Grants

Private Activity Bond Allocation

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Introduction

Tennessee Code Annotated 9-20-102 authorizes the Commissioner of the Department of Economic and Community Development (hereinafter referred to as Commissioner and ECD respectively) to prepare and implement a plan for the allocation of the state's volume limitation (hereafter referred to as state cap or cap) of private activity bond authority authorized under federal tax legislation. The purpose of this document is to promulgate this plan.

If federal tax laws regarding private activity bonds are amended, or economic conditions within the state change, this plan may be modified to accommodate these changed circumstances. This plan will remain in affect, however, until modified, and such modifications, if they occur, will be widely publicized to those interested in and impacted by the use of bond cap in Tennessee.

STATE CAP, ELIGIBLE USES, PROGRAM GOALS

The state cap of private activity bond authority is equal to $80 per capita based upon the last estimate of population by the U.S. Bureau of the Census prior to January 1 of the year in question, and is for a calendar year. The state will obtain the applicable population estimate, and will calculate the annual cap allocation on January 1 of each year.

The state will recognize the full range of eligible uses of bond cap that is provided by the federal government. For purposes of the Tennessee Allocation Plan, these uses are categorized as follows:

Small Issue Bonds (currently limited by federal law to manufacturing)
Housing Bonds (multi and single family)
Student Loan Bonds
Exempt Facility Bonds

Tennessee will utilize its annual allocation of bond authority with the following goals in mind:

Maximum beneficial use for the residents of Tennessee, with a priority on economic development.
Full utilization of the bond authority afforded by the federal government.
Maximum benefit for all areas of the state.

ALLOCATION PRIORITIES

In order to achieve the above listed goals, the allocation of the state's bond authority will follow the following process:

On January 3, a sum of $25 million will be set aside for state projects that may require a share of the state cap, or other projects having a high state priority. State projects will be approved by the Commissioner of ECD in consultation with the State Funding Board. Bond authority unused from this set-aside will be reallocated to other uses.
On January 3, an allocation of $150 million will be made to the Tennessee Housing Development Agency (THDA) for multi and single family housing bonds. This allocation may be used directly by THDA, or may be reallocated by THDA to other users for housing purposes.
On January 3, an allocation of $75 million will be made to Educational Funding of the South, Inc. (EdSouth) for the purpose of capitalizing a student loan program.
From January 3 through June 30, allocations for small issues for manufacturing will be approved up to $10 million, and exempt facility issues will be approved for up to $20 million. Requests for allocations for exempt facilities bonds received between January 3 and June 30 will be held until June 30, and a decision will be made at that time whether to approve an allocation in excess of $20 million. In making this decision, the Commissioner may, at his discretion, consult with others within and without state government.

From July 1 through November 30, allocations for small issues for manufacturing will be approved up to $10 million, and exempt facility issues will be approved for up to $20 million. Requests for allocations for exempt facilities bonds received between July 1 and November 30 will be held until November 30, and a decision will be made at that time whether to approve an allocation in excess of $20 million. In making this decision, the Commissioner may, at his discretion, consult with others within and without state government.
On December 1, the Commissioner will consider request(s) that have been received in excess of $20 million, including standing requests that may have been received from THDA and EdSouth for housing bonds and student loan bonds, and will allocate the balance of the state cap, including any residual from the $25 million reserved for state projects. In making these decisions, the Commissioner will be guided by the goals of the allocation plan, and may, at his discretion, consult with others within and without state government in making these decisions.
If a situation develops where allocations different from those specified above are warranted in order to achieve the goals of the allocation plan, the Commissioner, with the approval of the State Funding Board, may exceed specified allocations, where such is authorized by federal law.
Bonds approved through this process must be closed within 90 days of the date of their approval by ECD, or by December 15. A later date may be authorized at the discretion of the Commissioner. The Commissioner may, if requested by the issuing authority, authorize allocations to be carried forward under the provisions of Section 146(f) of the Internal Revenue Code.

The required closing period will not be extended. However, applications may be resubmitted one time subject to the following conditions.
a. The second closing period will be 60 days from the date of the second approval.

b. A resubmitted application will be treated as newly submitted and will have no chronological priority over other applications that have been received.

In accepting the reservation of bond authority, issuers must certify that they are cognizant of the applicable closure deadline.

ADMINISTRATIVE PROCEDURES

Structure of Application

Applications for reservation of bond authority must contain the following elements. Applications with missing elements will be returned to applicants with no action being taken on them.

Application for Bond Reservation
An application form must be submitted which will provide basic information about the proposed issue. A copy of the application form is included as Appendix 1.
Legal Statement
The application must contain a statement by a qualified attorney to the effect that a) the issue does not appear to be in conflict with applicable State and Federal legislation, b) is the type of issue that must be counted against the State's private activity bond volume limitation, c) a proper bond inducement instrument explaining the relationship between the issuer and the borrower/user has been executed, d) a proper public notice of the bond issue has been made under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) has been made, e) public approval of the bond issues has been received as required by TEFRA. A copy of a recommended Legal Statement is included as Appendix 2.
Financial Commitment Letter
The application must contain a tentative commitment to purchase the bonds. The form of a commitment letter is included as Appendix 3.

Applications should be submitted to the following address:

Tennessee Department of Economic and Community Development
Bond Reservation Section
Wm. R. Snodgrass TN Tower, 10th Floor
312 Eighth Avenue North
Nashville, Tennessee 37243-0405

Bond Reservation

Applicants which are authorized to receive a reservation of a portion of the state's cap will receive a Letter of Reservation. This letter will be the only document that should be accepted by bond counsels in determining tax exempt bond status for issues based on the volume limitation requirement.

The Letter of Reservation will contain the following elements:

The amount of bond authority being reserved.
The uses which must be made of the bond proceeds.
A requirement that unused bond authority must be returned to the state allocation.
A requirement that the Borrower's Acceptance must be received by the Bond Reservation Section no later than 14 days after the date of the Letter of Reservation.
The period within which bond closure must be achieved.
A requirement that a Confirmation of Issuance must be received by the Bond Reservation Section no later than 7 days after the required closure date in the Letter of Reservation.
The penalty for failure to achieve bond closure by the required deadline.
A certification that there is sufficient cap to cover the allocation being made.
A sample Letter of Reservation is included as Appendix 4.
Recapture of Bond Reservation
In the event that the bond closure is for a lesser amount than that reserved for the issuer in the Letter of Reservation, the unused portion of the reservation will be recaptured by the state upon receiving notice of the closure, and will be returned to the state's allocation. The purpose of this provision is to ensure that bond authority is not being unnecessarily reserved, thus denying its use to other issuers.

PLAN AMENDMENTS

This Bond Allocation Plan will be effective on January 1, 2006, and will remain effective until, in the opinion of the Commissioner, federal tax legislation, state policies, or experience in utilizing the Plan suggest that the goals of the Plan can be better achieved through a Plan amendment. If this occurs, the Commissioner will amend the Plan, and will provide proper publication of the amendment(s). If not prevented by Departmental Rules, the amendment(s) will take effect upon publication. If such amendment(s) require changes in Departmental Rules, such rule changes will be implemented, and the Plan amended after the new Rules become effective.