Debt Compliance and Management Policy
File Code: ADM.DEBTCOMPMGT.POL
Approval Date: 6/18/2015
Approved By: President
The Board of Trustees of Western Illinois University (the “Board”) issues bonds, certificates of participation and other debt instruments (collectively, “Debt”) to finance and refinance capital projects (each, a “Project”) for Western Illinois University (“WIU”). This Debt Compliance and Management Policy (this “Policy”) provides guidelines and procedures (the “Procedures”) for issuance and post-issuance compliance in connection with Debt transactions. This Policy is only for the benefit of WIU. No other person (including an owner of a Debt instrument) may rely on the Procedures included in this Policy.
DEBT SUBJECT TO THIS POLICY
WIU has designated the Treasurer of the Board as the Compliance Officer (the “Compliance Officer”). The Compliance Officer should update the list of the Board’s Outstanding Debt financings whenever Debt is issued and whenever an issue of Debt subject to this Policy is fully retired. If payments on the Debt are provided for by an escrow, such Debt should remain on the list for purposes of tax compliance for three years after the Debt is paid in full.
FACILITIES/ASSETS SUBJECT TO THIS POLICY
Debt Financed Property consists of facilities and assets financed, refinanced or reimbursed with proceeds of Debt instruments (collectively, the “Projects” and each, a “Project”) and that are subject to Federal tax restrictions. Disposed Debt-Financed Property consists of Projects or portions of Projects that have been disposed of. The Compliance Officer should update these lists as appropriate.
WIU and the Compliance Officer recognize that a list of Projects is necessary to track Private Business Use (as defined in Appendix B ) of Debt-financed facilities. In order to simplify the maintenance of the list, the Compliance Officer may include entire buildings or other facilities even if only partially financed with Debt. The list for each issue of Debt should be completed within a reasonable period after the final allocation of Debt proceeds is made. In the case of refunding Debt, the list of Projects should include the list of assets financed or refinanced by the refunded Debt.
ASSIGNMENT OF RESPONSIBILITY TO STAFF; CREATION OF COMPLIANCE COMMITTEE
WIU designates the Compliance Officer as having responsibility to keep all records required to be kept by WIU under this Policy, to make all reports to WIU required by this Policy, and to otherwise assure that all actions required of WIU hereunder be taken in a timely manner. The Compliance Officer may further delegate certain tasks to other officers, employees or agents of WIU. Such delegation shall not relieve the Compliance Officer from responsibility to assure that all tasks assigned to the Compliance Officer hereunder are completed in a timely fashion.
WIU hereby establishes the Compliance Committee (the “Compliance Committee”) comprised of the Compliance Officer, the University Budget Director, the Director of Business Services, the AFS Budget Officer, the Business Services Assistant Comptroller, and the Municipal Advisor, to oversee compliance with the requirements of the Internal Revenue Code and U.S. Treasury Regulations (together, the “Code”) and the Federal securities laws relating to Debt transactions, as well as to ensure adequacy of WIU’s primary and secondary disclosure filings.
The Board has delegated its power to ensure such compliance to the Compliance Committee pursuant to the Board Regulations.
DEBT DOCUMENTS: COVENANTS; ONGOING REQUIREMENTS
In connection with each Debt transaction, the Compliance Committee, Bond Counsel and the Municipal Advisor shall cause a review of all of the Debt documents to be made to determine (i) the ongoing covenants of the Board in connection with Debt (for example, maintenance of a rate covenant; maintenance of insurance on Project facilities; maintenance of the required reserves, and compliance with restrictions on transfer or encumbrance of property); (ii) ongoing requirements for filings (for example, filings of financial statements) to be made with trustees, underwriters, rating agencies, bond insurers or other parties, and the timing for, or the events that would trigger, such filings; and (iii) any other ongoing requirements as set forth in the Debt documents.
If deemed necessary by the Compliance Officer, the Compliance Officer may work with Bond Counsel to develop a summary of a Debt transaction that includes the key components and ongoing requirements of the transaction, including in particular any unique post-issuance requirements (for example, any requirement for approval by a bond insurer), as well as a comparison of such requirements to those in existing documents. The Compliance Officer should endeavor to keep all Board covenants and requirements for new issues as consistent as possible with those in existing transactions, for ease of administration, as the Compliance Officer considers to be in the best interests of WIU.
As part of the annual review to be conducted as described below, the Compliance Committee shall annually determine or cause to be determined whether each issue of Debt is in compliance with the covenants and other ongoing requirements applicable to such issue under the related Debt documents. The annual report shall state whether the Board is in compliance with such covenants and ongoing requirements, and specify any actions to be taken to remedy any noncompliance.
ANNUAL REVIEW AND REPORTING
Annual Review. The Compliance Committee shall prior to the spring meeting of the Board of Trustees conduct an annual review with respect to the most recent full fiscal year of the Board, which annual review shall consist of the following:
- review each of the provisions of this Policy and assess general compliance with such provisions during the year;
- conduct the reviews required pursuant to Parts I, II and III; and
- consult with other WIU staff, counsel, the Municipal Advisor and other appropriate professionals to (i) evaluate the effectiveness of this Policy and (ii) solicit and consider recommendations for improvements to this Policy.
