The Internal Revenue Service has rules in place that limit a local government’s ability to use financing proceeds to reimburse itself for project expenditures made before you actually close on your financing. Even those rules are now more than 20 years old, I often get questions about how those rules work. Also, we continue to find the occasional project in which a local government can’t go forward the way it wants to because it has failed to comply with these rules. So, I thought it might be worthwhile to provide this quick summary of the reimbursement rules.

One of the most common inquiries I see on a finance officers’ listserv I follow is for the form of an RFP that can go out to banks for quotes on an installment financing. I’ve attached here the form of an RFP I have used often with my clients. Now, updating this form...

There’s a law that says if you have a local government borrowing for more than $1 million that has to go to the LGC for approval, you generally need to send an advance notice to the General Assembly’s joint committee on local government 45 days prior to the LGC’s consideration of your application. Here’s a link to the statute. You’ll see there are some exceptions to the filing requirement; refundings are also exempt from the filing requirement.

Under both North Carolina law and the relevant federal tax rules, you can generally use borrowed money only to pay for “capital costs” of a project. What’s a capital cost? The primary rule I quote to clients, which comes out of the tax regulations, is that a cost is a capital cost of a particular project if it is a cost related to acquisition, construction or improvement of a capital asset, or is a cost directly related to putting that capital asset into service. A capital cost is different from a “working capital,” or an “operating” cost; these terms include both expenditures related to things other than capital assets, or on costs related to maintaining a capital asset.

When you get ready for a loan closing, there will be documents to sign – maybe a loan agreement and a deed of trust, maybe some bond forms, and a variety of certificates about certain facts. Someone has to sign these items. Who should it be? That generally depends on the answer to another question –

Is the document some kind of contract between the unit and someone else, or is it a certificate that’s supposed to be stating facts?