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Tax Compliance and Record Retention for Tax-Exempt Governmental Bonds, Build America Bonds and Qualified School Construction Bonds - August 2010 Revision

Contents

Definitions

For purposes of this procedural directive, “BABs” means Build America Bonds.

For purposes of this procedural directive, “QSCBs” means Qualified School Construction Bonds.

For purposes of this procedural directive, “the Code” means Sections 103 and 141 through 150 of the Internal Revenue Code of 1986, as amended.

For purposes of this procedural directive, “the Rules” means Sections 103 and 141 through 150 of the Internal Revenue Code of 1986, as amended, and the U.S. Treasury Regulations promulgated thereunder.

For purposes of this procedural directive, “the advisors” means the district’s Bond Counsel, financial advisor, paying agent, and rebate analyst.

For purposes of this procedural directive, “COI” means cost of issuance.

For purposes of this procedural directive, “de minimis” means the amount of premium is an amount that is not greater than 0.25% of the stated redemption price at maturity for the bond, multiplied by the number of complete years to the earlier of the maturity date for the bond or the first optional redemption date for the bond, if applicable.  Generally, up to 2.5% of premium over the stated principal amount of the bond may be considered to be de minimis premium for bonds that mature in 10 years or more.

Purpose

As part of the economic recovery strategy of the United States government, specific types of tax-exempt bonds have become available for public school use in an attempt to facilitate school construction.  The Board of Education has chosen to take advantage of these bonds for construction projects paid for by the Capital Master Plan.  As a result of this choice, Albuquerque Public Schools must meet requirements outlined by the federal government.  This procedural directive explains those requirements and provides information regarding how Albuquerque Public Schools will comply with said requirements.

Issuers of tax-exempt governmental bonds must comply with federal tax rules pertaining to expenditure of proceeds for qualified costs, rate of expenditure, use of bond financed property, investment of proceeds in compliance with arbitrage rules, and retention of records.  Additionally, issuers of taxable Build America Bonds (BABs) and Qualified School Construction Bonds (QSCBs) must comply with the same requirements as tax-exempt Governmental Bonds and certain additional requirements.

As an issuer of such bonds, the Board of Education of the Albuquerque Public School District, in the Counties of Bernalillo and Sandoval, State of New Mexico, is required by the terms of Sections 103 and 141 through 150 of the Internal Revenue Code of 1986, as amended, and the U.S. Treasury Regulations promulgated thereunder, to take certain actions subsequent to the issuance of the bonds to ensure the continuing tax-exempt status of such bonds, and in the case of BABs and QSCBs, to ensure that the bonds remain “qualified.”   Further, Section 6001 of the Code and Section 1.6001-1(a) of the Treasury Regulations impose record retention requirements on the district with respect to its tax-exempt governmental bonds. This procedural directive is designed to ensure that the district complies with its tax compliance obligations under applicable provisions of the Rules.

BABs and QSCBs may be issued as “tax credit” bonds in which the holder of the bonds receives a tax credit or “direct payment” bonds in which the District receives a direct subsidy/refundable credit payment. 

For purposes of this procedural direcitve, references to BABs and QSCBs refer to the “direct payment” version of such bonds (i.e. not the “tax credit” version).  In the event the district issues “tax credit BABs” or “tax credit QSCBs”, the district, with consultation of Bond Counsel, shall adopt additional procedures for such tax credit bonds prior to the date of issuance, if necessary.  The district also has the ability to issue Qualified Zone Academy Bonds which have similar requirements to QSCBs.  The district with consultation of Bond Counsel, shall adopt additional policies for such bonds prior to the date of issuance, if necessary.

Effective Date and Term

The effective date of this procedural directive shall be the date of approval by the superintendent, and this procedural directive shall remain in effect until superseded or terminated by action of the superintendent.  The district shall comply with this procedural directive upon issuance of bonds and as long as the bonds remain outstanding.  This procedural directive may be revised to comply with amendments to the Rules during the period the bonds are outstanding.

Responsible Parties

The chief financial officer shall be the party primarily responsible for ensuring that the district successfully carries out its tax compliance requirements under applicable provisions of the Rules with regard to all obligations of the district. The chief financial officer is referred to as the compliance officer for purposes of this procedural directive. The compliance officer shall be assisted by other district staff and officials when appropriate and at the compliance officer’s discretion. The compliance officer shall also be authorized to retain and consult with the Advisors during the time the bonds are outstanding for assistance in carrying out post-issuance tax compliance requirements.