Annual Reporting. Upon completion of the annual review, the Compliance Committee shall prepare an annual written report and, except as otherwise provided below, shall present the matters set forth in such report to the Board no later than the date of the spring meeting of the Board of each year. Such written report shall consist of the following:
- a brief description of overall compliance with the provisions of this Policy;
- the reports required pursuant to Parts I, II and III; and
- the results of the Compliance Committee’s consultation with other WIU staff, counsel, the Municipal Advisor and other appropriate professionals to evaluate the effectiveness of this Policy, including recommendations for improvements to this Policy.
- A suggested form of Annual Report is included as Appendix D .
WIU has responsibility for the primary and secondary disclosure in connection with the Debt. WIU is committed to ensuring that such disclosure is complete, accurate and timely.
All audited financial statements, annual reports, official statements, continuing disclosure filings, rating agency presentations, road shows and other information intended or reasonably expected to be viewed by investors, rating agencies or the public shall be prepared and disseminated on a timely basis in compliance with (i) the anti-fraud provisions of Federal and State of Illinois securities laws (i.e., the information shall not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements made therein not misleading); (ii) WIU’s continuing disclosure undertakings (the “Undertakings”) and Debt documents; (iii) applicable standards, rules or guidance promulgated by the Securities and Exchange Commission (SEC); and (iv) with respect to audited financial statements, the Generally Accepted Accounting Principles (GAAP) as promulgated by the Governmental Accounting Standards Board (GASB) (or such other accounting principles as may be applicable to WIU in the future pursuant to applicable law) (collectively, the “Disclosure Standards”).
In Debt transactions where it is necessary to prepare an official statement, WIU shall adhere to the following disclosure procedures:
- Preparation. The Compliance Committee shall have the responsibility for causing preliminary (if needed) and final official statements, and any necessary supplements or amendments thereto (collectively, “Official Statements”), to be prepared.
- Review. The Compliance Committee shall review, comment on and update Official Statements. The Compliance Committee shall be responsible for ensuring all information and data presented with regard to WIU and the Projects being financed is complete, accurate and current, including disclosures regarding legislative and regulatory matters applicable to WIU.
- An Official Statement shall not be publicly disseminated until, in the opinion of the Compliance Officer (following consultation with the Municipal Advisor, Bond Counsel and the other members of the Compliance Committee), it is in compliance with the Disclosure Standards.
- Although prior Official Statements may be used as a template in later transactions, each Official Statement shall be thoroughly reviewed by the Compliance Committee to ensure all information is up-to-date and accurate in all respects and does not omit important information that would be material to potential investors.
- Board Member Review. Each Board member should be notified when a substantially final form of each Official Statement is on file with the Secretary of the Board and be given the opportunity to review it prior to its distribution to the public, with particular focus on the information regarding WIU, and shall inform the Compliance Officer of any information the member believes is not complete or accurate or which has been omitted and should be included.
The Compliance Committee may retain the assistance of professionals, including consultants, disclosure counsel, the Municipal Advisor and the underwriter(s) in preparing and reviewing Official Statements.
If WIU has entered into an Undertaking in connection with an issuance of Debt, the Compliance Officer shall cause to be filed with the MSRB’s Electronic Municipal Market Access system (EMMA) (i) all annual financial information (the “Annual Financial Information”) and audited financial statements (the “Audited Financial Statements”) described in the Undertakings and (ii) notices (the “Reportable Event Disclosures”) of certain enumerated events listed in the Undertakings and in Appendix A hereto (the “Reportable Events”) in accordance with and at the times required by the Undertakings. In this regard, WIU, the Compliance Committee and the Compliance Officer shall adhere to the following procedures:
- WIU’s Audited Financial Statements. All Audited Financial Statements of WIU shall be prepared in accordance with GAAP and shall be audited by a firm of independent auditors. WIU will use its best efforts to ensure that the Audited Financial Statements are filed in a timely manner.
- Reportable Event Filings. As required by SEC’s Rule 15c2-12, the Compliance Officer shall monitor the Reportable Events, and shall cause Reportable Event Disclosures to be made as necessary and within the times required by the Undertakings. The Compliance Officer shall consult with the Compliance Committee, the Municipal Advisor and counsel to the extent he deems advisable in connection with each Reportable Event Disclosure.
- No Reportable Event Disclosure filing shall be disseminated unless, in the opinion of the Compliance Officer, such filing complies with the Disclosure Standards.
- Annual Determination of Reportable Events.
- As part of the annual review required pursuant to Part I (and in connection with each Debt issuance), the Compliance Officer shall cause a review to be made to determine all Reportable Event filings made during the year, and whether a Reportable Event occurred during the year for which appropriate disclosure was not made as required by the Undertakings. If such an event occurred in the preceding year and appropriate disclosure was not made, or if the Annual Financial Information or Audited Financial Statements were not filed in a timely manner, the Compliance Officer shall cause a Reportable Event Disclosure, filing to be prepared and disseminated.
