1. BABs, Stimulus Bonds, Midwest Recovery Bonds Compliance
Dawn Gunderson
September 16,2010

2. General Tax-Exempt Bonds
Tax Exempt bonds have existed for a long time
Requirements
"Private Activity" Restriction
Limits financing of non-governmental projects; business use
Arbitrage and Yield Limits
Limits the ability to earn interest on borrowed funds in excess of the bond yield(i.e. construction fund, debt service funds, etc.)
Small issuer exemptions and spend down exceptions to the rules allow for unlimited interest earnings
Other Considerations
Bank Qualification
Up to $10 million ($30 million during ) in a calendar year that can be designated “bank qualified”
BQ debt enjoys lower interest rates (presently, spread is narrow)

3. Stimulus Act New Debt Instruments: Direct Payment Bonds
Build America Bonds (Direct Payment BABs)
Recovery Zone Economic Development Bonds (Direct Payment RZEDBs)
Tax Credit Bonds
Build America Bonds (Tax Credit BABs)
New Clean Renewable Energy Bonds (CREBs)
Qualified Energy Conservation Bonds (QECBs)
Qualified School Construction Bonds (QSCBs)
Qualified Zone Academy Bonds (QZABs)
Tax-Exempt Private Activity Bonds
Recovery Zone Facility Bonds
Midwestern Disaster Area Bonds
Project scheduled to expire on 12/31/10. See article in last newsletter

4. Features to Understand
Future of the Programs
How Subsidy is applied and amount
Permitted Projects
Requirements for allocation of funds (How to Get it)
Other Requirements and Limitations
Limits on Cost of Issuance
Limits on Refunding Purposes
Davis Bacon / Prevailing Wage Requirement
Other
Maximum Term
Sinking fund restrictions

5. Build America Bonds (Direct Payment)
Issued as Taxable Debt
Subsidy
35% of interest direct payment subsidy to issuer; investor gets taxable interest
Purposes
Any governmental purpose for which qualify for traditional tax-exempt financing (but only capital projects), no private activity
Allocation Requirement
None
Additional Requirements & Limitations
Cost of Issuance Limited to 2% of Proceeds
Refundings not eligible unless for "temporary short-term borrowings"
8038-CP Filing Requirement: Prior to each interest payment date (more than 45 less than 90 days)
Bonds, Notes State Trust Fund Loans

6. Recovery Zone Economic Development Bonds
Issued as Taxable Debt
Subsidy
45% of interest subsidy to issuers; investor gets taxable interest
Purposes
promoting "economic activity" within a recovery zone (capital expenditures; public infrastructure; job training). "Recovery zone" is an area designated as having significant foreclosure rates, job loss, or economic distress
Allocation Requirement
Counties and municipalities with populations over 100,000 receive allocations in proportion to their comparative 2008 decline in employment.
Additional Requirements & Limitations
Compliance with Davis Bacon/Prevailing Wage
Cost of issuance limited to 2% of Proceeds
Only "temporary short-term borrowings“ refunding allowed
8038-CP filing requirement: Prior to each interest payment date
8038 CP filing less than 90 days more than 45
IRS mail with 30 days after receipt
Counties must designate area
Some have done entire county
Counties can further allocate. Allow City to use some of their authority

7. Private Activity: Recovery Zone Facility Bonds
Tax Exempt Qualified Private Activity Bonds (Conduit Financing)
Subsidy (Does not apply)
Purposes
construction, renovation and acquisition of recovery zone property occurring after designation of a recovery zone (area of significant foreclose, job loss, economic distress), and financed property is used in active conduct of a qualified business
Qualified Business
Any trade or business except residential rental; expanded from limits of prior law (e.g. "small manufacturing", 501(c)(3)) but no golf courses, country clubs, massage parlors, hot tubs, suntans, racetracks, gambling, or liquor stores.
Allocation Requirement
Counties and municipalities with populations over 100,000 receive allocations in proportion to their comparative 2008 decline in employment. Allocation over to State in 2009
Additional Limitations
Cost of Issuance Limited to 2% of Proceeds
Refundings not allowed under current guidance.
Unused allocation turned over to State
95% of net bond proceeds are used for “recovery zone property”.
Property must have been constructed, reconstructed, renovated or purchased by borrower after designation of “recovery zone” occurs.
Original use of property in recovery zone must have commenced with the borrower.
All use of property must be in recovery zone and in connection with active conduct of qualified business.