The compliance officer shall be responsible for assigning post-issuance tax compliance responsibilities to other district staff and to the Advisors. The compliance officer shall utilize such other professional service organizations as are necessary to ensure compliance with the post-issuance tax compliance requirements of the district.  The compliance officer shall provide training and educational resources to district staff responsible for ensuring compliance with any portion of the tax compliance requirements of this procedural directive.

Expenditure of Bond Proceeds

Expenditure Review Process:

  • All expenditures of bond proceeds shall be reviewed by the compliance officer.
  • The compliance officer shall ensure that bond proceeds will be expended only for an authorized project identified in an authorizing resolution or ordinance of the district and pursuant to an approved expenditure schedule stating the date, amount and purpose of the expenditure.
  • The compliance officer shall maintain detailed records of the expenditures of each bond issue and its corresponding projects and will annually place a copy of all records related to the prior year’s expenditures in the file for such bond issue.
  • The compliance officer shall ensure that the expenditure schedule identifies the financed property in conformity with the tax compliance certificate executed by the officers of the district at closing, including any certifications as to the character and average economic life of the bond-financed property.
  • In the event the district seeks to utilize bond proceeds for costs that were incurred prior to the issuance of the bonds, the compliance officer shall consult with the Advisors to ensure that such expenditures are within the sixty (60) day period prior to the date in which the district made a “declaration of intent” to reimburse such costs or are preliminary expenditures under the Code.  If proceeds are used for such reimbursement, a copy of the declaration of intent shall be obtained and included in the records for the bonds if not already part of the transcript.
  • If not otherwise provided for in the tax compliance certificate executed by the officers of the district at closing, the compliance officer shall prepare an “allocation memorandum” for each issue of bonds that accounts for the allocation of the proceeds of the bonds to expenditures not later than the earlier of:
    • Eighteen (18) months after the later of (i) the date the expenditure is paid, or (ii) the date the project that is financed by the bonds is placed in service; or
    • Sixty (60) days after the earlier of (i) the fifth (5th) anniversary of the issue date of the bonds, or (ii) the date sixty (60) days after the retirement of the bonds.

Rate of Expenditure:

The compliance officer shall ensure that the expenditure of bond proceeds will be monitored against the expenditure expectations represented in the tax compliance certificate for such bond issue to ensure that:

  • Five percent (5%) of the net sale proceeds were spent or committed within six (6) months of the issue date;
  • Eighty-five percent (85%) of the net sale proceeds were spent within three (3) years of the issue date; and
  • the district proceeded with due diligence to complete the project and fully spend the net sale proceeds.

Failure to meet the expected expenditure expectations represented in the tax compliance certificate for such bond issue shall be documented and retained by the compliance officer in the records for the bond issue.

  • The compliance officer shall ensure that the expenditure of “available construction proceeds” and “available project proceeds” will be monitored against the following schedule for the arbitrage rebate exception for construction issues, if applicable:For BABs and QSCBs proceeds –
    • Ten percent (10%) within six (6) months
    • Forty-five percent (45%) within twelve (12) minutes
    • Seventy-five percent (75%) within eighteen (18) months
    • One-hundred percent within twenty four (24) months

As otherwise provided in the tax compliance certificate.

Additional Requirements for Expenditure of Proceeds of Direct Payment BABs

The compliance officer shall ensure that one-hundred percent (100%) of the excess of “available project proceeds” of BABs are used only for capital expenditures, such as costs incurred to acquire, construct, or improve buildings, equipment, and land.

In addition to new money capital expenditures, one-hundred percent (100%) of the excess of “available project proceeds” may be also used (i) to reimburse prior capital expenditures under the general reimbursement rules (see prior section of this procedural directive) and (ii) to refinance temporary short-term obligations issued after February 17, 2009, to finance capital expenditures paid or incurred after that date.  The compliance officer shall ensure that any such use of BAB proceeds for reimbursement or refinancing short term obligations will be adequately documented as provided herein. The compliance officer shall consult with the Advisors to calculate the amount which constitutes one-hundred percent (100%) of the excess of “available project proceeds” of BABs available for the uses noted above.

  • “available project proceeds” for BABs includes:
    • the sale proceeds the district receives from the sale of the BABs;
    • minus proceeds allowed for costs of issuance (up to 2%);
    • minus proceeds allowed to fund a reasonably required reserve fund (generally up to 10%);
    • plus proceeds from investment earnings.

