The Internal Revenue Service is auditing $20 million of Series A bonds issued in December 2005 by the City School District of Middletown in Orange County, N.Y. The audit was disclosed Monday in an event notice the issuer filed with the Municipal Securities Rulemaking Board’s online EMMA system.
Middletown said in the notice that the IRS sent the audit letter on March 21 and that it “appears to be a random audit and does not specify any particular concerns or violations.”
The school district said it “is in the process of providing the information requested in the IRS letter and will cooperate with the IRS in the course of its examination.”
The serial bonds, which have maturities ranging from 2006 through 2025, were to be used to finance school projects. They were underwritten by Wachovia Bank NA, now part of Wells Fargo NA. The bonds were wrapped with an insurance guarantee from MBIA Insurance Corp. Orrick, Herrington & Sutcliffe LLP was bond counsel.
Middletown, about 60 miles northwest of New York City, proposed a fiscal 2012 budget for the school district that is up for a vote on May 17. The proposed spending plan would trim $134.4 million from last year’s budget, in part due to a $5.3 million reduction in state aid.
The school system has 7,264 enrolled students for this school year. It has $8.6 million due in debt service in fiscal 2011, according to an audited financial statement released in January. It has $63.5 million of debt that has been authorized but not issued. The bonds are to be used to build a new elementary school and construction could begin later this year, according to the district’s budget documents.
Separately, the Colorado Housing and Finance Authority announced Monday that the IRS has closed its audit on $7 million of revenue bonds after finding no change to their tax-exempt status.
The revenue bonds were issued for Confluence Energy LLC in 2007 to finance development of a wood-pellet manufacturing plant in Kremmling, Colo. Confluence, which is a producer of wood pellets primarily used as heating fuel for residential customers, was notified of the audit on Jan. 10.
U.S. Bank NA, the trustee, sent bondholders a notice on April 28, 2010, saying it has not received any net pledged revenues from the borrower since August 2009. But Confluence Energy had said the bonds were not in default and the plant is operating.
