procedures will require on-going monitoring and, more than likely, ongoing consultation with legal counsel.

WHO NEEDS TO KNOW THE POLICIES AND PROCEDURES

This Policy and Procedures shall be communicated to all District officers and staff with responsibility or control over any aspect of the Bond issuance, the investment or expenditure of Bond proceeds and the use of Bond-financed assets, including but not limited to those who manage, direct or influence the following:

1.    The pre-issuance process and decision-making, including identification of eligible projects;
2.    The expenditure of Bond proceeds and other District funds for project costs;
3.    The investment of Bond proceeds and other District funds;
4.    The use of all facilities and other assets financed or refinanced by Bonds, including use by the District or by third parties pursuant to leases, management agreements, service agreements, fee-for-use or other arrangements;
5.    The sale or other disposition of any facilities or other assets financed or refinanced by Bonds;
6.    The creation and retention of documentation relating to expenditure of Bond proceeds, the use and disposition of Bond-financed assets, Arbitrage and tax return filings; and
7.    The recording and reporting of financial transactions related to Bonds.

DEFINITIONS

"Applicable Federal Law" – Includes the Code and the Treasury Regulations, including Sections 141 through 150 of the Code and the related Treasury Regulations (Note:  IRS Publication 4079:  Tax-Exempt Governmental Bonds Compliance Guide provides guidance and explanation for most areas of tax-exempt financing relevant to the District.  The report of the Advisory Committee on Tax Exempt and Government Entities, entitled: After the Bonds are Issued: Then What?, is also a useful resource for explanation of Applicable Federal Law).
"Arbitrage" – Earnings from investment of Bond proceeds in excess of the amount that would have been earned had the funds been invested at the Bond yield, adjusted for certain expenses (i.e., investment yield higher than the Bond yield).
"Private Business Use" – Examples of Private Business Use include the use of Bond-financed assets by parties other than the District including use by third parties pursuant to leases, management or service contracts that do not meet Internal Revenue Service (“IRS”) requirements, and any other arrangements that provide third parties with special legal entitlements to use or occupy (or otherwise benefit from) Bond-financed property.  Generally, no more than ten percent (10%) of Bond proceeds may be used for Private Business Use.  The use of Bond proceeds is generally determined based on the use of the Bond-financed property.  
"Tax Certificate" – The arbitrage and tax compliance certificate signed by the District at the closing of a Bond issuance in which the District makes certain representations, warranties and covenants relating to the expected use of the Bond proceeds, the tax eligibility of the projects and the District’s operations.

POLICY AND PROCEDURES

General Policy

It is the District's policy to comply with all applicable laws, regulations and contracts applicable to Bonds, including all Applicable Federal Law, to ensure that interest on the Bonds remains exempt from federal income tax.  Unless otherwise approved by the District’s legal counsel, the District shall comply with the guidelines with respect to management contracts set forth in Revenue Procedure 97-13 (in the case of contracts entered into prior to August 18, 2017) or Revenue Procedure 2017-13 otherwise, as the same may be amended and supplemented from time to time.

Responsibility for Monitoring Post-Issuance Tax Compliance  

The District's Treasurer (the "Business Administrator") shall have primary responsibility for monitoring the District’s compliance with post-issuance federal tax requirements for Bonds, and for implementing/overseeing procedures necessary to ensure such compliance.  The Business Administrator shall communicate this Policy and Procedures to all appropriate District personnel.  The Business Administrator may modify the detailed policies and procedures described herein as necessary to promote compliance with Applicable Federal Law.

Detailed Policies and Procedures

The District shall abide by the following policies, and shall implement the following procedures, to ensure that interest on Bonds remains tax-exempt:

1.    Expenditures of Bond Proceeds.  

a.    Bond proceeds, including investment earnings thereon, shall be disbursed only for project costs, capitalized interest (i.e., interest payments during project construction), Bond issuance costs and other purposes expressly allowed under the Bond documents and authorizing bond ordinances.  All Bond-financed property must be owned by the District.  

b.    If the District intends to reimburse itself from Bond proceeds for project costs paid prior to issuance of the Bonds, the District shall adopt a declaration of official intent to reimburse project costs.  The District shall consult with nationally recognized bond counsel to ensure the declaration of intent meets the requirements of Applicable Federal Law.

2.    Final Allocation of Bond Proceeds.  Promptly after the final expenditure of Bond proceeds, the Business Administrator shall prepare a written report documenting the allocation of Bond proceeds (including interest earnings thereon) and other District funds to project expenditures (the “Final Allocation”).  In all cases, the Final Allocation shall be completed within 18 months after the later of the date Bond proceeds are expended or the date the project is placed in service, but not later than 5 years after the Bonds were issued.  It is recommended that the District consult with nationally recognized bond counsel in connection with the Final Allocation of Bond proceeds.  Reminders should be placed in appropriate calendars to ensure Final Allocation of Bond proceeds are made timely.

3.    Private Business Use of Bond-Financed Property.

a.    General.  No more than ten percent (10%) of Bond proceeds may be used for Private Business Use, and such use may occur only in accordance with the Tax Certificate and Applicable Federal Law.  The use of Bond proceeds is generally evaluated, for Private Business Use purposes, based on the use of Bond-financed assets.  The following uses of Bond-financed property shall require the Business Administrator's prior approval:

(i)    use by third parties (i.e., other than the District), including but not limited to leases, licenses, fee-for-use or other arrangements;

(ii)    management or service contracts under which the manager or service provider's compensation is based, in whole or in part, on income from operation from the facility; and

(iii)    any other use that could potentially be considered Private Business Use under Applicable Federal Law.

b.    Annual Measurement of Private Business Use.  The Business Administrator shall maintain a record of all Bond financed property, including the amount of Bond proceeds allocated to each asset, which shall be based on the Final Allocation of Bond proceeds described above.  The Business Administrator shall annually review all uses of Bond financed property and determine the percentage of Private Business Use of Bond-financed property.  The Business Administrator shall maintain records of all Private Business Use, if any, of Bond-financed property, including copies of the pertinent leases, contracts or other documentation, and the related determination that any Private Business Use is within permissible limits under Applicable Federal Law.