The compliance officer shall ensure that no more than two percent (2%) of the proceeds will be spent for costs of issuance (COI).  Compliance with this rule shall be established by recording COI paid from BAB proceeds in a special account that will be measured against the two percent (2%) limit.  In the event that COI exceeds two percent (2%), the compliance officer shall ensure amounts in excess of the two percent (2%) limitation are paid from other legally available funds of the district.

The compliance officer shall ensure that any reserve fund established for an issue of BABs shall not exceed the least of ten percent (10%) of bond proceeds, the maximum annual debt service, or one-hundred twenty-five (125%) of average annual debt service.  The compliance officer may consult with Bond Counsel and its financial advisor to determine that the initial funding of any reserve fund with BAB proceeds complies with this rule.

The compliance officer shall ensure that any interest earnings on the investment of BAB proceeds will be used only for capital expenditures.

The compliance officer shall ensure that BAB proceeds will not be used for operating expenses or other “working capital” costs.

Additional Requirements for Expenditure of Proceeds of Refundable Credit QSCBs

The compliance officer shall ensure that one-hundred percent (100%) of “available project proceeds” of QSCBs are used only for the (i) construction, rehabilitation or repair of a public school facility, (ii) the acquisition of land on which such facility is to be constructed, and (iii) the acquisition of equipment to be used in the public school facility that is being constructed, rehabilitated or repaired.  Equipment is generally considered to be fixture and permanent installations and not moveable items like furniture and computers.

In addition to the use of proceeds for the eligible expenditures described above, one-hundred percent (100%) of “available project proceeds” may be also used (i) to reimburse prior eligible expenditures under the general reimbursement rules (see prior section of this procedural directive) and (ii) to refinance temporary short-term obligations issued after March 18, 2010 to finance eligible expenditures paid or incurred after that date.  The compliance officer shall ensure that any such use of QSCB proceeds for reimbursement or refinancing short term obligations will be adequately documented as provided herein.

The compliance officer shall consult with the Advisors to calculate the amount which constitutes one-hundred percent (100%) of the “available project proceeds” of QSCBs available for the eligible expenditures noted above.

  • “available project proceeds” for QSCBs includes:
    • the sale proceeds the District receives from the sale of the QSCBs;
    • minus proceeds allowed for costs of issuance (up to 2%);
    • plus proceeds from investment earnings.

The compliance officer shall consult with the Advisors to ensure that no more than two percent (2%) of QSCB proceeds will be spent for COI.  Compliance with this rule shall be established by recording COI paid from QSCB proceeds in a special account that will be measured against the two percent (2%) limit.  In the event that COI exceeds two percent (2%), the compliance officer shall ensure amounts in excess of the two percent (2%) limitation are paid from other legally available funds of the district.

The compliance officer shall ensure that any interest earnings on the investment of QSCB proceeds will also be used only for the eligible expenditures discussed above.

The compliance officer shall ensure that ten percent (10%) of QSCB proceeds are committed to be spent within six (6) months of the issue date of the QSCBs.

The compliance officer shall ensure that one-hundred percent (100%) of the QSCB proceeds are spent within three (3) years of the issue date of the QSCBs.  Any unspent QSCB proceeds remaining after three (3) years from the issue date of the QSCBs shall be used to redeem the corresponding amount of QSCBs within ninety (90) days of the end of the three (3) year period.  In the event such failure to expend one-hundred percent (100%) of QSCB proceeds within the three (3) year period is due to reasonable cause, the compliance officer shall identify such reasons and request an extension of the three (3) year period with the IRS.  The compliance officer shall consult with Bond Counsel prior to the end of the three (3) year period to determine the requisite action to be taken, if any.

The compliance officer shall ensure that all expenditures of QSCB proceeds will comply with the highest requirements (either state or federal) of the Davis-Bacon Prevailing Wage Act.  The compliance officer shall ensure that adequate documentation of the compliance with this requirement is included in the file for each issue of QSCBs.

