Clemson University, South Carolina
Post-Issuance Tax Compliance Policies and Procedures
For Tax-Exempt Bonds
February 28, 2012
The purpose of these Post-Issuance Tax Compliance Policies and Procedures (these “Policies and Procedures”) is to establish policies and procedures in connection with the issuance of tax-exempt bonds (the “Bonds”) issued by Clemson University, South Carolina (the “University”) from time to time to maximize the likelihood that all applicable post-issuance requirements of federal income tax law needed to preserve the tax-exempt status of the Bonds are met. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Internal Revenue Code of 1986, as amended (the “Code”) and the Treasury Regulations promulgated thereunder (the “Regulations”).
The University reserves the right to use its discretion as necessary and appropriate to amend or supplement these Policies and Procedures as circumstances warrant. All such amendments and supplements shall be reviewed by nationally recognized bond counsel (“Bond Counsel”).
The general policy of the University is to comply with the requirements of the Code, the Regulations, and South Carolina law to preserve the tax-exempt status of the Bonds. The University intends to implement and carry out the procedures set forth herein to ensure such compliance. To the extent additional procedures are required, the Associate Controller of the University (the “Responsible Official”) will be responsible for development and maintenance of such additional procedures to ensure and demonstrate such compliance. The Controller of the University (the “Controller”) shall, as necessary, designate one or more other individuals to assist the Responsible Official.
The Bonds are not and will not be part of any transaction or any series of transactions that attempts to circumvent the provisions of Section 148 of the Code and the Regulations, enabling the University to exploit the difference between tax-exempt and taxable interest rates to obtain a material financial advantage and overburdening the tax-exempt bond market. No device will be employed in connection with the issuance of the Bonds in order to gain a material financial advantage (based on arbitrage) apart from savings attributable to lower interest rates.
Generally, the Responsible Official and anyone designated by the Controller to assist the Responsible Official shall consult with Bond Counsel and other legal counsel and advisors, as needed, throughout the Bond issuance process to identify the use of the proceeds of the Bonds, the expected schedule for the expenditure of such proceeds, the expected compliance, if any, with any exemptions from arbitrage rebate requirements, and all other matters related to the information to be represented or certified by the University in all tax certificates (referred to herein as a “Tax Certificate”), Internal revenue Service (“IRS”) forms, and/or other documents finalized at or before the issuance of the Bonds.
The University will provide training for the Responsible Official and anyone designated by the Controller to assist the Responsible Official. Training may be in the form of a conference call with Bond Counsel to report on issues and questions that have arisen in connection with these Policies and Procedures and to receive a report on developments affecting the Code and Regulations and their enforcement that may be relevant to the development and implementation of these Policies and Procedures.
Consultation with Auditors
The Responsible Official shall provide a copy of these Policies and Procedures and any amendments or supplements to the auditors of the University and shall instruct such auditors to report to the Controller and the Responsible Official any matters the auditors believe relevant to the matters addressed herein.
Nothing herein shall authorize the Responsible Official to bind the University in any way.
Privilege to be Preserved
Nothing herein shall require or authorize the Responsible Official or anyone else to consult with any lawyer unless such consultation is protected by the attorney-client privilege.
More specific policies and their implementing procedures are as follows:
Policy Number 1: General Recordkeeping - The University will retain sufficient records to support the continued tax-exempt status of any tax-exempt bonds it issues, including books, records, and other informational documents supporting the Bonds continued compliance with federal tax requirements.
The Responsible Official will maintain all records relating to the requirements of the Code and the representations, certifications and covenants set forth in any Tax Certificate executed in connection with any series of Bonds until the date three (3) years after the last principal amount of such series of Bonds has been paid.
If any series or a portion of any series of Bonds is refunded by tax-exempt obligations (“Refunding Obligations”), the University will maintain all records required to be retained until the later of the date three (3) years after the last principal amount of such series of Bonds has been paid or the date three (3) years after the last Refunding Obligations have been retired.
For all Bonds, the records that will be retained include, but are not limited to:
(a) Basic records and documents relating to the Bonds;
(b) Documentation evidencing expenditure of the proceeds of the Bonds, including, without limitation, construction contracts, purchase orders, invoices, trustee requisitions and payment records, as well as documents relating to costs reimbursed with proceeds of Bonds and record identifying the assets or portion of assets that are financed or refinanced with proceeds of Bonds, including a final allocation of Bond proceeds (see section entitled, “Final Expenditure of Bond Proceeds” herein);
(c) Documentation sufficient to show that all returns related to Bonds submitted to the IRS are correct;
(d) Documentation evidencing use of any projects financed with proceeds of the Bonds by public and private sources (i.e., copies of management contracts, output contracts, research agreements, leases, etc.);
(e) Documentation evidencing all sources of payment or security for the Bonds; and
(f) Documentation pertaining to any investment of proceeds of the Bonds (including the purchase and sale of securities, SLGs subscriptions, yield calculations for each class of investments, actual investment income received from the investment proceeds, guaranteed investment contracts, and rebate calculations).