- The Compliance Officer will include in the annual report required pursuant to Part I a report on each Reportable Event Disclosure filed during the year.
As provided in Part IV below, the Compliance Officer may obtain the assistance of the Municipal Advisor, a dissemination agent or other professionals to compile, format and disseminate the information and materials necessary to comply with WIU’s continuing disclosure responsibilities. The Compliance Officer or their designee will enroll in the MSRB’s service to receive email reminders for annual filings on EMMA.
GUIDELINES FOR DISCLOSURES TO THE INVESTOR COMMUNITY
WIU is committed to fair disclosure to the investor community in compliance with all applicable securities laws. The SEC has noted that the phrase “speaking to the market” refers to any disclosure by an issuer of municipal securities to the public that is reasonably expected to reach investors and the trading markets (whether or not such disclosure is published for the purpose of providing information to the securities markets). WIU understands that officials of the Board or WIU speaking to the public, even if not for the purpose of releasing financial information to the public, could be deemed to be speaking to the market and therefore subjecting themselves and WIU to securities laws violations if such officials make a material misrepresentation or omission in their statements to the public.
WIU has established the following policy with respect to disclosure of material non-public information about WIU to anyone outside of WIU unless it is disclosed to the public at the same time. The only exception is to persons who have previously agreed in writing to maintain confidentiality, as described below.
“Material” information is information that a reasonable investor in WIU’s Debt would consider important. This includes many different subjects, such as student enrollment trends, tuition costs and changes in State appropriations. Information is “non-public” if it has not been previously released in a way that is designed to reach the investing public, such as filing with EMMA.
Material non-public information can be communicated in many ways, such as:
- Releases of Audited Financial Statements, including filing of Annual Financial Information or Reportable Events Disclosures and voluntary notices on EMMA
- Contacts with analysts covering WIU
- Analyst and investor visits
- Speeches, conferences, panel discussions and interviews with the media
- Responding to market rumors or news reports of events that could materially affect the financial condition of WIU
The Compliance Committee is responsible for determining the content and timing of any disclosure to the investing public and has primary responsibility for interpreting this Policy with respect to compliance with securities laws and for establishing and implementing procedures to ensure compliance of all communications by employees or officials of WIU with the Disclosure Standards.
Only the following person is authorized to disclose material nonpublic information or other general information relating to the financial condition of WIU to the investor community (including analysts, broker-dealers and individual and institutional investors): Compliance Officer or his/her designee.
Public statements made by other employees and officials of WIU are not intended to be, and shall not be, relied upon by members of the investor community. Attached as Appendix C is a form of voluntary disclosure, to be filed with EMMA and placed on WIU’s website, advising the investor community of this policy.
The Compliance Committee has established the following guidelines for disclosure of material information:
- Filing with EMMA, after approval by the Compliance Officer;
- Scheduled public audio presentations in which advance public notice and public access information has been provided, so that anyone may listen to the call by telephone or webcast. An audio recording of the presentation will be publicly available through WIU’s website or on EMMA for at least one week following the presentation. The Compliance Officer will monitor the content of such recordings and will delete them in a timely manner to avoid the dissemination of stale information.
- Participation in speeches, conferences, panel discussions or media interviews where material nonpublic information may be disclosed must be reviewed and approved by the Compliance Officer. Participants should not disclose material nonpublic information during any question-and-answer sessions unless the disclosure of such information has been reviewed and approved by the Compliance Officer in accordance with these guidelines.
- Visits by investors, analysts or other financial professionals must be cleared with the Compliance Officer, and statements made during these visits are covered by this Policy.
- WIU’s reserves the right not to comment on rumors or speculation.
The following people, external to the University, may receive material non public information: Legal Counsel, accountants, investment bankers, Municipal Advisors and other entities that are subject to confidentiality agreements or are required to maintain confidentiality as a matter of professional responsibility.
If an unauthorized disclosure occurs, immediately contact WIU’s legal counsel.
Ensuring the tax exempt or tax advantaged 1 status (the “Tax Status”) of the Debt is maintained after issuance requires a thorough and ongoing review of the use of the proceeds of the Debt, the investments purchased with such proceeds and the Projects and their uses, as well as continuing compliance with various requirements, all as provided in the Code.
Federal tax law imposes restrictions related to investment and expenditure of Debt proceeds and on the use of facilities financed with Debt. Compliance with these restrictions is often necessary to maintain the Tax Status of the Debt. In connection with each issue of tax exempt Debt, WIU has covenanted or will covenant not to take any action that would cause the interest on the Debt to become included in the gross income of the holders of the Debt for Federal income tax purposes. In connection with each issue of tax advantaged Debt, WIU desires not to take any action that would result in the disallowance of any interest payment subsidy or tax credit to the holders of the tax advantaged Debt (or to third parties).
These Procedures are being adopted by WIU to assist the Board in fulfilling covenants to maintain the tax-exempt or tax-advantaged status of the Debt. These Procedures are not intended to diminish or augment those covenants. It is the intention of WIU that WIU will comply with all applicable Federal tax law requirements and maintain sufficient records to demonstrate such compliance.