The compliance officer shall consult with the Advisors to ensure that no QSCB proceeds will be used to fund a reserve fund for a QSCB issue.  A special arbitrage rule applies to a reserve fund for a QSCB issue which is funded from sources other than QSCB proceeds.  In the event such a “sinking fund” reserve is created for an issue of QSCBs, the compliance officer shall consult with the Advisors to ensure that:

  • The sinking fund reserve is funded from sources other than QSCB proceeds;
  • The sinking fund is funded no more rapidly than in equal annual installments;
  • The sinking fund is funded in a manner reasonably expected to result in an amount not greater than necessary to repay the QSCBs; and
  • The yield on such a sinking fund is restricted to the “permitted sinking fund rate” set by the Secretary of the Treasury and published by the Bureau of Public Debt at www.treasurydirect.gov.

Compliance with De Minimis Premium Restrictions on BABs and QSCBs

The compliance officer shall consult with the Advisors to ensure that none of the maturities of any issue of BABs or QSCBs are issued with more than a de minimis amount of premium.

To comply with this requirement, the compliance officer shall:

  • Consult with the Advisors, prior to the issuance of the bonds, to determine if the bonds are to be sold without premium; or
  • Following the sale of the bonds, review the records of trading activity for each issue of BABs or QSCBs and request an explanation from the Underwriter or Financial Advisor regarding any customers who purchased bonds at prices in excess of the stated initial offering price; and
  • Document the explanations of the Underwriter or Financial Advisor regarding bonds purchased at prices in excess of the stated initial offering price.

The procedure for complying with this rule shall be established by the compliance officer and the Advisors prior to the sale of the bonds.

Arbitrage Rules and Rebate Requirements

The compliance officer shall consult with the Advisors to ensure that the investment of bond proceeds is performed in compliance with the arbitrage rules and rebate requirements.

The compliance officer shall consult with the Advisors to identify bond proceeds that must be yield-restricted and shall monitor the investments of any yield-restricted funds to ensure that the yield on such investments does not exceed the yield to which such investments are restricted.

The compliance officer shall consult with the Advisors to determine whether the district is subject to the rebate requirements of Section 148(f) of the Code and related Treasury Regulations with respect to each issue of bonds. Calculations of rebate liability shall be performed annually by the Rebate Analyst.

  • The compliance officer shall consult with the Advisors to determine, with respect to each issue of bonds of the district, whether the district is eligible for any of the temporary periods for unrestricted investments and is eligible for any of the spending exceptions to the rebate requirements.
  • The compliance officer shall contact the Rebate Analyst (and, if appropriate, Bond Counsel) prior to the fifth anniversary of the date of issuance of each issue of bonds of the district and each fifth anniversary thereafter to arrange for calculations and reports of the rebate requirements with respect to such bonds. If a rebate payment is required to be paid by the district, the compliance officer shall prepare or cause to be prepared the appropriate form to be filed with the IRS (Form 8038-T). If the district is authorized to recover a rebate payment previously paid, the compliance officer shall prepare or cause to be prepared the appropriate form to be filed with the IRS (Form 8038-R).

The compliance officer shall ensure that the investment of bond proceeds is made only in permitted investments of the district as outlined in the Board of Education policy D.02 Investments.

The compliance officer shall ensure that guaranteed investment contracts (GIC) will be purchased only using the three-bid “safe harbor” of applicable Treasury regulations, in compliance with fee limitations on GIC brokers in the regulations.
The compliance officer shall ensure that all other investments will be purchased only in market transactions.

For purposes of calculating the arbitrage yield for an issue of BABs, the compliance officer shall consult with the Advisors to ensure that the arbitrage yield is calculated by reducing the amount of interest paid on the BABs by the amount of the federal subsidy payments allowed to the district under Section 6431 of the Code, without regard to amounts offset for delinquent debts owed to the federal government.

For purposes of calculating the arbitrage yield for an issue of QSCBs the compliance officer shall consult with the Advisors to ensure that the arbitrage yield is calculated by reducing the amount of interest paid on the QSCBs by the amount of the refundable credit payments allowed to the issuer under Section 6431(f) of the Code, without regard to amounts offset for delinquent debts owed to the federal government.

Filings with Internal Revenue Service

The compliance officer, with assistance from Bond Counsel, shall ensure that each issuance of bonds is properly reported with the Internal Revenue Service (IRS) as required by Section 149(e) of the Code.  On the issue date of each series of bonds, the compliance officer shall consult with the Advisors to identify the deadline to file the requisite IRS form for such issue.

If a bond issue consists of tax-exempt bonds, BABs and QSCBs, the district must report the tax-exempt portion on Form 8038-G, the BABs on Form 8038-B and the QSCBs on Form 8038-TC as outlined below.

