802.05 – Post-Issuance Compliance Regulation for Tax-Exempt Obligations

  • Role of Compliance Coordinator/Board Treasurer The Board treasurer shall:
    • Be responsible for monitoring post-issuance compliance;
    • Maintain a copy of the transcript of proceedings or minutes in connection with the issuance of any tax-exempt obligations and obtain records that are necessary to meet the requirements of this regulation;
    • Consult with bond counsel, a rebate consultant, financial advisor, IRS publications, and such other resources   as are necessary to understand and meet the requirements of this regulation;
    • Seek out training and education to be implemented upon the occurrence of new developments in the area and upon the hiring of new personnel to implement this regulation.
  • Financing Transcripts’ Filing and Retention

The Board Treasurer shall confirm the proper filing of an IRS 8038 Series return and maintain a transcript of proceedings and minutes for all tax-exempt obligations issued by the school district, including, but not limited to, all tax-exempt bonds notes, and lease-purchase contracts.  Each transcript shall be maintained until 11 years after the tax-exempt obligation documents have been retired.  The transcript shall include, at a minimum:

    • Form 8038;
    • Minutes, resolutions, and certificates;
    • Certifications of issue price from the underwriter;
    • Formal elections required by the IRS;
    • Trustee statements;
    • Records of refunded bonds, if applicable;
    • Correspondence relating to bond financings; and
    • Reports of any IRS examinations for bond financings.
  • Proper Use of Proceeds

The Board Treasurer shall review the resolution authorizing issuance for each tax-exempt obligation issued by the school district, and the school district shall:

    • Obtain a computation of the yield on such issue from the school district’s financial advisor;
    • Create a separate Project Fund (with as many sub-funds as shall be necessary to allocate proceeds among the projects being funded by the issue) into which the proceeds of issue shall be deposited;
    • Review all requisitions, draw schedules, draw requests, invoices, and bills requesting payment from the Project Fund;
    • Determine whether payment from the Project Fund is appropriate and if so, make payment from the Project Fund (and appropriate sub-fund, if applicable);
    • Maintain  records  of  the  payment  requests  and  corresponding  records  showing payment;
    • Maintain records showing the earnings on, and investment of, the Project Fund;
    • Ensure that all investments acquired with proceeds are purchased at fair market value;
    • Identify bond proceeds or applicable debt service allocations that must be invested with a yield-restriction and monitor the investments of any yield-restricted funds to ensure that the yield on such investments do not exceed the yield to which such investments are restricted;
    • Maintain records related to any investment contracts, credit enhancement transactions, and the bidding of financial products related to the proceeds.
  • Timely Expenditure and Arbitrage/Rebate Compliance

The Board Treasurer shall review the Tax-Exemption Certificate (or equivalent) for each tax-exempt obligation issued by the school district and the expenditure records provided in Section 2 of this regulation, above and shall:

    •  Monitor and ensure that  proceeds of each such issue are spent within the temporary period set forth in such certificate;
    • Monitor and ensure that the proceeds are spent in accordance with one or more of the applicable  exceptions  to  rebate  as  set  forth  in  such  certificate  if  the  school district does not meet the “small  issuer” exception for said obligation;
    • Not less than 60 days prior to a required expenditure date, confer with bond counsel and a rebate consultant if the school district will fail to meet the applicable temporary period or rebate exception expenditure requirements of the Tax-Exemption Certificate.

In the event the school district fails to meet a temporary period or rebate exception:  

    • Procure a timely computation of any rebate liability and, if the rebate is due, file a Form 8038-T and arrange for payment of such rebate liability;  
    • Arrange for timely computation and payment of yield reduction payments (as such term is defined in the Code and Treasury Regulations), if applicable.
  • Proper Use of Bond Financed Assets The Board treasurer shall:
    • Maintain appropriate records and a list of all bond financed assets.   Such records shall include the actual amount of proceeds (including investment earnings) spent on each of the bond-financed assets;
    • Monitor and Confer with Bond counsel with respect to all proposed bond-financed assets:
        • management contracts;
        • service agreements;
        • research contracts;
        • naming rights contracts;
        • leases or sub-leases;
        • joint venture, limited liability, or partnership arrangements;
        • sale of property; or
        • any other change in use of such an asset.
    • Maintain a copy of the proposed agreement, contract, lease, or arrangement, together with the response by bond counsel with respect to the said proposal for at least three years after the retirement of all tax-exempt obligations issued to fund all or any portion of bond-financed assets; and
    • Contact bond counsel and ensure timely remedial action under IRS Regulation Sections 1.141-12 in the event the school district takes an action with respect to a bond-financed asset, which causes the private business tests or private loan financing test to be met.
  • General Project Records

