Bond lawyers and financial advisors clamor to be included in discussions about a financing project as early as possible. Sometimes you as a local government can take early steps on a project that will complicate your financing process. Bringing us in as soon as you have a glimmer in your eye can save you time, trouble, and maybe even some money. Here are five ways you might be put off the pace early on:
- Ignoring the reimbursement rules
The IRS has rules about steps you need to take before you spend money on a project if you want to be reimbursed for those expenditures later from financing proceeds. These aren’t complicated rules, and they really aren’t too difficult to comply with. But if you fail to comply, some or all of your project may be ineligible for tax-exempt financing (doesn’t mean you can’t do it, just means it may be more expensive). Here’s a post with an overview of the reimbursement rules. This was a big problem when the rules were new, but it’s still an issue from time to time.
2. Putting your new building on property to which you don’t have clear title
Lenders are now more lenient about title flaws, but everyone has a limit. Even USDA might not accept a title whereby you lose the property if the ownership divests upon a change of use or change of owner.
3. Not coordinating you project bid date with the financing process
You don’t want to accept construction bids and then find you can’t get your financing closed within the limited time (especially these days) for which your contractor will hold the bids. Once you have an estimated month for when you’ll go out to bid, we really should start working on the financing process – and it’s never too early to start coordinating with you bond counsel, the LGC or any financial adviser you’re working with.
4. Not paying attention to LGC policies
The Local Government Commission imposes rules on financings, and sometimes those rules go beyond what you might expect. These rules include rules about having construction bids in hand before borrowing money (so no borrowing solely for soft costs), establishing value of purchased property, limitations on refunding debt, requirements for level-principal amortization, limits on loan length, and limits on fall and winter financings before your new audit is done. The LGC also has its own view of how the bid laws should work when financing is involved. We can limit our difficulties by having an early call with LGC staff to talk through the schedule and the plan of financing.
5. Working on a project without even knowing you need an LGC approval
Section 159-153 of the General Statutes brings under the LGC’s review many arrangements that you might not think would or should need LGC approval. We’ve also seen arrangements that folks don’t think constitute “borrowing money” that probably do. So before you strike a deal with a private partner for some sort of “build to suit” lease arrangement or “joint venture” for mixed use construction,” or a deal with a local bank for a “short-term unsecured loan,” talk to the LGC, a financial adviser or your friendly neighborhood bond attorney.
Please see our disclaimer, click here for more information on our public finance practice, and click here to send us a message.