Certain concepts and terms addressed and used in these Procedures are further described in the glossary attached hereto as Appendix B .
PRE-ISSUANCE REVIEW AND ANALYSIS
Prior to the issuance of Debt after the date of the adoption of this Policy, the Compliance Officer shall consult with Bond Counsel regarding the facilities to be financed or refinanced, the actual and expected use of the Projects, the requirements of the Code and any specific tax issues identified by the Compliance Officer or Bond Counsel. The Compliance Officer will work with Bond Counsel to obtain necessary records and documentation, such as tax compliance questionnaires, certificates and opinions of counsel with respect to the expected use of the Projects and the effect of such use on the Tax Status of the proposed Debt issuance.
In each Debt transaction, it is expected that the Compliance Officer shall execute a tax certificate and agreement, which details the tax requirements relating to the Debt. The Compliance Officer shall refer to and review such agreement regularly. See Part IV. Miscellaneous, “Special Procedures for Special Cases” if no tax agreement is executed in connection with an issue of tax exempt or tax advantaged Debt.
RECORDS TO BE MAINTAINED
In coordination with WIU’s “records officer” (the Secretary of the Board), the Compliance Officer shall cause to be maintained the following records for each issue of Debt:
- Closing Transcripts: A complete closing transcript of all documents, certificates and legal opinions delivered in connection with the issuance of the Debt, as provided by Bond Counsel at the time of closing.
Investments and Arbitrage Rebate. All documents relating to the investment and disbursement of Debt proceeds:
- account statements showing the disbursements of all Debt proceeds, together with completed requisitions and supporting materials required by the Debt documents;
- account statements showing all investment activity of each account that holds Debt proceeds or amounts for the payment of debt service on Debt;
- copies of all requests for bids, bid responses, bidding agent or broker’s certificates and other documentation to establish the acquisition at a fair market value of (i) all investments of Debt proceeds and moneys for the payment of debt service, and (ii) any swaps, options, or other financial derivatives entered into with respect to any Debt;
- copies of any subscriptions for the purchase of U.S. Treasury Obligations of the State and Local Government Series (SLGS);
- all calculations of yield restriction computations; and
- all calculations of arbitrage rebate liability that is or may become due with respect to any issuance of Debt (including calculations showing that no arbitrage rebate is due), together with, if applicable, account statements or cancelled checks showing the payment of any rebate amounts to the U.S. Treasury together with any applicable IRS Form 8038-T.
- Private Business Use. The Compliance Officer shall maintain copies of all significant contracts and agreements of WIU, including any leases, management contracts, research agreements, concessions, or service contracts, with respect to the use of any property owned by WIU and acquired or financed with the proceeds of Debt (excluding arm’s length contracts covering 50 or fewer days). The Compliance Officer shall cause such contracts to be reviewed either by staff of WIU, Bond Counsel or an outside consultant (i) to determine if such contracts cause any Private Business Use of such facilities, or (ii) if the Compliance Officer cannot reasonably determine whether such contract causes Private Business Use. If any such contract is determined to cause Private Business Use of a Project, the Compliance Officer should determine or cause to be determined for each year, the percentage of such facility so privately used. Such determination may be made in consultation with Bond Counsel or other consultants. See Appendix B , “Private Business Use.”
- Actions under These Procedures. The Compliance Officer shall retain all records, reports, memoranda and other documents and correspondence relating to these Procedures or actions taken under these Procedures.
- Retention of Records for Three Years Past Final Payment. Notwithstanding any other policy of WIU, each of the records described above shall be maintained for at least as long as the Debt relating to such records (including refunding Debt) are outstanding, plus three years, and for such longer period as may be required by any applicable law or regulation.
The Compliance Officer shall be responsible for ensuring that payment is made to the U.S. Treasury of all arbitrage rebate installments and payments when due. The Compliance Officer shall engage such professional arbitrage rebate consultants as he shall deem necessary to prepare or assist in such computations. The Compliance Officer shall consult with Bond Counsel or the Municipal Advisor and, if necessary, the arbitrage rebate consultant regarding which actions are necessary to comply with the arbitrage restrictions and arbitrage rebate requirements of the Code. Taking into account any applicable exemptions from the arbitrage rebate requirement and advice from the Municipal Advisor for each issue of Debt, the Compliance Officer shall cause any necessary computations to be made annually and as otherwise required, of the accrued arbitrage rebate amount with respect to each issue of Debt.
If and to the extent that any Debt proceeds are or become subject to a yield restriction requirement, the Compliance Officer shall be responsible for investing such proceeds at not in excess of the permitted yield and for making any yield reduction payments to the U.S. Treasury as are necessary to maintain the Tax Status of interest on the affected Debt. See Appendix B , “Arbitrage and Arbitrage Rebate” and “Yield Restriction and Yield Reduction Payments.”
EXPENDITURE OF DEBT PROCEEDS
Use of Debt Proceeds. For each issue of Debt, the Compliance Officer shall review all expenditures of Debt proceeds and the purpose for such expenditures, as and when such expenditures occur, to ensure that such expenditures comply with the tax requirements applicable to such issue of Debt. See Appendix B, “Gross Proceeds.”