Reporting the Issuance of Tax-Exempt Bonds

The original issuance of a tax-exempt bond issue with an issue price of one-hundred thousand dollars ($100,000) or greater shall be reported on Form 8038-G.  The original issuance of a tax-exempt bond issue with an issue price less than one-hundred thousand dollars ($100,000) shall be reported on Form 8038-GC.

  • Forms 8038-G and 8038-GC shall be filed by the compliance officer or Bond Counsel no later than the 15th day of the 2nd calendar month following the quarter in which the bonds were issued.
  • The compliance officer shall consult with the Advisors to ensure the Form 8038-G is accurately filled out.

Reporting the Issuance of BABs and Filing the Request for Direct Payment

Reporting the Original Issuance of BABs on Form 8038-B

  • Form 8038-B will be filed by the compliance officer or Bond Counsel no later than the 15th day of the 2nd calendar month following the quarter in which the BABs were issued.
    • The Compliance Officer will ensure the Form 8038-B is filed at least thirty (30) days prior to filing the first Form 8038-CP for such bond issue.
  • The compliance officer will consult with the Advisors to ensure that the “Arbitrage Yield” reported on the 8038-B has been calculated to reflect the amount of the direct subsidy payment allowed under Section 6431 of the Code.
  • The compliance officer shall coordinate with the Advisors to ensure that a Debt Service Schedule is attached to the Form 8038-B which provides the following information:
    • The earliest date the BABs may be called for redemption;
    • A list of each interest payment date;
    • The total principal amount to be outstanding on such date;
      • The total interest payable on such date;
        • For purposes of calculating the interest payable on each interest payment date, the compliance officer shall consult with the Advisors to ensure the interest payable is calculated based on the taxable interest rate of the BAB.
      • The direct subsidy payment expected to be requested by the IRS on each interest payment date;
        • For purposes of calculating the direct subsidy payment expected to be requested, the compliance officer shall consult with the Advisors to ensure the direct subsidy payment requested is equal to the interest payable on such BAB multiplied by the amount of the direct subsidy payment available (i.e. 35% or other amount as may be provided in the Code).
        • The compliance officer may consult with the district and the Advisors to discuss the consequences of federal offset provisions.  The U.S. Treasury and the IRS can hold or reduce direct subsidy payments if payroll tax liabilities are owed or if re-payments of a grant are owed under the U.S. Treasury Offset Program.

Requesting the Direct Subsidy Payment for BABs on Form 8038-CP

  • For fixed rate BABs, the compliance officer shall ensure the Form 8038-CP is filed not less than forty-five (45) days (and not more than ninety (90) days) prior to the applicable semiannual interest payment date.
  • For variable rate BABs, the compliance officer shall ensure Form 8038-CP is filed not more than forty-five (45) days after the last interest payment date within the quarterly period for which the subsidy payment is requested.
  • The compliance officer shall consult with the Advisors to determine whether it will elect to receive the refundable credit payments via direct deposit and will make such election on the Form 8038-CP by providing the direct deposit information in Line 25 of the Form 80338-CP.  Failure to provide such information shall result in the direct subsidy payment being paid via a mailed check.
  • The compliance officer shall compare the amount of the direct subsidy payment requested in each Form 8038-CP with the debt service schedule attached to the Form 8038-B to ensure the correct payment amount is requested at the correct time.
  • The compliance officer shall coordinate with the paying agent to ensure that Form 8038-CP is signed by the authorized officer of the district prior to the submission of each Form 8038-CP.
  • In the event the district fails to timely file a Form 8038-CP, the compliance officer shall coordinate with the paying agent to take all action necessary to file the Form 8038-CP as soon as possible thereafter.
  • The compliance officer shall consult with the paying agent to ensure that the direct subsidy payments requested for each Form 8038-CP are received.
  • Upon receipt of the direct subsidy payment, the compliance officer shall consult with the paying agent to ensure such payments are deposited into the debt service fund for the BAB issue to be used for subsequent interest payments as provided in the bond resolution or bond ordinance or for any other authorized use.

