- Tax-Exempt Debt Financing Overview
- Measurement of Private Use
- Common Types of Private Use
- Bond Compliance
- Annual Private Use Survey and Report
Tax-Exempt Debt Financing Overview
The University finances its capital projects with various sources of funds, including gifts, operating income, state appropriations and debt issued in the form of commercial paper and bonds. IRS regulations permit nonprofit and governmental entities to issue tax-exempt debt contingent upon use of the facilities for the issuer's charitable nonprofit or governmental purposes. The University has established policies governing the issuance of debt and post-issuance tax compliance.
Any use of tax-exempt funded facilities by or for the benefit of private parties is referred to as “private business use”. IRS regulations set strict limits on the amount of private use permitted in tax-exempt funded facilities: 10% for government-issued debt and 5% for debt issued by nongovernmental nonprofits. In governmental facilities, use by another state agency is generally not considered private use. As an agency of the Commonwealth of Virginia, the University primarily issues governmental debt. However, where the funded facility will be used primarily by a University-related foundation, the University sometimes will issue debt under the nongovernmental nonprofit rules.
Measurement of Private Use
Private use is measured over the life of the debt instrument, meaning that the IRS will look to the average yearly private use to determine whether the University has complied with its tax-exempt debt covenants. To calculate the yearly private use for a given facility, IRS regulations require the University to consider the amount of use in terms of both time and space used. For instance, if 10% of a given property is used by a private party during half of the year, the IRS would calculate the private use of the facility to be 5%.
Common Types of Private Use
For an overview of private use in a University setting, please see the page on common types of private use.
The University’s Treasury Management unit is primarily responsible for debt issuance and post-issuance tax compliance. The Controller’s Office is responsible for analyzing private use and for internal tracking of debt expenditures.
To ensure compliance with IRS private use rules, the Controller’s Office has established a policy on the use of buildings financed with tax-exempt debt. Prior to issuance of tax-exempt debt, the Controller’s Office reviews each project slated for inclusion to determine its impact on the private use limits.
Annual Private Use Survey and Report
To ensure on-going compliance, each October the Controller’s Office distributes a private use questionnaire to the fiscal officers responsible for each project funded by tax-exempt debt. The questionnaire can be completed by entering the data electronically (UNDER DEVELOPMENT). This office reviews the data reported in the questionnaire and combines the results into an annual Private Use Report. The report lists the private use percentage for each tax exempt bond issuance for that year and identifies any developing private use concerns.