Tax-Exempt Financing

General Rules for Qualified Exempt Facility Bonds

  • Public Use Requirement. The facility must serve or be available on a regular basis for general public use, OR be part of a facility that is so used.
  • Bond Volume Cap Limits. Volume cap an issuing authority to a maximum amount of tax-exempt bonds that can be issued to finance a particular qualified purpose during a calendar year.
  • 2% Limit on Issuance Costs – Issuance costs are limited to 2% of the Sales Proceeds (amount of bonds issued)
  • 95% Use Test Rule – 95% or more of the “net proceeds” (sales proceeds minus reserve fund) of the bond issue must be used to finance the qualified purpose for which the bonds were issued.
  • Qualified Use Allocation – allocation of proceeds among the various project expenditures in a manner demonstrating compliance with the qualified use.
  • Subject to Arbitrage and Rebate Rules
  • Substantial User Prohibition – no person who is a substantial user of a facility financed with qualified private activity bonds, or any person related to such a user, can receive tax-exempt interest income as a holder of those bonds.
  • No direct or indirect federal guarantees except governmental entities administering federal insurance programs for home mortgages and student loans and the investment of bond proceeds in U.S. Treasury securities.
  • No prohibited facilities (skybox, gambling, liquor, etc.)
  • Weight average maturity of Bonds may not exceed 120% of useful life of asset financed. (ignore land; life of working capital equals zero.)
 Facilities for Furnishing Water

 A facility is a facility for the furnishing of water if:

  • the water is or will be made available to members of the general public, AND
    • either the facility is operated by a governmental unit or the rates for the furnishing or sale of water have been established or
    • approved by a state or political subdivision thereof.
  • General public includes electric utility, industrial, agricultural, or commercial users.
  • A water facility will satisfy the public use test if it will provide water on reasonable demand, to any member of the general public within the service area of the water system of which the facility is a part.
  • An exempt facility includes any land, building, or other property functionally related and subordinate to such facility. To be considered functionally related and subordinate, the property should be of a character and size commensurate with the character and size of the facility.
 Facilities for Solid Waste Disposal

 A term “solid waste disposal facilities” means any property or a portion thereof used for the collection, storage, treatment, utilization, processing, or final disposal of solid waste.

  • A facility which disposes of solid waste by reconstituting, converting, or otherwise recycling it into material which is not waste shall also qualify as a solid waste disposal facility if solid waste constitutes at least 65 percent, by weight or volume, of the total materials introduced into the recycling process. The fact that a facility which otherwise qualifies as a solid waste disposal facility operates at a profit will not, of itself, disqualify the facility as an exempt facility.
  • Reg.§ 1.103-8(f)(2)(ii)(b) provides that the term “solid waste” shall have the same meaning as section 203(4) of the Solid Waste Disposal Act of 1965 except that material will not qualify as solid waste unless: on the date of issue of the obligations issued to provide the facility to dispose of such waste material, it is property which is useless, unused, unwanted, or discarded solid material, which has no market or other value at the place where it is located.
Facilities for Local Furnishing of Electric Energy or Gas

Reg.§ 1.103-(8)(f)(2)(iii) provides that a facility for the local furnishing of electrical energy or gas is property that is:

  • either property of a character subject to allowance for depreciation under IRC § 167 or land;
    • used to produce, collect, generate, transmit, store, distribute, or convey electric energy or gas;
    • used in a trade or business of furnishing electric energy or gas; AND
    • a part of a system providing service to the general populace of one or more: communities or municipalities,
    • but in no event should it provide services to more than two contiguous counties whether or not such counties are located in one state
  • The facility for the local furnishing of electric energy or gas is available for use by members of the general public if:
    • the owner or operator of the facility is obligated (by a legislative enactment, local ordinance, regulation, or the equivalent) to furnish electric energy or gas to all persons who desire such services and are within its service area;
  • AND it is reasonably expected that the facility will serve or be available to serve a large segment of the public in its service area. Reg.§ 1.103-8(f)(1)(ii)
Local District Heating and Cooling Facilities

A local heating and cooling system” is any local system consisting of pipeline or network providing hot water, chilled water, or steam to two or more users for:

  • residential, commercial, or industrial heating or cooling;
  • processing steam. IRC § 142(g)(2)
Qualified Hazardous Waste Facilities

qualified hazardous waste facility” means any facility for the disposal of hazardous waste by incineration or entombment but only if:

  • the facility is subject to final permit requirements under subtitle C of Title II of the Solid Waste Disposal Act as in effect on October 22, 1986; AND
  • financing is used only for the facilities (or a portion of the facility) which is used to dispose of hazardous waste generated by the general public, rather than, the owner or operator of the facility, and person related to the owner or operator.
  • The rules similar to rules for solid waste disposal facilities apply to qualified hazardous waste facilities, including:
    • limiting the hazardous waste materials to materials having no market or other value at the place where the waste is located, AND
    • the allocation of bond proceeds to qualifying portions of the facility.
Maricopa County IDA

Paradise Schools $45,530,000 Bonds Issued

Non-Profits
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