 

Reporting the Issuance of QSCBs and Filing the Request for the Refundable Credit

Reporting the Original Issuance of QSCBs on Form 8038-TC

  • Form 8038-TC will be filed by the compliance officer or Bond Counsel no later than the 15th day of the 2nd calendar month following the quarter in which the QSCBs were issued.
    • The Compliance Officer will ensure the Form 8038-TC is filed at least 30 days prior to filing the first Form 8038-CP for such bond issue
  • The compliance officer shall consult with the Advisors to ensure that the “Arbitrage Yield” reported on the 8038-TC has been calculated to reflect the amount of the refundable credit payment allowed under Section 6431(f) of the Code.
  • The compliance officer shall consult with the Advisors to ensure that the final maturity date reported on the 8038-TC is the maximum maturity in effect on the first day there is a binding written contract for the sale of the QSCB (generally when the bond purchase agreement is signed) as published by the Bureau of Public Debt at www.treasurydirect.gov.
  • The compliance officer shall coordinate with the Advisors to ensure that a Debt Service Schedule is attached to the Form 8038-TC which provides the following information:
    • The earliest date the QSCB may be called for redemption;
    • A list of each interest payment date;
    • The total principal amount to be outstanding on such date;
    • The total interest payable on such date; and
      • For purposes of calculating the interest payable on each interest payment date, the compliance officer will consult with the Advisors to ensure the interest payable is calculated based on the taxable interest rate of the QSCB
    • The refundable credit payment expected to be requested by the IRS on each interest payment date;
      • For purposes of calculating the refundable credit payment expected to be requested, the compliance officer shall consult with the Advisors to ensure the refundable credit payment requested is equal to the lesser of (i) 100% of the amount of interest payable under the QSCB on such date or (ii) 100% percent of the amount of permitted interest determined as of the first day on which there is a binding written contract for the sale of the QSCB (generally when the bond purchase agreement is signed) as published by the Bureau of Public Debt at www.treasurydirect.gov.
      • The compliance officer may consult with the district and the Advisors to discuss the consequences of federal offset provisions.  The U.S. Treasury and the IRS can hold or reduce refundable credit payments if payroll tax liabilities are owed or if re-payments of a grant are owed under the U.S. Treasury Offset Program.

Requesting the Refundable Credit Payment for QSCBS on Form 8038-CP

  • For fixed rate QSCBs, the compliance officer shall ensure the Form 8038-CP is filed not less than forty-five (45) days (and not more than ninety (90) days) prior to the applicable semiannual interest payment date.
  • For variable rate QSCBs, the compliance officer shall consult with the Advisors to aggregate all refundable credit payments for each quarter and file Form 8038-CP not more than forty-five (45) days after the last interest payment date within the quarterly period for which the refundable credit is requested.
  • The compliance officer shall consult with the Advisors to determine whether it will elect to receive the refundable credit payments via direct deposit and will make such election on the Form 8038-CP by providing the Direct Deposit information in Line 25 of the Form 80338-CP.  Failure to provide such information shall result in the refundable credit payment being paid via a mailed check.
  • The compliance officer shall compare the amount of refundable credit requested in each Form 8038-CP with the debt service schedule attached to the Form 8038-TC to ensure the correct payment amount is requested at the correct time.
  • If a single issue of QSCBs consists of multiple maturities (i.e. serial maturities) a separate Form 8038-CP shall be filed for each maturity.  In such a case, the compliance officer shall ensure the interest and calculation for the refundable credit payment due is calculated solely for the maturity that such payment is being requested on the respective Form 8038-CP.
  • The compliance officer shall coordinate with the paying agent to ensure that Form 8038-CP is signed by the authorized officer of the District prior to the submission of each Form 8038-CP.
  • In the event the district fails to timely file a Form 8038-CP, the compliance officer shall coordinate with the paying agent to take all action necessary to file the Form 8038-CP as soon as possible thereafter.
  • The compliance officer shall consult with the paying agent to ensure that the refundable credit payment requested for each Form 8038-CP is received.
  • Upon receipt of the refundable credit payment, the compliance officer shall consult with the paying agent to ensure such payment is deposited into the debt service fund for the QSCB issue to be used for subsequent interest payments as provided in the bond resolution or bond ordinance (and in order to avoid property tax mill levies at the taxable rate).

Rebate Reporting Requirements

The compliance officer shall contact the rebate analyst prior to the 5th anniversary of the issue date on each series of bonds and each 5th anniversary thereafter to arrange for calculations of the rebate requirements with respect to such bonds.  If a rebate payment is required to be paid, the compliance officer shall prepare or cause to be prepared a Form 8038-T, and submit such Form 8038-T to the IRS with the required rebate payment.

