As we get to the start of 2023, we offer this list of items to keep in mind as you plan for new capital projects and manage your existing projects. Here are a few things to think about at least once a year:

Review compliance with your financing covenants. If you have any borrowings that are not LGC-controlled general obligation bonds, you almost certainly have financing documents that require you to do certain things and not do certain other things. For example, you might be required to send annual insurance certifications to your lender. Review your financing documents at least annually to help ensure your compliance with financing covenants. Here’s a related blog post about continuing compliance.

Do something with unused financing proceeds. Why continue to pay interest on money that’s just sitting there? Your loan documents and State law may limit your use of the money, and tax rules may also come into play. Once you determine that financing proceeds will not be used for the project for which they were borrowed, take a look and act accordingly.

Comply with your 15c2-12 continuing disclosure obligations. If you have a publicly offered financing that is still outstanding, including general obligation bonds sold through the LGC, you almost certainly have an annual obligation to send your financial statements and certain other information to the “EMMA” information service by January 31. For any covered financing, the rules also require you to send notice of certain special events (such as refundings or early redemptions) to EMMA. Not all these special events will come up just when you are doing another financing. If you have a financing that is subject to these rules, your obligations will be detailed either in some contract or board action taken around the time of the issuance. Call us if you would like a list of the special reporting events.

Don’t get caught by the reimbursement rules. For many years now, IRS rules have required local governments to follow certain procedures to be eligible to reimburse themselves out of financing proceeds for project expenditures made prior to closing. Nevertheless, governmental entities are still having to alter deal structures because they have not complied with the rules. Keep in mind that the rules also generally require you to close on your reimbursement financing within eighteen months after you finish your project.  Here’s a related blog post on the reimbursement rules.

Calculate and pay any arbitrage rebate you might owe.  If 2023 marks any five-year anniversary for one of your financings (that is, financings closed in 2018, 2013, and so on), this year you may need to calculate and pay any rebate you might owe to the IRS for that financing. Also, keep in mind that you are usually required to make a rebate calculation and payment promptly after paying off a financing, even if you retire the financing by a refinancing (such as renewing bond anticipation notes, or converting notes to bonds). It’s been a long time since local governments were routinely having to make any actual rebate payments, but you may have a contractual obligation with your lender to make a calculation anyway, and you may find peace of mind in having it done.

Check the rules before you sell or lease any financed property.  IRS regulations and your loan documents limit what you can do with the proceeds of the sale or lease, or whether you can even do it in the first place. These rules apply whether or not the property is collateral for the loan, and the tax regulations even treat some contracts merely for management of financed property the same as a sale.

Conduct the annual meeting of authorities and controlled nonprofits.  Many local governments have, directly or indirectly, organized nonprofit corporations to participate in financings or in economic development projects. It can be difficult to get these nonprofits back in order once they fall into legal disrepair. The nonprofit’s governing board should meet at least annually to take care of necessary legal housekeeping, such as filling board vacancies. Industrial development authorities, housing authorities and other similar groups should also meet at least annually, for similar reasons. Here’s a related blog post on “legal housekeeping” for your local authorities and controlled nonprofits.

Review the rules for the $10 million “small issuer” qualification. Most local governments are taking advantage of the benefits of $10 million “small issuer” status under the tax rules when feasible. In planning to take advantage of this status, however, be careful to count all the borrowings that count toward the $10 million limit. Under IRS rules, for example, your unit must count toward its own $10 million annual allotment most debt issued by entities over which your unit exercises legal or practical control (such as by the appointment of a majority of the other entity’s board members).  Under these rules, for example, counties must count debt issued by water and sewer authorities as to which the county commissioners appoint more than half the governing board, and must also count debt issued by their water and sewer districts. Please note that this means an entity can affect your $10 million small issuer status without even notifying you of the issuance (I have seen it happen).

Don’t forget about your “two-thirds” bonds. Each fiscal year a local government can issue general obligation bonds – without the need for voter approval – to the extent of two-thirds of the amount by which it reduced general obligation debt in the previous fiscal year. This may not be a lot of debt capacity, and it can be awkward to use this capacity, but sometimes these bonds can be the right solution to a problem. Here’s a related blog post about two-thirds bonds.

Plan for bond referenda. To have a bond election in November, you generally need to have your formal actions completed by the early August – ballot printing and voting deadlines have moved up this calendar. We recommend beginning the formal process at least by May to have an unhurried pace to the proceedings. And before you. can begin formal action, you need to have informally worked out the bond program with your elected officials. Call us if you would like a sample schedule of the legal procedures required to hold a bond referendum.


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