WASHINGTON — The Long Beach Community College District in California has paid the Internal Revenue Service about $1.01 million to settle private-activity bond-related issues in connection with $48.37 million of general obligation bonds it issued in 2008.
The district, which operates Long Beach City College's campuses, disclosed the settlement in an event notice posted on the Municipal Securities Rulemaking Board's EMMA System on Monday.
The district requested a settlement under the IRS' voluntary closing agreement program in May 2014 because the proceeds of the 2008 bonds had been used to refinance property with private business use. It refunded the portion of the 2008 bonds that can be allocated to the property with taxable bonds in March 2014, according to event notices from last July.
The issuer entered into the VCAP settlement in November. For the 2014-2015 fiscal year, the district had budgeted about $1.73 million for the settlement, and the district reallocated the amount that it budgeted but did not use for the settlement to its general fund, according to the event notice posted Monday. The latest notice comes as the district is expected to close on a roughly $33 million general obligation refunding bond transaction this month.
The 2008 series A general obligation bonds were issued to refinance several obligations, including certificates of participation it issued in 2001. Proceeds of the COPs were used to purchase property in 2004 that contained two buildings occupied by doctors and other tenants. The district said that, at the time it purchased the property, it 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.
However, after the 2008 bonds were issued, the district's board of trustees determined that the property was not needed for educational purposes. It continued to be leased to private users, who have been giving the district monthly lease payments, the district said.
Under federal tax law, bonds are private-activity bonds, and possibly taxable, if they meet private business tests. The bonds are PABs if the bond proceeds are used by a private party in a way that is not related to the governmental use of the project, and if more than 5% of the proceeds are used by a private party and more than 5% debt service is secured by or paid for by private users. The bonds are taxable if the project does not fall into any of the PAB categories specified as tax exempt by the federal tax law.
The district said last July that it has instituted more robust post-compliance procedures and "is taking steps to insure close scrutiny of its outstanding tax-exempt obligations."
Sutter Securities Inc. served as underwriter for the 2001 COPs. Luce, Forward, Hamilton & Scripps, which has since merged with McKenna Long & Aldridge LLP, served as special counsel.
RBC Capital Markets Corp., E.J. De La Rosa & Co. and Citigroup Global Markets Inc. were underwriters of the 2008 bonds. Fulbright & Jaworski served as bond counsel.
RBC, De La Rosa & Co. and Piper Jaffray & Co. were the underwriters of the 2014 bonds and Nixon Peabody LLP served as bond counsel.