4.    Change of Use.  Any significant change in the use of Bond-financed property must be reported to the Business Administrator prior to implementation.  The Business Administrator shall determine whether the proposed new use may constitute Private Business Use.  If the use may be Private Business Use, the Business Administrator shall consult with counsel for tax advice on whether that use or arrangement, if put into effect, will be consistent with the restrictions on Private Business Use and, if not, whether any "remedial action" permitted under the Code may be taken by the District as a means of enabling that use.  

5.    Sale or Disposition.  Any sale or other disposition of Bond-financed property must be reported to the Business Administrator prior execution of any agreement of sale or other agreement of disposition.  The Business Administrator shall determine whether the Bond-financed property has any remaining useful life in accordance with the Tax Certificate and Applicable Federal Law, and if so, consult with nationally recognized bond counsel as to the requirements of Applicable Federal Law applicable to the sale or other disposition and the appropriate “remedial action” permitted by the Code that must be undertaken by the District as a result of the potential sale or other disposition of the Bond-financed property.

6.    Investment of Bond Proceeds; Arbitrage and Rebate.
 
a.    Prior to expenditure for project costs, Bond proceeds shall be invested solely in compliance with the Local Finance Law, Applicable Federal Law and the Tax Certificate.  The District may invest Bond proceeds at a yield in excess of the Bond yield only during the applicable "temporary period" (as defined in the Code and the Treasury Regulations), and shall provide for yield restriction on the investment of such proceeds after the applicable temporary period.  The District shall ensure that investments acquired with proceeds of an issue are purchased at "fair market value," as defined in Treasury Regulations.

b.    The Business Administrator shall determine whether the Bonds are eligible for an Arbitrage rebate exception.  If the Bonds are not exempt from Arbitrage rebate, the Business Administrator shall compute the amount of Arbitrage earnings, and make all required rebate payments to the IRS, on each computation date required by Applicable Federal Law.  The Business Administrator shall consider retaining an arbitrage rebate service provider to prepare arbitrage rebate calculations.

7.    Reissuance.  Before modifying any Bond terms, the District shall consult with nationally recognized bond counsel to determine whether the proposed modification could potentially be treated as a "reissuance" of those Bonds for federal income tax purposes.  

8.    Filing of Returns.  The District will work with nationally recognized bond counsel to prepare and file any returns with the IRS relating to Arbitrage rebate in a timely manner.  The District will confirm with bond counsel that the information report required to be filed upon issuance of Bonds (e.g., Form 8038) was filed with the IRS on a timely basis.  

9.     Record Retention.  Unless otherwise permitted by future Treasury Regulations or IRS guidance, written records (which may be in electronic form) will be maintained with respect to each Bond issue for as long as those Bonds (and any Bonds issued to refinance those Bonds) remain outstanding, plus three years.  The records to be maintained shall include:

a.    basic records relating to the Bond issuance including the official transcript of proceedings;

b.    documentation evidencing expenditure of Bond proceeds including, but not limited to, purchase contracts, construction contracts, progress payment requests, invoices, cancelled checks, payment of Bond issuance costs, and records of "allocations" of Bond proceeds to reimburse the District for project expenditures made before the Bonds were actually issued;

c.    records showing the specific assets financed with Bond proceeds (including assets to which Bond proceeds are allocated pursuant to the Final Allocation described above);

d.    information, records and calculations showing that, with respect to each Bond issue, the District was eligible for one of the Arbitrage rebate spending exceptions or, if not, that the Arbitrage rebate amount, if any, was calculated and timely paid to the IRS;

e.    documentation evidencing use of Bond-financed property by public and private entities (including copies of leases and management contracts);

f.    records showing that special use arrangements, if any, affecting Bond-financed property made by the District with third parties, if any, are consistent with applicable restrictions on Private Business Use of property financed with proceeds of tax-exempt Bonds;

g.    records of any sale or disposition of Bond-financed property, including terms of sale, and documentation of any “remedial action” undertaken as a result of the sale or other disposition; and

h.    documentation pertaining to any investment of proceeds of the issue, including the purchase and sale of securities, calculations for each class of investments and actual investment income received and Arbitrage rebate calculations.

The purpose of the foregoing record retention policy is to enable the District to readily demonstrate to the IRS, upon an audit of any Bond issue, that the District has fully complied with all Applicable Federal Law requirements that must be satisfied after the issue date of the Bonds so that interest on those Bonds continues to be tax-exempt under the Code.

10.    Consultation with Nationally Recognized Bond Counsel.  The Business Administrator shall consult with qualified legal counsel as appropriate to resolve questions relating to potential Private Business Use of Bond-financed assets, Final Allocation of Bond proceeds, Arbitrage rebate and other matters relating to compliance with Applicable Federal Law.

11.    Corrective Actions.  Upon discovering any violation of Applicable Federal Law including, but not limited to, excess Private Business Use, violation of Arbitrage restrictions or sale of Bond-financed assets, the Business Administrator shall promptly consult with legal counsel to determine appropriate remedial action to correct such violation.  If remedial action is not available, the District will undertake to remedy the violation through the IRS Voluntary Closing Agreement Program (VCAP).