• Tax exempt status controlled by the Internal Revenue Code.
• The aggregate amount of private activity bonds which may be issued in any state, the State Ceiling, is established by the Code. I.R.C. Section 146. (In 2008, this is $85.00 for each state resident or roughly $538,794,000.)

• Requests for allocations may be filed by the issuer (e.g. an Industrial Development Authority, qualified student loan bond issuer, or state university), by bond counsel on behalf of the issuer, or any other interested third party. A.R.S. Section 35-904.B.

• Before April 1, 70% of the allocation to manufacturing projects and 70% of the allocation available pursuant to the Director’s discretion is reserved for projects located in non-urban areas (i.e., populations less than 100,000). A.R.S. Section 35-905.A.
• A confirmation for more than $20 million cannot be allocated to a project except for:
  • Director’s discretion,
  • MRBs and/or MCCs, or
  • Student loan program.
• The Director will not issue additional confirmations once the aggregate amount of bonds and MCCs for which the confirmations have been issued; and for which a request has been received, exceeds the State Ceiling. A.R.S. Section 35-904.F.

• The allocation “calendar” is divided into 3 periods:
  • January 2, or the first business day through 5:00 p.m., June 30 (the “First Period”)
  • July 1, or the next business day, through 5:00 p.m., December 16 (the “Second Period”)
  • December 17, or the next business day, through 5:00 p.m., December 31 (the “Third Period”)

• Confirmations issued on a “first come, first served” basis.
• Priority for allocations deemed to be filed at the same time is determined by the lottery.
• Lottery on the first business day of the period.
• A request for allocation for which a confirmation has not been issued by 5:00 p.m. on June 30 will expire at that time, except for those requests seeking the Director's discretionary allocation. A.R.S. Section 35-902.H.
• A confirmation of allocation will expire at the earlier of 90 days from the date of confirmation or at 5:00 p.m. on June 30, unless:
  • The bonds have been issued or a MCC program has been established; A.R.S. Section 35-902.H or
  • The confirmation has been extended pursuant to an extension request. A.R.S. Section 35-910

• Other than the allocation subject to the Director’s discretion, any portion of the State Ceiling that has not been allocated, or for which the confirmations have expired by 5:00 p.m., June 30, will be pooled and subject to allocation on July 1, or the first business day thereafter. A.R.S. Section 35-906
• Requests for allocation confirmations are selected on a “first come, first served” basis.
• Priority among requests for allocation deemed to be filed at the same time is determined by lottery.
• A confirmation for more than $20 million will not be allocated to a project except for projects under the Director’s discretion.
• For this period, confirmations will not be issued for:
  • MCCs and MRBs; or
  • Student loan program.
• Unless the bonds have been issued or a MCC program has been established or the confirmation has been extended, a confirmation of allocation will expire at the earlier of:
  • 90 days after the date of the confirmation, or
  • 5:00 p.m. on December 16.

• Any portion of the State Ceiling that has not been allocated, or for which the confirmations have expired, will be pooled and subject to allocation by the Director for projects eligible for a carry-forward allocation under the Code. A.R.S. Section 35-907.A.
• To receive an allocation, a notice of intent must be filed with the Department by December 15. A.R.S Section 35-907.B.1.

• The division of Arizona's allocation is determined by statute. A.R.S. Section 35-902. It is as follows:

• The Arizona Department of Commerce (the “Department”) is responsible for the ministerial functions and bookkeeping associated with allocation of the State Ceiling in Arizona. A.R.S. Section 35-901 et. seq.
• Formation of industrial development corporations authorized to issue private activity bonds controlled by State Statutes. A.R.S. Section 35-701 et. seq.

• First in time; first in right. A.R.S. Section 35-902.A.
• A lottery is used to determine priority for requests for allocation received at the same time. A.R.S. Section 35-904.A.
  • The statutory genesis of the lottery.
  • As a practical matter, requests for allocation must be hand-delivered to the Department.
  • Requests filed by mail are deemed to be filed as of 5:00 p.m. the day that the request is received. A.R.S. Section 35-904.A.
  • The lottery only comes into play on the first business day of the first and second periods (e.g. January 2 and July 1).

• Extension Application Fee. The Department assesses a non-refundable application fee based on the amount of the allocation request:

• Confirmation Fee. A non-refundable confirmation fee of $320 per million for which a confirmation is issued is to be paid to the Department. A.R.S. Section 35-909.
• Extension Security Deposit. Confirmations of allocation may be extended one time for up to 90 days, but not later than December 16, upon providing the Department with a refundable* security deposit equal to 1% of the amount of the confirmation. A.R.S. Section 35-910.
• Second Period Security Deposit. Before a confirmation will be issued, the Department must receive a refundable* security deposit equal to 1% of the principal amount stated on the request. A.R.S. Section 35-906.B.3.
• Third Period Security Deposit. Within 5 days after notification, the Department must receive a refundable* security deposit equal to 1% of the principal amount stated on the notice of intent. A.R.S. Section 35-907.B.2.

* Refundable only if the bond issue closes in a timely manner.

• Penalty. For bonds issued after August 1, if the principal amount of the bonds is less than the principal amount set forth in the confirmation, then the Applicant must pay to the Department a fee of 1% of the difference between the confirmation and the principal amount of the bonds. A.R.S. Section 35-908.
• Associated Costs with Requesting Allocation. Before the Applicant submits a Request for Allocation to the Department, the Applicant will have incurred substantial costs associated with the Applicant’s proposed project. These include: Attorneys’ fees, Accountant/Advisors’ fees, third party reports (i.e., Appraisal, Phase I, etc.), Architect’s fees, city permit fees, Issuer fees, etc.
• Feasibility Hearing with the Arizona Department of Housing. The Arizona Department of Housing may hold a hearing to review the feasibility of a proposed project. A.R.S. Section 35-726.E.
  • The following are covered by this Section: multifamily residential rental projects; sanitariums; clinics; medical hotels; rest homes; nursing homes; skilled nursing facilities; or life care facilities.
  • Applicants for Projects under this Section must file a $5,000 application fee.
  • New Applicants must pay a $7,500 Security Deposit before the Feasibility Hearing to cover the Arizona Department of Housing’s legal and financial advisor fees. The Applicants must reimburse the Arizona Department of Housing for any amount that these fees exceed the Security Deposit.

Note: No regulations or other formal action has been taken with respect to the Application Fee.