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MoASBO Spring Conference

Continuing Disclosure Lorenzo Boyd Martin Ghafoori Dr. Dennis Lea Brittany Pullen Dr. Bill rebore April 25, 2012. MoASBO Spring Conference. Municipal Securities Rulemaking Board (“MSRB”). Rulemaking Authority Created and Operates “EMMA” – Electronic Municipal Market Access

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MoASBO Spring Conference

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  1. Continuing DisclosureLorenzo BoydMartin GhafooriDr. Dennis LeaBrittany PullenDr. Bill reboreApril 25, 2012 MoASBO Spring Conference

  2. Municipal Securities Rulemaking Board (“MSRB”) • Rulemaking Authority • Created and Operates “EMMA” – Electronic Municipal Market Access • MSRB is a Regulator

  3. Rule 15c2-12 (the “Rule”) • Continuing Disclosure Obligation added to Rule in July 1995 • Requires Contractual Undertaking by Issuer to File Annual Reports and Material Event Notices

  4. Recent SEC Legislative Changes • Decertified the Nationally Recognized Municipal Securities Information Repository (“NRMSIR”) System – Created EMMA • Elevated Importance – Office of Municipal Securities

  5. Recent SEC Legislative Changes • Expanded Requirements of the Rule • Updated Material Events that Require Filing The Board shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds (“Material Events”): (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions; the issuance by the 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 Bonds, or other material events affecting the tax status of the Bonds; (7) modifications to rights of bondholders, if material; (8) bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution or sale of property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the Board or the District; (13) the consummation of a merger, consolidation, or acquisition involving the Board or the District or the sale of all or substantially all of the assets of the Board or the District, 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; and (14) appointment of a successor or additional trustee or the change of name of the trustee, if material.

  6. Recent SEC Legislative Changes • Event Notice for Bonds: • Issued on or after December 1, 2010 – within 10 Days after Occurrence • Issued before December 1, 2010 – filed in a “Timely Manner”

  7. What Information is Needed? • Can Vary by Bond Issue • Outlined in Continuing Disclosure Section of Official Statement • Typically – FY Audit, Enrollment Data, Indebtedness of the District, History of AV and Tax Rate Information • Gather Information, Prepare and Post to EMMA

  8. Who Prepares and Submits the Data? • Can be: • Issuer (Supt., CFO or Designated Representative) • Dissemination Agent (Paying Agent) • Some Bond Counsels • District will still need to Gather Information and Prepare the Document • Dissemination Agent and Bond Counsels Post for a Fee

  9. When Do I Submit the Data? • File Audit and Operating Data within 180 Days of Fiscal Year End • Material Events – New Issues – 10 Business Days after Occurrence of Event

  10. How Do I Submit Information to EMMA? • EMMA Registration – https://www.msrb.org/msrb1/control/registration/default.asp

  11. Continuing Disclosure Submissions • Walkthrough via YouTube: http://www.youtube.com/user/MSRBNEWS • Questions about Registration or Submissions? http://dataport.emma.msrb.org

  12. Critical Challenges for Issuers with 15c2-12 • Event Notice Filing Window • Within 10 Days – Difficult for Compliance • Written Procedures in Place? • Documents retained over life of Bonds • Filing Receipts also must be retained • Are all Continuing Disclosure Covenants Met? • Audit plus Operating Data

  13. Recommendations for Compliance • Adopt Written Disclosure Policies/Procedures • Formally or Informally • Include Primary and Secondary Contacts • Establish the Disclosure Requirements • From Bond Documents • Establish “Effective Date” • Calendar Reminders for Submission

  14. Post-issuance compliance: Becoming accountable to the irsPresented by:Gilmore & Bell, P.C.Sean Flynnsflynn@gilmorebell.comApril 25, 2012 MoASBO Spring Conference

  15. Post-Issuance Requirements • District must be able to answer (4) questions: • (1) How does the District monitor its ongoing federal tax law requirements? • Adopt and implement Written Post-Issuance Compliance Procedures • (2) How does the District account for the investment of Bond proceeds? • Complete Arbitrage Rebate Calculations

  16. Post-Issuance Requirements • (3) How does the District account for the expenditure of Bond proceeds? • Complete a “Final Written Allocation” • (4) How does the District account for the use of Bond financed assets? • Complete “Annual Compliance Checklist”

  17. Who is asking? • Internal Revenue Service • Compliance Check Questionnaire • Traditional tax audit or examination • Bond Counsel • Future refinancings

  18. Written Compliance Procedures • Purpose: • Identify person responsible for compliance • Identify proper records the District needs to maintain to “prove” that it is in compliance • Establish process to identify potential non-compliance and remediate non-compliance

  19. Written Compliance Procedures • Are written procedures required? • Internal Revenue Code • IRS Article • http://www.irs.gov/taxexemptbond/article/0,,id=243503,00.html • Form 8038-G • IRS Examinations

  20. Written Compliance Procedures • Written Compliance Procedures should include: • Due diligence review at regular intervals; • Identity of person responsible for compliance; • Training of responsible official/employee; • Retention of adequate records to substantiate compliance; • Procedures reasonably expected to timely identify noncompliance; and • Procedures ensuring that the District will take steps to timely correct any noncompliance

  21. Investment of Bond Proceeds • District must pay or “rebate” any excess earnings on the investment of bond related funds • Complete arbitrage rebate calculation • Calculation needed? See tax documents • Timing: • Within 5 years of the issue date (every 5 years thereafter); and • Final maturity or redemption of the bonds

  22. Expenditure of Bond Proceeds • District must spend Bond proceeds in a timely manner and on “good costs” • Timely expenditure of Bond proceeds • 85% within 3 years; 5 year limit? • Expenditures for “good costs” • Capital expenditures (e.g. hard costs – construct building or purchase equipment) vs Working Capital Expenditures

  23. Expenditure of Bond proceeds (cont.) • How does the District track the expenditure of Bond proceeds and prove compliance? • Complete “Final Written Allocation” for each Bond issue

  24. Expenditure of Bond proceeds (cont.) • Final Written Allocation • New Money vs Refunding? • When should the Final Written Allocation be completed? • Segregated Account vs. Commingled Account?

  25. Expenditure of Bond proceeds (cont.) • Final Written Allocation should include the following: • Reconciliation of Total Sources to Total Uses for the Project • Sources include bond proceeds (plus investment earnings) and other District funds • Must include District’s accounting records • % of Project financed with the Bond proceeds • Date Project is placed-in-service • Estimated economic useful life of the Project

  26. Use of Bond financed property • Code limits the amount of Bond financed property that may be used in a “bad use” • Bad Use? • Use by nongovernmental entities in trade or business • Type of contractual arrangements that may result in “bad use” • Sale or lease • Management/Operating Agreement • Output Contracts • Research Agreements • Any other arrangement that grant special legal entitlements to Bond financed property

  27. Use of Bond financed property (cont.) • How does the District monitor the use of Bond financed property? • Complete Annual Compliance Checklist • Influenced by type of property financed • Purpose: • Provide contemporaneous records that District is in compliance; • Identify potential non-compliance on a timely basis; • Serve as reminder for other post-issuance compliance responsibilities

  28. Questions?

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