Policy Number 2: Investment and Arbitrage Compliance – The University will not take any action or fail to take any required action which will cause Bonds to be “arbitrage bonds,” as defined in the Code, and it will comply with the requirements of Section 148 of the Code regarding the investment of the Gross Proceeds of the Bonds and the rebate of excess earnings to the United States Government as required under the Regulations throughout the terms of the Bonds.
Investment of Bond Proceeds
The Responsible Official shall oversee the investment of any proceeds of the Bonds in accordance with the directions set forth in the Tax Certificate with consultation and direction from the Controller. The Responsible Official will consult with Bond Counsel prior to entering into any guaranteed investment contracts.
If the proceeds of any issue of Bonds (other than a minor portion and other than proceeds held in a reasonably required reserve fund) are not reasonably expected as of the date of issue to be spent on capital projects within a temporary period of three years, the Responsible Official will ensure that the proceeds are not invested at a yield materially higher than the yield on such issue of Bonds.
If the proceeds of any issue of Bonds are expected as of the date of issue to be spent on capital projects within a three-year temporary period, the proceeds may be invested at an unrestricted yield. The Responsible Official will ensure that such proceeds remaining on hand after the expiration of the three-year period will not be invested at a yield more than .125% (or 1/8th of a percentage point) above the yield of the Bonds.
The Responsible Official will maintain records documenting the allocations, earnings and investments relating to proceeds of the Bonds.
The Responsible Official will follow generally accepted accounting principles (“GAAP”) to track investments of Bond proceeds.
For each investment acquired with Gross Proceeds of the Bonds or otherwise allocated to the Bonds that was not acquired to carry out the governmental purpose of the Bonds, the Responsible Official shall record its purchase date, its purchase price (reduced by broker or dealer commissions or other administrative expenses, which shall also be stated), its Fair Market Value, accrued interest due on its purchase date, its face amount, its coupon rate, the frequency of its interest payments, its disposition price, accrued interest due on its disposition date, and its disposition date.
The Responsible Official shall at least annually consider whether any rebate calculation and/or payment is required. The University will retain the services of a rebate analyst (the “Rebate Analyst”) or other professionals who are necessary, in the judgment of the Responsible Official, to ensure that the requirements of the Code and Regulations regarding arbitrage rebate are met.
The Responsible Official will ensure that records of investment and expenditure of the proceeds of Bonds are timely delivered to the Rebate Analyst and that the Rebate Analyst prepares annual computation reports which advise the University of any rebatable arbitrage accrued with respect to such Bonds.
The Responsible Official will ensure that the Rebate Analyst timely prepares returns relating to payment of arbitrage rebate (currently on IRS Form 8038-T) and that such forms and any rebatable arbitrage are timely paid to the United States as required under Section 148(f)(4) of the Code. A rebate installment payment must be paid no later than 60 days after the end of every 5th bond year throughout the term of an issue of Bonds. The payment must be equal to at least 90% of the amount due as of the end of that 5th bond year. Upon redemption of an issue of Bonds, the University will make a payment of 100% of the amount due no later than 60 days after the discharge date.
Annual Examination and Report
In addition, the Responsible Official shall, within one hundred twenty (120) days of the end of each fiscal year, prepare a written report on matters occurring within such fiscal year relevant to these Policies and Procedures. This report shall in reasonable detail set forth any issues relevant to these Policies and Procedures that occurred in such fiscal year, including calculation and payment of rebate, any defeasance or other payment of Bonds other than in the ordinary course of business and any review of contracts related to the sale, lease or use of Bond-financed property.
Monitoring Reserve Funds
If at any time any trustee or other fiduciary holds a debt service reserve or similar fund in connection with any Bonds, the Responsible Official shall annually review the status of such fund, including the use of any investment earnings thereon.
Policy Number 3: Expenditures and Assets - The University will not take any action or fail to take any action which will cause Bonds to be to be “arbitrage bonds,” as defined in the Internal Revenue Code (the “Code”), and it will comply with the requirements of Section 148 of the Code regarding the expenditure of the Gross Proceeds of the Bonds and the use of assets financed or refinanced with Gross Proceeds of the Bonds as required under the Regulations throughout the term of the Bonds.
Expenditure of Bond Proceeds
The Responsible Official will monitor all expenditures of Bond proceeds (including investment earnings). Within 150 days of the issuance of any Bonds and at least once each six months thereafter until the delivery of the final report described in the section entitled “Final Expenditure of Bond Proceeds” herein, the Responsible Official shall prepare a report on the expenditures to date of all proceeds of the Bonds, noting all material departures in both schedule and use from the original expectations for such expenditures as set forth in the Tax Certificate delivered upon the issuance of such Bonds, including whether or not any appropriate spending benchmarks for arbitrage rebate exceptions have been met. The Responsible Official will consult as appropriate with Bond Counsel.