8. Private Activity: Midwestern Disaster Area Bonds
Tax-Exempt Qualified Private Activity Bonds (Conduit Financing)
Subsidy (Does not apply)
Purposes
Among others, projects may include acquisition, construction, reconstruction and renovation of nonresidential real property located in a Midwestern disaster area, not used for equipment
Qualified Business
Business that suffered a loss caused by natural disaster or,
Business that is carrying on or replacing a business which suffered a loss caused by natural disaster
Allocation Requirement
Wisconsin has $3.8 billion, to be administered by the Department of Commerce.
Additional Limitations
Cost of Issuance Limited to 2% of Proceeds
Refundings not allowed under current guidance
Issue by January 1, 2013
In the case of a project involving private business use, either (i) must be used by a person who suffered a loss in a trade or business attributable to severe storms, tornados or flooding giving rise to a Presidential declaration, or (ii) the person using the project must be designated by the Governor. Expansion over prior law to include various commercial businesses.
MDA Bonds may be used to finance:
Affordable multifamily rental project for low and moderate income individuals;
The cost of acquisition, construction, reconstruction or renovation of nonresidential real property (including fixed improvements associated with such property--but not equipment); and
The cost to repair or reconstruct public utility property.
MDABs are similar to Industrial Revenue Bonds.
The local government is in partnership with the business, lending its name, but not its credit, to the bond issue.
Business must secure lender or underwriter of bonds.
Other Criteria
Cannot be used to refinance debt.
If used to acquire existing businesses, borrower must spend at least 50% of the cost of acquisition on rehabilitation of the facility.
No more than 25% of proceeds can be used to acquire land.
2% limit on issuance costs.
Costs incurred within 60 days prior to adoption of Resolution are reimbursable.
Designation by the Governor’s Office
Eligible projects: Manufacturing facilities, retail businesses and shopping centers, auto dealerships, restaurants, office buildings, warehouse & storage, medical facilities, commercial development, agricultural facilities.
Ineligible projects: skybox, health club, massage parlor, hot tub facility, suntan facility, racetrack or gambling facility, or liquor store
Program has not been widely used.
Wisconsin Department of Commerce applying criteria in a broad fashion, looking for projects.
Contact Commerce Area Development Manager for application.

9. MDABs Eligible Counties
Adams
Iowa
Racine
Calumet
Jefferson
Richland
Columbia
Juneau
Rock
Crawford
Kenosha
Sauk
Dane
La Crosse
Sheboygan
Dodge
Manitowoc
Vernon
Fond du Lac
Marquette
Walworth
Grant
Milwaukee
Washington
Green
Monroe
Waukesha
Green Lake
Ozaukee
Winnebago

10. Green: New Clean Renewable Energy Bonds
Subsidy
Tax Credit to investors (70% of Treasury rate, determined as of sale date; paid to investors quarterly); issuers get lower rate
Purposes
Qualified renewable energy facilities that generate electricity from wind, biomass, geothermal, solar, landfill gas, trash combustion and more…
Allocation Requirement
Yes ($2.4 billion nationally; apply to U.S. Treasury)
Additional Limitations
Maximum Term which is published monthly
Must comply with Davis Bacon/Prevailing wage
Cost of Issuance Limited to 2% of Proceeds
Refundings not allowed under current guidance.
Subsidy:
Tax Credit to investors (70% of Treasury rate, determined as of sale date; paid to investors quarterly); issuers get lower rate
As of January 22, 2009, credit rate is Treasury's estimate of yield between "A" and "BBB" rating (Notice )
Purposes: Qualified renewable energy facilities that generate electricity from wind, biomass, geothermal, solar, landfill gas, trash combustion and more…
Allocation Requirement: Yes ($2.4 billion nationally; apply to U.S. Treasury)
Additional Limitations
Maximum Term? Yes – published monthly
Davis Bacon? Must comply
Cost of Issuance Limit? Yes – 2% of Proceeds
Refundings? Not allowed under current guidance.

11. Green: Qualified Energy Conservation Bonds
Subsidy (same as new CREBs)
Tax Credit to investors (70% of Treasury rate, determined as of sale date; paid to investors quarterly); issuers get lower rate
Purposes
Capital expenditures incurred for purposes of reducing energy consumption in publicly-owned buildings, implementing green community programs, rural development involving production of electricity, mass commuting, demonstration projects, and public education campaigns.
Allocation Requirement
States get allocation (Wisconsin has $58 million); from that amount, municipalities and counties with populations over 100,000 get a portion in proportion to population (can reallocate or surrender to State)
Additional Limitations
Maximum Term which is published monthly
Must comply with Davis Bacon/Prevailing Wage
Cost of Issuance Limited to 2% of Proceeds
Refundings not allowed under current guidance.
Subsidy (same as new CREBs)
Tax Credit to investors (70% of Treasury rate, determined as of sale date; paid to investors quarterly); issuers get lower rate
As of January 22, 2009, credit rate is Treasury's estimate of yield between "A" and "BBB" rating (Notice )
Purposes: Capital expenditures incurred for purposes of reducing energy consumption in publicly-owned buildings, implementing green community programs, rural development involving production of electricity, mass commuting, demonstration projects, and public education campaigns.
Allocation Requirement: States get allocation (Wisconsin has $58 million); from that amount, municipalities and counties with populations over 100,000 get a portion in proportion to population (can reallocate or surrender to State)
Additional Limitations
Maximum Term? Yes – published monthly
Davis Bacon? Must comply
Cost of Issuance Limit? Yes – 2% of Proceeds
Refundings? Not allowed under current guidance.

