Series 713.1P - Post-Issuance Debt Compliance
Adopted: July 2013
Revised: February 2021
1. Introduction - As directed by Policy 713, Post-Issuance Debt Compliance, the Director of Finance and Operations of the District (or designee) will perform the following Post-Issuance Debt Compliance Procedures for all of the District’s outstanding debt.
2. General Post-Issuance Compliance
2.1 Ensure written procedures and/or guidelines have been put in place for individuals to follow when more than one person is responsible for ensuring compliance with Post-Issuance Debt Compliance Procedures.
2.2 Ensure training and/or educational resources for post-issuance compliance have been approved and obtained.
2.3 The Director of Finance and Operations understands that there are options for voluntarily correcting failures to comply with post-issuance compliance requirements (e.g. as remedial actions under Section 1.141-12 of the Treasury Regulations and the ability to enter into a closing agreement under the Tax-Exempt Bonds Voluntary Closing Agreement Program described in Notice 2008-31 (the “VCAP Program”)).
3. General Recordkeeping
3.1 Retain records and documents for the obligation and all obligations issued to refund the obligation for a period of at least seven years following the final payment of the obligation. If an obligation is refunded, then the final payment of the refunding obligation becomes the beginning of the period unless otherwise directed by the district’s bond counsel.
3.2 Retain electronic (preferred) and/or paper versions of records and documents for the obligation.
3.2.1 General records and documentation to be assembled and retained:
184.108.40.206 Description of the purpose of the obligation (i.e. the project or projects) and the state statute authorizing the project.
220.127.116.11 Record of tax-exempt status or revocation of tax-exempt status, if applicable.
18.104.22.168 Any correspondence between the District and the IRS.
22.214.171.124 Audited financial statements.
126.96.36.199 All accounting audits of property financed by the obligation.
188.8.131.52 Obligation transcripts, official statements, and other offering documents of the obligation.
184.108.40.206 Minutes and resolutions authorizing the issuance of the obligation.
220.127.116.11 Certifications of the issue price of the obligation.
18.104.22.168 Any formal elections for the obligation (i.e. an election to employ an accounting methodology other than the specific tracing method).
22.214.171.124 Appraisals, demand surveys, or feasibility studies for property financed by the obligation.
126.96.36.199 All information reports filed for the obligations.
188.8.131.52 All management contracts and other service agreements, research contracts, and naming rights contracts.
184.108.40.206 Documents related to governmental grants associated with construction, renovation or purchase of property financed by the obligation.
220.127.116.11 Reports of any prior IRS examinations of the District or the District’s obligation.
18.104.22.168 All correspondence related to the above (faxes, emails, or letters)
4.1 Investment and arbitrage documentation to be assembled and retained:
4.1.1 An accounting of all deposits, expenditures, interest income and asset balances associated with each fund established in connection with the obligation. This includes an accounting of all monies deposited to the debt service fund to make debt service payments on the obligation, regardless of the source derived. Accounting for expenditures and assets is described in further detail in Section 5.
4.1.2 Statements prepared by Trustee and/or Investment Provider.
4.1.3 Documentation of at least quarterly allocations of investments and investment earnings to each obligation.
4.1.4 Documentation for investments made with obligation proceeds such as:
22.214.171.124 investment contracts (i.e. guaranteed investment contracts),
126.96.36.199 credit enhancement transactions (i.e. obligation insurance contracts),
188.8.131.52 financial derivatives (e.g. swaps, caps, and collars), and
184.108.40.206 bidding of financial products:
220.127.116.11.1 Investments acquired with obligation proceeds are purchased at fair market value (e.g. three bid safe harbor rule for open market securities needed in advance refunding escrows).
4.2 Computations of the arbitrage yield.
4.3 Computations of yield restriction and rebate amounts including but not limited to:
4.3.1 Compliance in meeting the “Temporary Period from Yield Restriction Exception” and limiting the investment of funds after the temporary period expires.
4.3.2 Compliance in meeting the “Rebate Exception.”
18.104.22.168 qualifying for the “Small Issuer Exception,”
22.214.171.124 qualifying for a “Spending Exception,”
126.96.36.199.1 6-Month Spending Exception
188.8.131.52.2 18-Month Spending Exception
184.108.40.206.3 24-Month Spending Exception
220.127.116.11 qualifying for the “Bona Fide Debt Service Fund Exception,” and
18.104.22.168 quantifying arbitrage on all funds established in connection with the obligation in lieu of satisfying arbitrage exceptions including reserve funds and debt service funds.
4.4 Computations of yield restriction and rebate payments.
4.5 Timely Tax Form 8038-T filing, if applicable.
4.5.1 Remit any arbitrage liability associated with the obligation to the IRS at each five-year anniversary date of the obligation, and the date in which the obligation is no longer outstanding (redemption or maturity date), whichever comes sooner, within 60 days of said date.
