WASHINGTON — The Internal Revenue Service recently closed an audit of $228.1 million of Series 2007A green bonds issued by the Syracuse Industrial Development Authority in New York without changing the tax-exempt status of the bonds.
The IRS informed SIDA that it had closed the audit in a March 15 letter.
The audit began a year ago after the issuer and developer, Destiny USA Holdings LLC, set a 13-page letter to the IRS warning that, because of a legal dispute and the recession, it had failed to meet the requirements for “qualified green building and sustainable design project” bonds.
Green bonds are tax-exempt private-activity bonds used to finance green buildings or sustainable design projects. Congress in 2004 allocated $2 billion of them to be used to finance projects.
SIDA issued $228.1 million of green PILOTs — payments in lieu of taxes — bonds in February 2007 and loaned the proceeds to Destiny to finance an expansion of the Carousel Center shopping complex in Syracuse. The project was to be financed with the bonds, a $155 million construction loan from Citi, $40 million of equity from Pyramid Companies, the parent company of the developer, and almost $10 million of other available funds.
David Aitken, a spokesman for Destiny, said the IRS completed a four-year review of the bonds and concluded they had met the requirements for green bonds. The project has been ongoing and will be completed this spring, he said.
When finished, the Carousel Center will be the sixth largest shopping mall in the U.S. with 265 stores, Aitken said. The project expanded the existing center, which began operating in 1990.
The IRS allocated private-activity bond volume cap for the project in 2006 after Destiny filled out an application describing how the project would: reduce electric consumption; provide conservation and energy efficiency in building designs; provide non-conventional generation capacity such as solar photovoltaic, wind, biomass or fuel cell generation; and reduce daily sulfer dioxide emissions.
To qualify for green-bond status at least 75% of the project must be registered for Leadership in Energy and Environmental Design certification; the development must receive at least $5 million from the state or a local government; and the project must be at least one million square or 20 acre feet in size. In addition the IRS requires each issuer of green bonds to put up to 1% of its net bond proceeds in a reserve account to be released only after the IRS, in consultation with the Environmental Protection Agency, determined the project had met its goals. Aitken said the $2.3 million of reserve funds have been freed up and will be invested in the project.
Construction started on the project in 2007 but was halted in May 2009 after Citi stopped advancing money from its loan because of concerns about cost overruns and that there were no leases for the new space.Destiny sued Citi, accusing it of breaching the loan agreement. The dispute was resolved in late 2010.