Final Expenditure of Bond Proceeds
The Responsible Official shall be responsible for determining when all proceeds of any issuance of Bonds have been spent (other than those held in qualifying reserve or debt service funds) and shall take steps to close out with reasonable promptness all project and similar funds holding the proceeds of Bonds. If any proceeds together with investment earnings thereon (together “Remaining Proceeds”) remain after paying all expected costs of the projects financed, the Responsible Official shall consult with Bond Counsel as to possible ways to apply such proceeds and their investment and use, with the goal of spending all Remaining Proceeds as promptly as is required by law.
Within 60 days of the final expenditure or other disposition of all Remaining Proceeds, the Responsible Official shall prepare a written report on the expenditure of all proceeds of the Bonds (inclusive of investment earnings), including the use of such proceeds and the schedule of such expenditures, together with any allocations or elections made in connection therewith. Such report also shall address whether rebatable arbitrage must be calculated and paid and on what schedule.
If a particular facility is only partially financed with proceeds of Bonds, the Responsible Official shall indicate in the report the percentages of each such facility attributable to equity, the proceeds of Bonds or other sources, including any permitted allocations or reallocations (which, to be valid, must be made within 12 months following completion of such facility).
Use of Bond Financed Facilities
An important goal of these Policies and Procedures is to ensure that there is no threat to the tax-exempt status of any Bonds because of impermissible private business use or private payment or “security” under the Regulations. Such threat can occur if more than 5% of the proceeds of any Bonds are utilized for facilities that are owned by or otherwise impermissibly used by any entity that is not an “Exempt Entity”. An Exempt Entity is an entity that is either a state or local governmental entity or an entity described in Section 501(c)(3) of the Code. The federal government is not an Exempt Entity. Such private business use can be created by sales, leases, special entitlements, management contracts and sponsored research agreements.
The Responsible Official shall prepare and regularly update a list of all facilities and equipment that have been financed in whole or in part with the proceeds of Bonds (“Bond Financed Facilities”).
At least annually, the Responsible Official shall review all uses of Bond Financed Facilities, including any sales, leases or other conveyance of rights to another person to use or control any portion of any Bond Financed Facility, contracts for sponsored research to be conducted in any Bond Financed Facility, management contracts with respect to any Bond Financed Facility or portion thereof, other uses known of any portion of a Bond Financed Facility by any person other than the University; or any amendments to or other changes in any of the foregoing.
The Responsible Official shall review and consult as appropriate with Bond Counsel as to whether any arrangement discovered pursuant to the preceding paragraph may create any private business use. If it does, the Responsible Official shall so advise the Controller, who shall, in conjunction with the Responsible Official, take such steps as are within his or her power and which he or she judges appropriate either (1) to alter the proposed contractual arrangement to eliminate any private business use, or (2) to monitor such private business use going forward.
The Responsible Official shall maintain a list of all Bond Financed Facilities determined to be subject to private business use and shall annually determine if such use is within permitted amounts. The Responsible Official shall consult with Bond Counsel if the Responsible Official believes that any such private business use has exceeded or may exceed permitted amounts and shall report such excess to the Controller with a recommendation of steps that may be taken to limit the private business use or the consequences thereof (including, but not limited to, potential participation in the Voluntary Closing Agreement Program of the IRS or any successor or additional such programs (collectively, “VCAP”)).
Change in Use and Remedial Action.
In carrying out responsibilities outlined herein, the Responsible Official shall take steps, including conferring with Bond Counsel if appropriate, to determine if the University has taken any “deliberate action” with respect to the use or ownership of any Bond Financed Facilities resulting in a use of such facilities in an unqualified manner and, if so, to determine and implement on a timely basis appropriate remedial action under Section 1.141-12 of the Regulations.
The Responsible Official will ensure that all reimbursement allocations to the University for expenditures made prior to any issue of Bonds will be made within eighteen months after the date the expenditure was made or, if later, eighteen months after the date on which the property resulting from the expenditure was placed in service, but in any event, within three years after the date the expenditure was paid.
Within one year after a reimbursement is made, the Responsible Official will not use the reimbursed funds to create a sinking fund without consulting with Bond Counsel prior to the creation of such sinking fund.
Policy Number 4: Any violations of the Code and/or the Treasury Regulations discovered by the University will be resolved on behalf of the University’s bondholders as quickly as possible through remedial measures or VCAP.
Upon discovering a violation of the Code, the Responsible Official will consult promptly with Bond Counsel and other legal counsel and advisors to determine a course of action to remediate such violation, if such counsel advises that a remedial action is necessary. If remedial action is available, the University will undertake to timely implement such remedial action. If remedial action is not available or the time limits for such remedial action have lapsed, the University will undertake to remedy the noncompliance pursuant to VCAP.