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Liaison flags potential IRS tax‑exemption risk as MTA expenditures lag on 2014 transportation bond
Summary
A liaison reported that the MTA’s spending from the most recent issuance of the 2014 transportation bond fell below the IRS 85% three‑year expenditure test at the time of the report and said MTA is pursuing ways to accelerate spending; several individual projects reported coordination or contractor issues.
The committee’s liaison on the 2014 Transportation and Road Improvement GO bond reported on an April meeting with SFMTA staff and raised a possible tax‑exemption risk tied to the Internal Revenue Service’s spend‑down rules.
The liaison summarized that SFMTA’s report covered eight project categories and, overall, projects fit within the intended categories. However, the liaison said that at the time the MTA issued its report the expenditure rate for the most recent bond issuance was below 85% and that the IRS generally requires a reasonable expectation that at least 85% of bond proceeds be used within three years of issuance to preserve tax‑exempt status. The liaison said MTA staff were looking for ways to accelerate spending and that the pandemic affected issuance‑to‑spending timing for projects issued during that period.
The liaison also reviewed project‑level status and said nine projects reported coordination or other issues, naming, among others, Geary Boulevard Improvement Project Phase 2, El Taraval transit improvements, the Phelps Substation upgrade and BART canopies (the latter have encountered theft and intrusion challenges near Market Street). Many delays were related to coordination with other city agencies or utility coordination (PG&E), and some contract delays were attributed to contractors rather than the agency.
Why it matters: If bond proceeds are not expended in a manner that meets federal tax test requirements, the tax‑exempt status or related arbitrage rules for an issuance could be at risk; MTA and the liaison said staff are actively pursuing accelerated spending and will report updates.
The liaison said he will follow up with MTA staff and report back to the committee once more information is available.
