The university issues tax exempt capital improvement bonds to pay for infrastructure such as student dormitories and parking facilities. These are complex financing arrangements that require the services of underwriters and outside bond counsel to ensure that the debt complies with all of the IRS rules on the subject. There are governmental bonds which are issued by the State of Florida from which the university receives some proceeds for projects authorized by the Florida Legislature. There are also 501(c)(3) tax exempt bonds which are issued by the university itself for projects that are authorized by the Board of Trustees. There are also tax exempt private activity bonds, which is a type of debt that the university hasn’t issued.
Tax Information for Bonds
- IRS Publication 4079 provides an overview of the key rules under federal tax law that apply to governmental bonds
- IRS Publication 4077 provides an overview of the key rules under federal tax law that apply to 501(c)(3) tax exempt bonds
- IRS Publication 4078 provides an overview of the key rules under federal law that apply to private activity bonds
State and University Bond Policy
The above information is lengthy and complex, however the State Division of Bond Finance has summarized this quite nicely with the policy document below. It is the university’s policy to comply with the State’s requirements.
Post-Issuance Compliance Memorandum for State Universities
Private Use Monitoring
Although the university hasn’t issued any private activity bonds, the IRS rules limit the private use of tax exempt debt-financed facilities. The limitation is normally set at 10% private usage, but this number can increase if the university contributes additional non-debt amounts to the project. Before the debt is issued, an outside bond counsel will look at the project and issue an opinion on what private use can occur based on the 10% rule plus any additional dollar amounts the university contributes to the project. Tax Services will annually monitor the private use of its debt financed projects to ascertain that private use is within the bounds established by outside bond counsel. After the debt is issued, any upward change in private use of the facility needs the approval of the outside bond counsel and Tax Services.