Timing of Expenditures. The Compliance Officer shall monitor the timing and amount of the expenditure of each issue of Debt, as and when such expenditures occur, to comply (i) if applicable, with any exceptions from arbitrage rebate relating to such issue of Debt and (ii) any other requirements relating to the expenditure of the proceeds of such issue of Debt.
Allocations of Debt Proceeds to Expenditures. The Compliance Officer shall compile an allocation of all Debt proceeds and earnings thereon to particular expenditures. The Compliance Officer will only allocate expenditures to expenditures that meet all of the requirements of the applicable Debt documents. WIU and the Compliance Officer understand that such allocations need not follow a direct tracing of Debt proceeds and may be changed up to 18 months after the date of the expenditure to which such proceeds were or will be allocated or, if later, the date the Project financed by the Debt is placed in service. In any event, no such reallocation may be made after the date that is 60 days after the fifth anniversary of the issuance date of the Debt, or 60 days after the retirement in full of all the Debt of the issue, if earlier. Such allocations may include allocations to expenditures made prior to the issuance of the Debt in accordance with the applicable reimbursement rules in the Regulations. At such time as WIU or the Compliance Officer determines that there will be no additional expenditures of Debt proceeds (other than proceeds in a debt service reserve fund, if any) and that WIU will not or cannot reallocate such proceeds to expenditures because the time limits set forth above have expired, the Compliance Officer shall declare such allocation to be a final allocation of Debt proceeds to expenditures. The Compliance Officer shall maintain all such allocations of proceeds to expenditures, including any final allocation, with the records it must maintain.
USE OF PROJECTS
In order to maintain the Tax Status of Debt, the Compliance Officer will monitor the use of any Project to comply with restrictions on use of a Project by persons other than WIU as set forth in the tax agreements for the Debt. For example, the following is a list of typical restrictions. It is not comprehensive and the Compliance Officer should reference the tax agreements for a complete description of such restrictions.
- Users of a Project, other than state or local governmental units, shall not use more than 5% of the facilities financed by any one issue of Debt, on any basis other than the same basis as the general public. Any use of any portion of a Project by any person or entity other than WIU shall be discussed with Bond Counsel.
- No portion of the Project shall be sold or otherwise disposed of or leased; no management contract, concession or contract for naming rights will be entered into relating to a Project; and no other “special legal entitlement” (i.e., preferential access to or use of a Project) relating to the Project shall be granted to an individual or entity (other than a state or local governmental unit), without prior review by Bond Counsel to ensure that such action complies with the tax agreement applicable to such issue of Debt and will not affect their Tax Status.
- The Compliance Officer and WIU recognize that there are many situations under which Private Business Use is permitted to exceed the limits described above without violating tax covenants. WIU and the Compliance Officer may permit such Private Business Use to exceed the 5% limit described above if Bond Counsel provides advice that allows such use.
Typically, the Projects financed or refinanced by WIU are educational facilities. As such, private business use of these Projects is generally determined by the terms of any contracts (including research contracts, leases, management contracts and food service contracts) entered into by the Board for the use of all or a portion of the Projects. The Compliance Officer will work with Bond Counsel to obtain necessary records and documentation demonstrating that the use or planned use of a Project complies with all applicable tax requirements. See also “Records to be Maintained—Private Business Use” above and Appendix B , “Private Business Use.”
If the Compliance Officer becomes aware of any use of Projects that could affect the Tax Status of Debt, the Compliance Officer will consult with Bond Counsel to determine any potential tax consequences for the Debt.
WIU recognizes that if private business use or non-qualified use of Projects exceeds the limits provided in the Debt documents, a remedial action may be required in accordance with the Code. In such event, the Compliance Officer shall direct Bond Counsel to prepare a memorandum describing any required remedial action and shall report to the Compliance Committee. See Appendix B , “Remediation.”
Action on the Discovery of a Potential Violation.
- Reallocation. WIU and the Compliance Officer recognize that, in limited circumstances, if there is a failure to spend Debt proceeds properly, such Debt proceeds can be reallocated to qualified costs that may be financed with Debt proceeds, provided that such reallocation occurs within specified time frames. If the Compliance Officer determines that a failure to spend Debt proceeds on qualified costs has occurred, the Compliance Officer will (with the aid of Bond Counsel or other consultant or staff of WIU) determine if a reallocation of Debt proceeds is possible.
- Remediation. WIU and the Compliance Officer recognize that if, among other things, there is a failure to use Debt proceeds properly, a failure to spend all Debt proceeds, or a disposition of a Project or Private Business Use of a Project in excess of allowed limits, a remedial action may be required in accordance with the Code and the Regulations. The Compliance Officer should (with the aid of Bond Counsel or other consultant or staff of the Board or WIU) determine if such remedial actions are required and possible. The Compliance Officer should prepare or cause to be prepared a memorandum describing any such remedial action or proposed remedial action. The memorandum should describe whether such remedial action will serve to cure any particular tax law violation. The memorandum should include a full description of such required actions of WIU. A copy of any such memorandum shall be given to the Compliance Committee. Following any such remedial action, the Compliance Officer should prepare a report describing the effect of such remedial action. The lists of Debt-Financed Property and Disposed Debt-Financed Property may need to be revised as a result of such remedial action and, if so, the Compliance Officer should so revise the list.