For each project financed with tax-exempt obligations, the Board treasurer shall maintain, until three years after the retirement of the tax-exempt obligations or obligations issued to refund those obligations, the following:

    • Appraisals, demand surveys, or feasibility studies;
    • Applications, approvals, and other documentation of grants;
    • Depreciation schedules;
    • Contracts respecting the project.
  • Advance Refundings

The Board Treasurer shall be responsible for the following current, post-issuance, and record retention procedures with respect to advance refunding bonds.  The Board Treasurer shall:

    • Identify and select bonds to be advance refunded with advice from internal financial personnel and a financial advisor;
    • Identify,  with  advice  from  the  financial  advisor  and  bond  counsel,  any  possible federal tax compliance issues prior to structuring any advance refunding;
    • Review the structure with the input of the financial advisor and bond counsel of advance refunding issues prior to the issuance to ensure;
        • that the proposed refunding is permitted pursuant to applicable federal tax requirements if there has been a prior refunding of the original bond issue;
        • that  the  proposed  issuance  complies  with  federal  income  tax requirements, which might  impose  restrictions  on  the  redemption  date  of  the  refunded bonds;
        • that  the  proposed  issuance  complies  with  federal  income  tax requirements, which allow  for  the  proceeds  and  replacement  proceeds  of  an  issue  to  be invested  temporarily in  higher-yielding  investments  without  causing  the advance refunding bonds to become “arbitrage bonds”; and
        • that the proposed issuance will not result in the issuer’s exploitation of the difference between  tax-exempt and taxable  interest rates to obtain a financial advantage nor overburden the tax-exempt market in a way that might be considered an abusive transaction for federal tax purposes;
    • Collect and review data related to arbitrage yield restriction and rebate requirements for advance refunding bonds. To ensure such compliance, the Board treasurer shall engage a  rebate consultant to prepare a  verification report in connection with the advance refunding issuance.  Said  report  shall  ensure  said requirements are satisfied;
    • Whenever possible, purchase State and Local Government Series (SLGS) to size each advance refunding escrow.   The financial advisor shall be included in the process of subscribing to SLGS.  To the  extent SLGS  are  not  available  for  purchase,  the  Board treasurer shall, in consultation with bond counsel and the financial advisor, comply with IRS regulations;
    • Ensure, after input from bond counsel, compliance with any bidding requirements set forth by the IRS regulations to the extent, as issuer elects to the purchase of a guaranteed investment contract;
    •  In determining the issue price for any advance refunding issuance, obtain and retain the issue price certification by the purchasing underwriter at closing;
    • After the issuance of an advance refunding issue, ensure timely identification of violations of any federal tax requirements and engage bond counsel in an attempt to remediate the same in accordance with IRS regulations.
  • Continuing Disclosure

The Board Treasurer shall assure compliance with each continuing disclosure certificate and annually, per continuing disclosure agreements, file audited annual financial statements and other information required by each continuing disclosure agreement. The Board Treasurer will monitor material events as described in each continuing disclosure agreement and assure compliance with material event disclosure. Events to be reported shall be reported promptly, but in no event not later than 10 business days after the day of the occurrence of the event.  Currently, such notice shall be given in the event of:

    • Principal and interest payment delinquencies;
    • Non-Payment related defaults, if material;
    • Unscheduled draws on debt service reserves reflecting financial difficulties;
    • Unscheduled draws on credit enhancements related to the bonds reflecting financial difficulties;
    • Substitution of credit or liquidity providers, or their failure to perform;
    • Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB), or other material notices, or determinations with respect to the tax-exempt status of the bonds, or material events affecting the tax-exempt status of the bonds;
    • Modifications to rights of Holders of the Bonds, if material;
    • Bond calls (excluding sinking fund mandatory redemptions), if material and tender offers;
    • Defeasances of the bonds;
    • Release, substitution, or sale of property securing the repayment of the bonds, if material;
    • Rating changes on the bonds;
    • Bankruptcy, insolvency, receivership, or similar event of the issuer;
    • The consummation of a merger, consolidation, or acquisition involving the issuer or the sale of all or substantially all of the assets of the issuer, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant tits terms, if material; and
    • Appointment of a successor or additional trustee or the change of name of a trustee, if material.

Legal Reference:  Iowa Code §§ 257.31(4); 279.8; 297.22-.25; 298A (2013); http://www.irs.gov/taxexemptbond/article/0,,id=243503,00.html

Date of Adoption: July 1, 1985

Reviewed & Revised: September 3, 1991; October 3, 1994; May 4, 1998; February 7, 2005; January 18, 2010; June 27, 2016