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The Bond Sale is over … what’s next?

You Have Passed Your Bond Election and Issued Your Bonds, What Else is Left to Do?  Post-Issuance Compliance!

A successful bond election

Achieving success on a school building bond election is cause for celebration.  Successful school election efforts require months of planning, communication of information to the electorate and activation of voters to get to the polls in support of the proposal.  While a short celebration may be in order when the election judges announce that your election question has passed, don’t take too much time for celebratory activities.  There is still much to do before your bonds have been issued and all post-issuance compliance requirements are properly addressed.  Let’s take a few minutes to review the tasks ahead of you following your successful bond election – the sale of your bonds and post-issuance compliance related to your bond sale.

The bond sale

After a successful bond election, the immediate task at hand is to determine when and how to issue your bonds.  Working with your municipal advisor, construction manager and bond counsel, the school district will need to consider timing of the construction project and need for bond proceeds, whether a single issue or multiple issues benefits the district, how you will be investing your bond proceeds prior to their use to pay ongoing expenses of the project, and whether you will be selling these bonds using a competitive sale process or a negotiated sale process.  Each of these items is important for your consideration as you seek to achieve the lowest overall interest rates on your bonds, appropriately match the funding needs of your project and ensure that you can maximize interest earnings on your bond proceeds during the construction project.

When the district has agreed on how to best proceed with the bond sale regarding timing, structure, and sale method, bond counsel will assist with the necessary documents to ensure the district has legal authority to issue the bonds and that the interest on the bonds is exempt from federal and state taxes.  Most bond documents contain requirements that the school district continue to comply with certain provisions regarding tax status and reporting requirements throughout the term of the bonds.  Broadly, these requirements are referred to as “post-issuance compliance” and they fall into two main categories:  continuing disclosure requirements, as determined by the Security and Exchange Commission’s Rule 15c2-12, and arbitrage requirements, as outlined by the Internal Revenue Service.

Post-issuance compliance

According to the Municipal Securities Rulemaking Board (MSRB), continuing disclosure is defined as “Disclosure of material information relating to municipal securities provided to the marketplace by the issuer of the securities or any other entity obligated with respect to the securities after the initial issuance of municipal securities. Such disclosures include, but are not limited to, annual financial information, certain operating information and notices about specified events affecting the issuer, the obligor, the municipal securities or the project financed.”

Continuing disclosure

The issuer of the bonds, in this case the school district, is responsible for complying with continuing disclosure for the term of the bonds.  These disclosures provide necessary information to the bond holders to assure them of the financial stability of their investment.  Typically, this involves annual reporting of issuer’s audit and financial statements.  Other disclosures that need to be made as events occur are principal and interest payment delinquencies, defaults, ratings changes (upgrades or downgrades), and adverse tax opinions to name a few.


With respect to the issuance of municipal securities, arbitrage usually refers to the difference between the interest paid on tax-exempt bonds and the interest earned by investing the proceeds of the tax-exempt bonds in higher-yielding taxable securities. Federal income tax laws generally restrict the ability to earn arbitrage in connection with tax-exempt bonds or other federally tax-advantaged bonds.  The Tax Reform Act of 1986 requires that earnings of any investment of gross tax-exempt bond proceeds in excess of what would have been earned if they had been invested at the same interest rate as the bonds, must be rebated to the U.S. Treasury if the requirements of the Internal Revenue Code are not met.  Gross proceeds, as defined by the tax code, include original proceeds of the bonds and investment earnings on these proceeds; transferred proceeds; plus, any money provided for payment of debt service on the bonds, or as security, or as a reserve for the bonds, regardless of the source.

As with continuing disclosure, the issuer of the bonds, the school district, is responsible to comply with arbitrage rules for their bond sale proceeds through the completion of the construction project, the eventual depletion of construction fund proceeds, and through the term of the bond issue.  The arbitrage calculations are generally prepared annually, but in every case, at least every five years and should include any IRS filing reports that are needed.  Due to the complex nature of these calculations, it may prove difficult for the district staff to complete them on their own.  Outside assistance is often requested for these calculations.

Ongoing requirements

Achieving an important “Yes” vote on your district’s bond referendum is a great accomplishment that is the result of much planning, communication and engagement with your district.  It is not, however, the end of the journey as there are numerous responsibilities ahead for the district.  Working in partnership with your municipal advisor, the district must determine the timing, structure and format for issuing your bonds.  Once the bonds are sold, post-issuance compliance responsibilities including continuing disclosure and arbitrage provide ongoing requirements for the district to stay on top of.  Your municipal advisor is here to assist you with preparation of information for your election communications, the issuance of your bonds and the required reporting under continuing disclosure and arbitrage requirements.

For more information on this topic, or to learn how Baker Tilly municipal specialists can help, contact our team.

Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and wholly-owned subsidiary of Baker Tilly US, LLP, an accounting firm. Baker Tilly US, LLP, trading as Baker Tilly, is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities.

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