4.6 Timely Tax Form 8038-R filing, if applicable.
4.6.1 Remit the form after the date in which the obligation is no longer outstanding (redemption or maturity date), whichever comes sooner, within 2 years of said date.
4.7 Procedures or guidelines for monitoring instances where compliance with applicable yield restriction requirements depends on subsequent reinvestment of obligation proceeds in lower yielding investments (e.g. reinvestment in zero coupon SLGS).
5.1 Documentation of allocations of obligation proceeds to expenditures (e.g. allocation of proceeds to expenditures for the construction, renovation or purchase of facilities owned and used in the performance of exempt purposes).
5.1.1 Such allocation will be done not later than the earlier of:
22.214.171.124 eighteen (18) months after the later of the date the expenditure is paid, or the date the project, if any, that is financed by the obligation is placed in service; or
126.96.36.199 the date sixty (60) days after the earlier of the fifth anniversary of the issue date of the obligation, or the date sixty (60) days after the retirement of the obligation.
5.2 Documentation of allocations of obligation proceeds to issuance costs.
5.3 Copies of requisitions, draw schedules, draw requests, invoices, bills, and cancelled checks related to obligation proceed expenditures during the construction period.
5.4 Copies of all contracts entered into for the construction, renovation or purchase of facilities financed with obligation proceeds.
5.5 Records of expenditure reimbursements incurred prior to issuing obligations for projects financed with obligation proceeds (declaration of official intent/reimbursement resolutions including all modifications).
5.6 List of all facilities and equipment financed with obligation proceeds.
5.7 Depreciation schedules for depreciable property financed with obligation proceeds.
5.8 Documentation that tracks the purchase and sale of assets financed with obligation proceeds.
5.9 Documentation of timely payment of principal and interest payments on the obligation.
5.10 Tracking of all issue proceeds and the transfer of proceeds into the debt service fund as appropriate.
5.11 Documentation that excess earnings from a Reserve Fund are transferred to the Debt Service Fund on an annual basis. Excess earnings are balances in a Reserve Fund that exceed the Reserve Fund requirement.
6.1 Ensure that the project, while the obligation is outstanding, will avoid IRS private activity concerns.
6.2 The Director of Finance and Operations shall monitor the use of all obligation-financed facilities in order to:
6.2.1 Determine whether private business uses of obligation-financed facilities have exceeded the de minimus limits set forth in Section 141(b) of the Code as a result of:
188.8.131.52 sale of the facilities;
184.108.40.206 sale of District capacity rights;
220.127.116.11 leases and subleases of facilities including easements or use arrangements for areas outside the four walls (e.g. hosting of cell phone towers);
18.104.22.168 leasehold improvement contracts, licenses, management contracts in which the District authorizes a third party to operate a facility (e.g. cafeteria);
22.214.171.124 research contracts;
126.96.36.199 preference arrangements in which the District permits a third-party preference (e.g. parking in a public parking lot, joint ventures, limited liability companies or partnership arrangements);
188.8.131.52 output contracts or other contracts for use of utility facilities including contracts with large utility users;
184.108.40.206 development agreements which provide for guaranteed payments or property values from a developer;
220.127.116.11 grants or loans made to private entities including special assessment agreements;
18.104.22.168 naming rights agreements; and
22.214.171.124 any other arrangements that provide special legal entitlements to nongovernmental persons.
6.2.2 Determine whether private security or payments that exceed the de minimus limits set forth in Section 141(b) of the Code have been provided by nongovernmental persons with respect to such obligation-financed facilities.
6.3 The Director of Finance and Operations shall provide training and educational resources to any District staff that have the primary responsibility for the operation, maintenance, or inspection of obligation-financed facilities with regard to the limitations on the private business use of obligation-financed facilities and as to the limitations on the private security or payments with respect to obligation-financed facilities.
6.4 The District shall undertake the following with respect to the obligations:
6.4.1 An annual review of the books and records maintained by the District with respect to such obligations.
6.4.2 An annual physical inspection of the facilities financed with the proceeds of such obligations, conducted by the Director of Finance and Operations with the assistance of any District staff who have the primary responsibility for the operation, maintenance, or inspection of such obligation-financed facilities.
6.5 Changes in the project that impact the terms or commitments of the obligation are properly documented and necessary certificates or opinions are on file.
7.1 The Director of Finance and Operations will notify the District’s bond counsel, financial advisor and arbitrage provider of any survey or inquiry by the IRS immediately upon receipt. Usually responses to IRS inquiries are due within 21 days of receipt. Such IRS responses require the review of the above-mentioned data and must be in writing. As much time as possible is helpful in preparing the response.