Voluntary Closing Agreement Program. WIU recognizes that if Private Business Use exceeds the limits provided in the Debt documents and a remedial action is not undertaken (or is not possible) or if another violation of the covenants of WIU necessary to maintain the Tax Status of Debt occurs, then it may be necessary for WIU to enter into a voluntary closing agreement with the Internal Revenue Service pursuant to the Tax Exempt Bonds Voluntary Closing Agreement Program described in Treasury Notice 2008-31 or any successor guidance (the “VCAP Program”). See Appendix B, “Voluntary Closing Agreement Program.” The Compliance Officer shall (in consultation with Bond Counsel) determine if a voluntary closing agreement is appropriate.
The Compliance Officer shall prepare or cause to be prepared a memorandum describing any proposed application for a voluntary closing agreement and any proposed voluntary closing agreement. The memorandum shall describe whether the voluntary closing agreement will serve to cure any particular tax violation and the nature of such violation. If any actions are required by WIU for such voluntary closing agreement application, the memorandum shall include a full description of such required actions. A copy of any such memorandum shall be provided to the Compliance Committee.
Following the execution of any voluntary closing agreement, the Compliance Officer shall prepare a report describing the effect of such closing agreement. The lists of Debt-Financed Property and Disposed Debt-Financed Property may need to be revised as a result of such closing agreement and, if so, the Compliance Officer should so revise the lists.
ANNUAL TAX COMPLIANCE REVIEW
As part of the Compliance Committee’s annual review to be completed as provided in Part I, the Compliance Committee shall conduct a review of the contracts and other records described above under the title “RECORDS TO BE MAINTAINED” to determine for each issue of Debt whether each issue of such Debt complies with the tax requirements applicable to such Debt (including restrictions on Private Business Use and private loans) and with the other provisions of this Policy.
To the extent that any violations or potential violations of tax requirements are discovered, the Compliance Committee shall make recommendations or take such other actions as the Compliance Committee shall reasonably deem necessary or appropriate to assure the timely correction of such violations or potential violations through remedial actions described in the Code or the VCAP Program.
TAX COMPLIANCE REPORTING
The Compliance Committee’s written report required pursuant to Part I shall set forth the results of the annual tax compliance review as provided above.
The report shall address compliance with the requirements of this Part III, any accrued arbitrage rebate liability of WIU, and arbitrage rebate payments made to the U.S. Treasury and any other matters affecting the Tax Status of the Debt.
In the event the IRS commences an examination or other action in connection with any Debt, the Compliance Officer shall promptly inform the Compliance Committee and Bond Counsel of such event. The Compliance Officer shall respond to the examination and may retain experienced legal counsel to assist in the response to the examination.
Action on IRS Contact.
Examination of Debt. WIU and the Compliance Officer recognize that the IRS or another regulatory entity may undertake an examination of Debt. In the event that WIU is notified of such an examination, WIU shall as quickly as possible notify the Compliance Officer. The Compliance Officer should advise the Compliance Committee of any such examination when, as and in such manner as the Compliance Officer may deem appropriate. The Compliance Committee should coordinate the defense of such examination and should determine if counsel should be hired and, if so, which counsel. Except to the extent that WIU determines that another party should undertake a response, the Compliance Officer will be responsible for compiling answers to any information or document request that might be presented to WIU as a result of such examination. If an examination cannot be closed without a closing agreement, the Compliance Officer should use reasonable efforts to reach an acceptable closing agreement with such regulatory agency and to obtain all required Board approvals of such closing agreement.
Regardless of how an examination of the Debt is closed, the Compliance Officer shall retain all communications with the IRS or other regulatory agency relating to such examination among the records kept under these Procedures (Recordkeeping).
- Compliance Checks. The IRS and other regulatory agencies may conduct compliance checks from time to time. As part of such compliance check, the IRS or another regulatory agency may send questionnaires to WIU. The Compliance Officer may, if authorized, hire counsel to assist in the response to a compliance check. The Compliance Officer shall advise the Compliance Committee of any such compliance check promptly after receiving notice thereof.
APPLICABILITY OF THIS PART III
If, in consultation with Bond Counsel, the Compliance Officer determines that any of the provisions of this Part III shall not apply to a particular issue of Debt, the Compliance Officer shall document such determination and shall not be required to comply with such provision(s).
1 “Tax advantaged” Debt means Debt which are eligible for tax credits to the holders of the Debt or to a third party or interest subsidy payments from the United States Treasury. The Auxiliary Facilities Revenue Bonds, Series 2010 (Build America Program - Taxable) and the Certificates of Participation (Capital Improvement Projects), Series 2010 (Build America Program - Taxable) are tax advantaged. (back to top of Part III. Tax Matters)
WIU is a regular issuer of Debt. Accordingly, WIU shall retain the regular services of an experienced bond counsel. WIU shall also retain the services of a Municipal Advisor in connection with each Debt transaction. WIU may also retain the services of other professionals, including special counsel, trustees, paying agents and escrow agents, on a transaction-by-transaction basis, as deemed necessary by the Compliance Officer.