If the district is authorized to recover a rebate payment previously paid, the compliance officer shall prepare or cause to be prepared a Form 8038-R, with respect to such rebate recovery, and submit such Form 8038-R to the IRS.

Use of Bond-Financed Property

The compliance officer shall monitor the use of all bond-financed facilities in order to determine whether private business uses of bond-financed facilities have exceeded the de minimis limits set forth in Section 141(b) of the Code (generally 10% of bond proceeds) as a result of leases and subleases, licenses, management contracts, research contracts, naming rights agreements or other arrangements that provide special legal entitlements to nongovernmental persons.  Prior to entering into such leases or other contracts, the compliance officer shall consult with Bond Counsel to ensure appropriate action is taken with respect to the bond-financed facilities.

The compliance officer shall monitor the use of all bond-financed facilities in order to determine whether private security or payments that exceed the de minimis limits set forth in Section 141(b) of the Code (generally 10% of bond proceeds) have been provided by nongovernmental persons with respect to such bond-financed facilities. The compliance officer shall consult with Bond Counsel to ensure appropriate action is taken with respect to the bond-financed facilities.

The compliance officer shall provide training and educational resources to any district staff that have the primary responsibility for the operation, maintenance, or inspection of bond-financed facilities with regard to the limitations on the private business use and on the private security or payments with respect to bond-financed facilities.

The compliance officer shall ensure that no item of bond-financed property will be sold or transferred to a nonexempt party without advance arrangement of a “remedial action” under the applicable Treasury Regulations.  The compliance officer shall consult with Bond Counsel prior to the sale or transfer of any bond-financed property.

Record Retention

Management and retention of records related to the district’s bond issues shall be supervised by the compliance officer.  Records shall be retained during the period in which the bonds remain outstanding (plus any refunding bonds) plus three (3) years. Records may be in the form of documents and electronic copies of documents, appropriately indexed to specific bond issues and compliance functions.

The compliance officer shall collect and retain the following records with respect to each issue of bonds of the district and with respect to the facilities financed with the proceeds of such bonds:

  • audited financial statements of the district;
  • appraisals, demand surveys, or feasibility studies, if any, with respect to the facilities to be financed with the proceeds of such bonds;
  • publications, brochures, and newspaper articles, if any, related to the bond financing;
  • trustee or paying agent statements;
  • records of all investments and the gains (or losses) from such investments;
  • paying agent or trustee statements regarding investments and investment earnings;
  • reimbursement resolutions, if any, and expenditures reimbursed with the proceeds of such bonds;
  • allocations of proceeds to expenditures (including costs of issuance) and the dates and amounts of such expenditures (including any requisitions, expenditure/draw schedules, expenditure/draw requests, invoices, bills, and cancelled checks with respect to such expenditures;
  • contracts entered into for the construction, renovation, or purchase of bond-financed facilities;
  • documentation of compliance with federal and state Davis-Bacon prevailing wage labor standards for any projects financed with QSCBs
  • certification by the district that it has met the requirements of state and local statute governing conflicts of interest with respect to each QSCB issue
  • an asset list or schedule of all bond financed depreciable property and any depreciation schedules with respect to such assets or property;
  • records of the purchases and sales of bond-financed assets;
  • private business uses of bond-financed facilities that arise subsequent to the date of issue through leases and subleases, licenses, management contracts, research contracts, naming rights agreements, or other arrangements that provide special legal entitlements to nongovernmental persons and copies of any such agreements or instruments; arbitrage rebate reports and records of rebate and yield reduction payments, if any; resolutions or other actions, if any, taken by the Board of Education subsequent to the date of issue with respect to such bonds;
  • formal elections authorized by the Code or Treasury Regulations that are taken with respect to such bonds, including the irrevocable elections by the district to issue BABs or QSCBs and elections to designate the bonds as direct subsidy/refundable credit BABs or QSCBs;
  • relevant correspondence relating to such bonds;
  • documents related to guaranteed investment contracts or certificates of deposit, credit enhancement transactions, and financial derivatives entered into subsequent to the date of issue;
  • copies of any and all forms filed with the IRS for each series of bonds including, as applicable, Form 8038-G, Form 8038-GC, Form 8038-B,  Form 8038-TC, Form 8038-CP for each direct subsidy payment/refundable credit requested, Form 8038-T and Form 8038-R; and
  • the official transcript prepared by Bond Counsel with respect to each series of bonds of the district.