7.2 The Director of Finance and Operations will consult with the District’s bond counsel, financial advisor and arbitrage provider before engaging in post-issuance credit enhancement transactions (e.g. obligation insurance, letter of credit, or hedging transaction).
7.3 The Director of Finance and Operations will monitor all “qualified tax-exempt debt obligations” (often referred to as “bank qualified” obligations) within the first calendar year to determine if the limit is exceeded, and if exceeded, will address accordingly. For obligations issued during years 2009 and 2010 the limit was $30,000,000. During this period, the limit also applied to pooled financings of the governing body and provides a separate $30,000,000 for each 501 (c)(3) conduit borrower. In 2011 and thereafter it is $10,000,000 unless changed by Congress.
7.4 Identify any post-issuance change to terms of obligations which could be treated as a current refunding of “old” obligations by “new” obligations, often referred to as a “reissuance.”
7.5 The Director of Finance and Operations will consult with the District’s bond counsel prior to any sale, transfer, change in use or change in users of obligation-financed property which may require “remedial action” under applicable Treasury Regulations or resolution pursuant to the VCAP Program.
7.5.1 A remedial action has the effect of curing a deliberate action taken by the District which results in satisfaction of the private business test or private loan test. Remedial actions under Section 1.141-12(d)(e) and (f) include the redemption of non-qualified obligations and/or the alternative uses of proceeds or the facility (i.e. to be used for another qualified purpose).
7.6 The Director of Finance and Operations will ensure that the appropriate tax form for federal subsidy payments is prepared and filed in a timely fashion for applicable obligations (e.g. Build America Bonds).
8.1 Identify a position at the District to be responsible for compliance with continuing disclosure obligations as defined by the Rule and any policies of the District.
8.2 The position responsible for compliance may have the ability to assign responsibilities, delegate where appropriate or engage a dissemination agent or third-party service providers to perform all or some of the duties described in this section. The District cannot delegate its compliance responsibilities.
8.3 The District should specify how providers or delegated authorities will be monitored and supervised.
8.4 The District should identify the documents that set forth the respective requirements being monitored at the time of closing for each obligation.
8.5 The District should catalog all outstanding Continuing Disclosure Agreements and establish consolidated filing requirements based on the outstanding CDAs.
8.6 The District should identify the frequency of the actions to be undertaken to ensure compliance, establish a system or filing alerts or reminders to administer the filing requirements.
8.7 The Director of Finance and Operations for compliance must be made aware of any new outstanding debt, changes to obligation or loan covenants, events of acceleration or default that would materially affect investors.
8.8 The District should review a compliance checklist to verify compliance with CDA requirements, at least annually, although it may be advisable to provide more frequent reviews in connection to specific material events.
8.9 The District should monitor mandatory material events specifically identified in accordance with the Rule and file required notices within 10 days of occurrence.
8.9.1 Principal and interest payment delinquencies.
8.9.2 Non-payment related defaults, if material.
8.9.3 Unscheduled draws on debt service reserves reflecting financial difficulties.
8.9.4 Unscheduled draws on credit enhancements reflecting financial difficulties.
8.9.5 Substitution of credit or liquidity providers or their failure to perform.
8.9.6 Adverse tax opinion, IRS notices or material events affecting the tax status of the obligation.
8.9.7 Modifications to rights of security holders, if material.
8.9.8 Obligation calls, if material.
8.9.10 Release, substitution or sale of property securing repayment of the obligations, if material.
8.9.11 Rating Changes.
8.9.12 Bankruptcy, insolvency, receivership, or similar event of the obligated person(s).
8.9.13 Merger, consolidation, or acquisition of the obligated person, if material.
8.9.14 Appointment of a successor or additional trustee, or change of name of a trustee, if material.
8.9.15 Incurrence of financial obligation of the District, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the District, any of which affect security holders, if material.
8.9.16 Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of the financial obligation of the District, any of which reflect financial difficulties.
8.10 In addition to the mandatory material events, the District should review and file any additional or voluntary event notices.
8.11 The District should maintain a catalog of all outstanding obligations whether publicly offered or privately placed, and the terms and conditions that govern default or acceleration provisions.
8.12 Any missed filing requirement should be remedied with a failure to file notice as soon as possible once the late filing is identified and the required information is available to file.
8.13 Sensitive information such as bank accounts and wire information should be redacted from documents prior to posting on EMMA.
8.14 The District needs to monitor for changes in law and regulations that effect continuing disclosure obligations and review disclosure policies and procedures periodically to ensure compliance and consistency with regulation and market expectations.
9. Compliance with Future Requirements - Take measures to comply with any future requirements issued beyond the date of these Post-Issuance Debt Compliance Procedures which are essential to ensuring compliance with the applicable state and federal regulations.