The Compliance Committee and other WIU officers and employees may utilize the services of such professionals in connection with the execution of any of their responsibilities under this Policy.
The Compliance Officer and designated staff and the other members of the Compliance Committee should participate in such continuing professional education courses and seminars in public finance, debt management and related topics as the Compliance Officer shall deem necessary or appropriate to ensure a sufficient level of knowledge and training for the effective administration of this Policy.
The Compliance Officer will provide copies of Debt documents and this Policy to other WIU staff members who may be responsible for taking actions described in the Debt documents and in particular to any person who is to be a successor Compliance Officer.
The Compliance Officer shall undertake to maintain a reasonable level of knowledge concerning the rules related to tax-exempt and tax-advantaged Debt so that he or she may fulfill his or her duties hereunder. The Compliance Officer may consult with counsel, attend conferences and presentations of trade groups, read materials posted on various web sites, including the web site of the Tax-Exempt Bond function of the IRS, and use other means to maintain such knowledge. Recognizing that the Compliance Officer may not be fully knowledgeable in this area, such officer may consult with in-house or outside counsel, consultants and experts to assist in exercising his or her duties under these Procedures. The Compliance Officer should verify that other staff of WIU are aware of the need for continuing compliance and coordinate appropriate training and education of other personnel of WIU.
The Compliance Officer shall review the Debt documents and this Policy and Procedures periodically to determine if there are portions that need further explanation and, if so, will attempt to obtain such explanation from counsel or other experts or consultants or staff.
The Compliance Officer, in coordination with the Secretary of the Board shall cause to be maintained all records, in addition to those described in Part III above, necessary to demonstrate WIU’s compliance with this Policy.
CHANGES TO THE POLICY
The Procedures contained herein may be revised and amended from time to time as WIU and the Compliance Officer deem necessary to comply with the requirements of the Code or the securities laws. WIU and the Compliance Officer may, from time to time and upon the issuance of new Debt, contact counsel to determine whether the Procedures contained herein adequately address the post-issuance responsibilities of WIU as required by the Code and the securities laws.
SPECIFIC PROCEDURES FOR SPECIAL CASES
The Procedures contained herein specifically address post-issuance compliance procedures with respect to tax-exempt governmental Debt issued for capital projects under Section 103 of the Code, build America bonds issued under Section 54AA of the Code and recovery zone economic development bonds issued under Section 1400U-2 of the Code. WIU and the Compliance Officer recognize that these Procedures may be inadequate for other types of tax-exempt obligations, tax credit or direct pay obligations (other than build America bonds), for which additional procedures may be required. In addition, occasionally the Board will enter into financing agreements or leases for equipment the interest on which is intended to be tax-exempt but for which no tax certificate and agreement exists. In the event that the Board enters into such equipment financings or issues private activity tax-exempt obligations, tax-exempt obligations funding a significant amount of working capital, tax-credit bonds, or direct pay bonds, or if the Board receives an indication from counsel that additional procedures are required, or if the Board enters into any derivative products, these Procedures should be revised to reflect any specific rules and requirements and post-issuance responsibilities applicable to such type of tax advantaged obligations and derivative products.
AUTHORIZATION AND EXPENSE
This Policy is not intended to provide authorization to the Compliance Officer to enter into contracts for service or to spend Board funds. To the extent that the Compliance Officer determines that such contracts or expenditures are desirable and are not otherwise authorized, the Compliance Officer should obtain such authorization before entering into such contracts and spending such Board funds.
LIST OF REPORTABLE EVENTS
- Principal and interest payment delinquencies
- Non-payment related defaults, if material*
- Unscheduled draws on debt service reserves reflecting financial difficulties
- Unscheduled draws on credit enhancements reflecting financial difficulties
- Substitution of credit or liquidity providers, or their failure to perform
- Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material* notices or determinations with respect to the tax status of the security, or other material* events affecting the tax status of the security
- Modifications to the rights of security holders, if material*
- Bond calls, if material*, and tender offers
- Release, substitution or sale of property securing repayment of the securities, if material*
- Rating changes
- Bankruptcy, insolvency, receivership or similar event of WIU**
- The consummation of a merger, consolidation, or acquisition involving WIU or the sale of all or substantially all of the assets of WIU, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material*
- Appointment of a successor or additional trustee or the change of name of a trustee, if material*
* As materiality is interpreted under the Securities Exchange Act of 1934, as amended.
** This event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for WIU in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or Federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of WIU, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of WIU.
GLOSSARY OF TAX TERMS
Private Business Use
“Private Business Use” means any use of Bond-financed property by any person other than a state or local government unit, including as a result of (i) ownership, (ii) actual or beneficial use pursuant to a lease or a management, service, incentive payment, research or output contract or (iii) any other similar arrangement, agreement or understanding, whether written or oral, except for use of Bond-financed property on the same basis as the general public. Private Business Use includes any formal or informal arrangement with any person other than a state or local governmental unit that conveys special legal entitlements to any portion of Debt financed property that is available for use by the general public or that conveys to any person other than a state or local governmental unit any special economic benefit with respect to any portion of the Debt-financed property that is not available for use by the general public. Use by a natural person not engaged in any trade or business is not Private Business Use. Any use by the Federal government or by a corporation is Private Business Use.