Identification of Violations and Corrections

If, during the period the bonds remain outstanding, it is determined that a violation of federal tax requirements has occurred, the compliance officer shall immediately consult with the Advisors to ensure that corrective or remedial action is taken.  In consultation with Bond Counsel, the compliance officer shall become acquainted with the remedial actions under Treasury Regulations, Section 1.141-12, to be utilized in the event that private business use of bond- financed facilities exceeds the de minimis limits under Section 141(b)(1) of the Code. In consultation with Bond Counsel, the Compliance Officer shall become acquainted with the Tax Exempt Bonds Voluntary Closing Agreement Program, described in Notice 2008-31, 2008-11 I.R.B. 592, to be utilized as a means for an issuer to correct any post-issuance infractions of the Rules with respect to its outstanding bonds.

Continuing Disclosure Obligations

In addition to its post-issuance compliance requirements under applicable provisions of the Rules, the district has agreed to provide continuing disclosure, such as annual financial information and material event notices, pursuant to a continuing disclosure certificate or similar document (the “Continuing Disclosure Document”) prepared by Bond Counsel and made a part of the transcript with respect to each issue of bonds of the district that is subject to such continuing disclosure requirements. The Continuing Disclosure Documents shall be executed by the district to assist the underwriters of the district’s bonds in meeting their obligations under Securities and Exchange Commission Regulation, 17 C.F.R. Section 240.15c2-12, as in effect and interpreted from time to time (“Rule 15c2-12”).  The continuing disclosure obligations of the district shall be governed by the Continuing Disclosure Documents and by the terms of Rule 15c2-12. The compliance officer shall be primarily responsible for undertaking such continuing disclosure obligations and to monitor compliance with such obligations.

Other Post-Issuance Actions

If, in consultation with the Advisors, the compliance officer determines that any additional action not identified in this procedural directive must be taken by the compliance officer to ensure the continuing tax-exempt status or “qualified” status of any issue of the district’s bonds, the compliance officer shall take such action if the compliance officer has the authority to do so. If, after consultation with the Advisors, the compliance officer determines that this procedural directive shall be amended or supplemented to ensure the continuing tax-exempt status or “qualified” status of any issue of the district’s bonds, the compliance officer shall follow the appropriate district procedural directive that this document be so amended or supplemented.

Taxable Governmental Bonds

Most of the provisions of this procedural directive, other than the provisions Continuing Disclosure Obligations subsection of this procedural directive, are not applicable to governmental bonds the interest on which is includable in gross income for federal income tax purposes (i.e. “taxable governmental bonds”).  If an issue of taxable governmental bonds is later refunded with the proceeds of an issue of tax-exempt governmental bonds, then the uses of the proceeds of the taxable governmental bonds and the uses of the facilities financed with the proceeds of the taxable governmental bonds shall be relevant to the tax-exempt status of the refunding bonds.  Therefore, if there is any reasonable possibility that an issue of taxable governmental bonds may be refunded, in whole or in part, with the proceeds of an issue of tax-exempt governmental bonds then, for purposes of this procedural directive, the compliance officer shall treat the issue of taxable governmental bonds as if such issue were an issue of tax-exempt governmental bonds and shall carry out and comply with the requirements of this procedural directive with respect to such taxable governmental bonds. The compliance officer shall seek the advice of Bond Counsel as to whether there is any reasonable possibility of issuing tax-exempt governmental bonds to refund an issue of taxable governmental bonds.

Administrative Position:

  • Chief Financial Officer/Chief Operations Officer

Department Director:

  • Executive Director of Accounting/Executive Director of Budget Planning and Analysis

References

Legal Cross Ref.:

  • Davis Bacon Prevailing Wage Act
  • Section 148(f) of the Code
  • Section 6431 of the Code
  • Section 149(e) of the Code
  • Treasury Regulations, Section 1.141-12
  • Tax Exempt Bonds Voluntary Closing Agreement Program, described in Notice 2008-31, 2008-11 I.R.B. 592 17 C.F.R. Section 240.15c2-12

Board Policy Cross Ref.:

Procedural Directive Cross Ref.:

Forms:

  • Form 8038-R
  • Form 8038-G
  • Form 8038-B
  • Form 8038-TC
  • Form 8038-CP
  • Form 8038-T

NSBA/NEPN Classification: DEA

Introduced: July 12, 2010
Reviewed: August 8, 2010
Approved: August 20, 2010

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