12. “After Issuance” Compliance
Post-Issuance Compliance
IRS
8038-CP (Request for Rebate)
Arbitrage
Initiatives
Questionnaire
Continuing Disclosure
SEC (Security and Exchange Commission)
MSRB (Municipal Security Rule Making Board)
EMMA (Electronic Municipal Market Access)
Future Policy Considerations

13. Issues subject to the Arbitrage Regulations
Governmental Bonds
Tax-Exempt Bonds
Taxable
Build America Bonds (BABs)
Recovery Zone Economic Development Bonds (RZEDBs)
Tax Credit Bonds
Qualified School Construction Bonds (QSCBs)
Qualified Zone Academy Bonds (QZABs)
Qualified Energy Conservation Bonds (QECBs)
New Clean Renewable Energy Bonds (CREBs)
Private Activity Bonds, including 501(c)(3)
“Arbitrage” is the profit that results from investing gross proceeds of an issue that is subject to the arbitrage regulations in higher yielding taxable securities.

14. Arbitrage Regulations
Yield Restriction Requirements
Govern WHEN issuers may invest gross proceeds in higher yielding taxable securities
Rebate Requirements
Govern HOW MUCH arbitrage an issuer may retain
Any yield reduction or rebate payment must be remitted to IRS within 60 days after
each 5th year anniversary date; OR
The date in which the bonds are no longer outstanding (i.e. redemption date or final maturity date)…whichever comes sooner.

15. IRS Initiatives & Questionnaires
Additional Headcount
new hires (almost doubled in size)
tax law specialists and field agents
significant private sector experience
spurred by ARRA program
Education
Special focus on educating state employees (finance, attorney general)
Compliance Questionnaires
Charitable Organizations (Summer 2007)
State and Local Governments (January 2009)
Build America Bond Issuers (2010)

16. Continuing Disclosure
The Security Exchange Commission (SEC) wants municipal issuers to provide ongoing information about their debt issues
To ensure market transparency
Annual issuer information will ensure bonds sold to investors on the secondary market are priced properly
Since the SEC can not regulate issuers, the SEC regulates the underwriter or bond purchaser.
Small Issuers (Limited Disclosure)
Large Issuers (Full Disclosure)

17. Continuing Disclosure
Underwriters in complying with SEC Rule 15 c 2-12 can only buy debt if the issuer approves a “Continuing Disclosure Agreement”
Requires all issuers to give notice if any of the following events are determined to be material:
Principal and interest payment delinquencies
Non-payment related defaults
Unscheduled draws on debt reserves
Unscheduled draws on credit enhancements
Substitution of credit or liquidity providers
Events affecting the tax-exempt status of bonds
Modification of rights to security holders
Bond calls
Defeasances
Changes to property securing repayment
Rating changes
Any other fact determined to be material

18. Continuing Disclosure
In addition, large issuers must annually update agreed to sections of the Official Statement and provide financials
Effective July 1, 2009
All new issuers (even small issuers) required to submit annual financial information
All information is posted on Electronic Municipal Market Access (EMMA) operated by the Municipal Securities Rulemaking Board (MSRB)
emma.msrb.org, provides an introduction to EMMA and a guide to municipal bond information available on the site, including real-time trade data, disclosure documents for bonds and market statistics.
All information is free
Changes underway:
MSRB encouraging filing presale information on EMMA
EMMA allows for links to issuer website
Changes being discussed:
SEC taking comments on voluntary deadline within 120 days for year end financial information
Filing notice when a material event occurs (No ability to determine if material)
Requiring submission of additional information
SEC is calling for repeal of the Tower Amendment which would allow the SEC to directly regulate issuers

19. Policy Considerations
Issuers are encouraged to establish post-issuance compliance policy to address:
IRS concerns
Continuing Disclosure Obligation
Debt covenants
Issuance of pass through debt as 501-c-3 debt or IDB’s
Why?
Prepare for likely IRS inquires
Have a process in place to track all debt post issuance obligations and ensure that the obligations are met
Policy should:
Recognize the fact that issuers have post issuance obligations
Assign a staff position to manage policy
Direct that a process and procedure is established for each debt issue

20. Questions? Dawn Gunderson, CPFO, CIPFA
Vice President/Financial Advisor
Ehlers
(262)