Examples of common uses of Debt-financed property that may create Private Business Use include the following:
- Management contracts with private companies or individuals to manage all or a portion of a Debt-financed facility (e.g., a contract with a private company to manage a Debt-financed cafeteria, convention center, recreation center, etc.)
- A lease of space in a Debt-financed facility to a non-governmental person (e.g., a lease of space in a Debt-financed building to Starbucks or McDonalds)
- Rental arrangements whereby individuals, non-profit organizations or private businesses rent space in a Debt-financed facility
- Research grant agreements.
There are certain exceptions to Private Business Use. For example, a “qualified management contract” following certain guidelines set forth in Revenue Procedure 97-13 does not create Private Business Use. In addition, under appropriate circumstances, short-term rentals and other uses of up to 50 days (or in some cases 100 days or 200 days) are permitted.
Arbitrage and Arbitrage Rebate
Arbitrage generally is the earnings that an issuer will earn when it invests proceeds of the Debt in investments with a yield above the yield on the Debt. Generally, an issuer is required to make payments of any arbitrage it earns as a result of the investment of the proceeds of the Debt above the yield on the Debt to the IRS, which is known as “arbitrage rebate.” There are certain exceptions to the requirement to make arbitrage rebate payments to the IRS (e.g., small issuer exceptions, spending exceptions, bona fide debt service fund exceptions).
Yield Restriction and Yield Reduction Payments
Yield restriction is the requirement that an issuer not invest Gross Proceeds (defined below) of the Debt at a yield higher than Bond yield. Generally, in a capital project financing, an issuer will have a 3-year “temporary period” during which it can invest proceeds of the Debt in its project fund above the yield on the Debt. After such time, moneys are yield restricted and cannot be invested above the yield on the Debt (plus a de minimis percentage). Additionally, after the expiration of the temporary period, proceeds generally cannot be invested in federally guaranteed investments (including FDIC-insured accounts), other than certain de minimis amounts. If an issuer invests amount above the yield on the Debt after the expiration of a temporary period, it may still be able to achieve yield compliance by making a yield reduction payment to the IRS, which is a rebate payment or any other amount paid to the United States in the same manner as rebate amounts are required to be paid or at such other time or in such manner as IRS may prescribe that will be treated as a reduction in Yield of an investment under the Regulations. Yield reduction payments may only be made in limited circumstances, and do not work for all investments above Bond yield.
“Gross Proceeds” generally means (i) sale proceeds of the Debt and investment earnings thereon and (ii) amounts reasonably expected to be used directly or indirectly to pay principal or interest on the Debt. In addition, a pledged fund may also constitute gross proceeds. A pledge is any amount that is directly or indirectly pledged to pay the principal of or interest on the Debt. A pledge by the issuer must provide reasonable assurance that such moneys will be available to pay the debt service on the Debt even if the issuer has financial difficulties. Gross proceeds may also arise if Debt are outstanding longer than reasonably necessary for their governmental purpose. Typically, Gross Proceeds will be contained in a project fund, escrow fund (if the Debt issue is a refunding issue), costs of issuance fund, bond fund and debt service reserve fund (if applicable).
If moneys or investments are pledged or otherwise set aside for payment of principal of or interest on the Debt, any amounts are derived from the sale of any right that is part of the terms of a Bond or is otherwise associated with a Bond (e.g., a redemption right), or WIU enters into any agreement to maintain certain levels of types of assets for the benefit of a holder of a bond or any credit enhancement with respect to the Debt, such amounts may also constitute Gross Proceeds. Further, if any Bond-financed property is sold or otherwise disposed of any amounts received from such sale or other disposition may also constitute Gross Proceeds.
The Code prescribes three self-help mechanisms that an issuer may use to remediate non qualified Debt as a result of violation of Private Business Use covenants. These include redemption or defeasance of non-qualified Debt, alternative use of a facility (e.g., if a 501(c)(3) organization leases a Debt-financed municipal facility) or alternative use of disposition proceeds (e.g., if Debt-financed property is sold, the proceeds of the sale are used for other governmental purposes that would have qualified for tax-exempt financing). Prior to taking such remedial actions, the issuer must satisfy certain pre-conditions. In addition, remedial actions are only able to be taken within a specified time frame before or after the action causing Private Business Use.
Voluntary Closing Agreement Program
Through the Voluntary Closing Agreement Program (VCAP), issuers of Debt can voluntarily resolve violations of the Code and applicable Regulations (through closing agreements with the IRS). VCAP can be used when a remedial action (described under “Remediation”) is unavailable or there is another violation of the Code or Regulations that cannot be fixed through self-help mechanisms. The incentive for an issuer to go to VCAP is that, generally, a settlement in VCAP will be more favorable to the issuer than if the violation were discovered in an examination.