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Underwriter briefs board on IRS rules; $15M calendar‑year exception may shape timing of bond sale
Summary
Piper Sandler adviser Tim Oswald told the Dallas Center‑Grimes board that IRS arbitrage and calendar‑year rules could make a smaller bond sale before year‑end advantageous and explained the spending tests that apply to larger issues.
Tim Oswald of Piper Sandler advised the Dallas Center‑Grimes School Board on bond‑sale timing and federal arbitrage rules, saying the district should weigh whether to sell up to $15 million this calendar year to qualify for a three‑year spending exception while architects finalize projected construction cash flows.
“In the eyes of the IRS, a year is January 1 to December 31,” Oswald told the board, noting that arbitrage rules measure earnings on bond proceeds against the bonds’ yield and can require districts to remit excess earnings to the IRS if statutory spending tests are not met.
Oswald described two common outcomes: sales at or below $15 million in a calendar year meet a simplified three‑year exception, allowing the district to keep interest earnings if proceeds are spent as required; larger sales are subject to the two‑year spend‑down test and the six‑month spending benchmarks (10% spent after six months, 45% after one year, 75% after 18 months and 100% after two years) to avoid rebate liability.
Board members asked about bond‑market timing and the practicalities of tax‑collection cycles. Oswald said market access for a district of this size appears reasonable and that sales are usually timed around cash need and the district’s budget adoption cycle; he also noted Iowa practice of setting bond payments around June 1 to align with tax collection and preserve full term length.
Superintendent and business office staff told the board they would work with architects to refine projected outflows and return to the board with recommendations about whether to pursue a small end‑of‑year sale that preserves the $15 million exception, or to plan a later sale tied to construction cash flow.
If the board pursues a pre‑year‑end sale, staff and counsel will coordinate required compliance tracking and reporting for investment earnings on bond proceeds.
