WASHINGTON — An independent accountant hired by the Long Beach Community College District in California has estimated that the district may have to pay about $1.73 million to settle with the Internal Revenue Service under the agency's voluntary closing agreement program, an issuer official said.
The district, which operates Long Beach City College's two campuses, requested a VCAP settlement in May because the proceeds of bonds it issued in 2008 refinanced property that had excessive private business use. It disclosed the VCAP request in an event notice posted on the Municipal Securities Rulemaking Board's EMMA system on July 8, and provided supplementary information to that notice in a filing on July 18.
LBCC vice president of administrative services Ann-Marie Gabel told The Bond Buyer the district's estimated settlement amount and said the figure was known by the time the VCAP request was completed. The amount was recorded as a liability from the district's general fund for its 2014 fiscal year. However, the district will not know the outcome of its VCAP request for a few months, and actual settlement amount could be more or less than $1.73 million, she said.
The district issued $48.37 million of the 2008 Series A general obligation bonds to refinance several obligations, including certificates of participation it issued in 2001.
Proceeds of the COPs were used to purchase real property in 2004 that contained two buildings occupied by doctors and other tenants. The district intended to demolish and renovate the buildings so that there could be space for its culinary arts instructional program and its economic and workforce development program, according to the first event notice.
But after the 2008 bonds were issued, the district's board of trustees determined that the property was not needed for educational purposes, and it continued to be leased to private users. The private users have given the district monthly lease payments, according to the event notices.
Under federal tax law, bonds are private-activity bonds, and possibly taxable, if they meet private business tests. These tests are met in cases where bonds' private business use is unrelated to their governmental use if more than 5% of the proceeds are used for private business use and more than 5% debt service is secured by or paid for by private users.
The district refunded the portion of the 2008 bonds that can be allocated to the property with taxable bonds in March. Additionally, since the 2008 bonds were issued, the district has instituted more robust post-compliance procedures and "is taking steps to insure close scrutiny of its outstanding tax-exempt obligations," it said in the July 18 event notice.