WASHINGTON — The Internal Revenue Service has closed its audit of $161.3 million of variable-rate demand student housing revenue bonds issued by the Payne County, Okla., Economic Development Authority in 2002 with no change to the tax-exempt status of the debt.
The authority submitted a copy of the letter it received from the IRS to the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system late Monday.
The letter, dated May 5 and signed by Robert Henn, senior manager of field operations for the IRS’ tax-exempt bond office, said the examination has been closed with no change to the position that the bonds are tax-exempt.
The authority first disclosed the audit in a material event notice filed May 4, 2009, with the national recognized municipal securities information repositories, which used to handle such notices before EMMA replaced them in July of that year.
The bonds were issued to finance a number of student housing projects at Oklahoma State University.
OSUF Phase III Student Housing LLC, a 501(c)(3) nonprofit set up by the Oklahoma State University Foundation, borrowed the proceeds from Payne County and used them to finance several student housing and dining facilities that would serve thousands of OSU students, according to bond documents.
But a June 2007 article in the Oklahoman newspaper claimed that the school’s decision to approach Payne County as a conduit issuer for a so-called off-balance sheet financing, rather than the state Legislature directly, led to a pricier deal and more than $13 million dollars in fees.
Bradley S. Waterman, the Washington-based tax controversy attorney who represented the county before the IRS, said yesterday that the financing was needed and actually saved the school money in the long run.
“OSU’s student housing stock was in decline. It needed to address the problem quickly, [and] for various reasons it couldn’t have financed the improvements with the proceeds of its own bonds,” he said.
“Use of the off-balance sheet method enabled it to move quickly, and the cost of the improvements (including financing costs) under [that] method actually was less than the cost probably would have been had OSU issued its own bonds.”
Morgan Keegan & Co. was underwriter on the deal, while Floyd Law Firm PC and Phillips McFall McCaffrey McVay & Murrah PC, now Phillips Murrah PC, were co-bond counsel.