Reimbursement Resolution
(Declaration of Official Intent to Reimburse)

Environmental Improvement Fund

A municipality should adopt a resolution declaring its official intent to reimburse its municipal account (a "Reimbursement Resolution") if it intends to use proceeds from a tax-exempt debt issue to reimburse its municipal account from which project costs were paid prior to the availability of the proceeds from the debt issue. The U.S. Department of Treasury [exit DNR] adopted the current reimbursement regulations (26 CFR 1.150-2 [exit DNR]). [warning: this link takes a long time to download.](26 CFR 1.150-2) effective on April 1, 2005. Project costs paid by a municipality out of its internal accounts, prior to adopting a Reimbursement Resolution, may not be eligible for reimbursement from the Environmental Improvement Fund (the "EIF") loan proceeds.

What is the difference between "reimbursement" and "refinancing"?

• Reimbursement applies when the municipality is paying project costs with ordinary municipal funds (such as property tax revenue, user charge revenue, state shared revenue, general investment earnings) and then want to be reimbursed from the EIF loan proceeds, which are subject to the IRS Reimbursement Regulations and therefore likely need a "Reimbursement Resolution".

• Refinancing applies when the municipality takes out a debt (bank loan, Land Trust loan, Bond Anticipation Note, Rural Water Pool) to pay project costs, and then wants the EIF loan to be used to payoff that debt, which is subject to the IRS Refinancing (aka refunding) regulations and the State's limitations on Interim Financing. This would be a "refinancing" transaction rather than a "reimbursement" transaction.

REIMBURSEMENT RESOLUTION EXCEPTIONS

The U.S. Department of Treasury regulations contain two exceptions to the Reimbursement Resolution requirement described above.

• Preliminary Expenditure Exception. A municipality may use EIF loan proceeds to reimburse internal municipal accounts without first adopting a Reimbursement Resolution for "preliminary expenditures" not in excess of 20% of the total EIF loan amount. Preliminary expenditures include engineering for facilities plans, plans and specifications, surveying, soil testing, loan closing costs, and similar costs that are incurred prior to the start of construction. Preliminary expenditures do not include land acquisition, site preparation and similar pre-construction costs.

• De Minimis Exception. A municipality may use EIF loan proceeds to reimburse internal municipal accounts without first adopting a Reimbursement Resolution if the amount of the reimbursement does not exceed the lesser of $100,000 or five percent (5%) of the EIF loan amount.

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REIMBURSEMENT RESOLUTION CONTENT

In order to ensure compliance with IRS regulations, the EIF strongly encourages municipalities to adopt a Reimbursement Resolution before spending any money from municipal accounts that will be reimbursed with EIF loan proceeds. A Reimbursement Resolution must (1) be adopted within 60 days of when the first payment of project costs to be reimbursed is made, and (2) contain the following three elements:

1. Statement of Expectation to Reimburse. The Reimbursement Resolution must contain a statement that the municipality reasonably expects to reimburse expenditures with proceeds of "debt" to be incurred by the municipality. [The reference to "debt" need not specifically refer to an EIF loan.]

2. Description of Project. The Reimbursement Resolution must contain a general description or function of the project (include the DNR assigned project number). The Reimbursement Resolution could also include an identification of the fund or account to be reimbursed and a description of the general functional purpose of the fund or account (for example, the "sewage system capital improvements fund").

3. Maximum Principal Amount. The Reimbursement Resolution must state the maximum principal amount of debt expected to be issued for the project, i.e., the estimated amount of the EIF loan.

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18 MONTH REIMBURSEMENT RULE

Generally, the reimbursement of municipal accounts from EIF loan proceeds must occur not later than eighteen (18) months after the later of (i) the date on which the expenditure is made, or (ii) the date the project is placed in service. However, the reimbursement cannot occur more than three (3) years after the expenditure is paid.

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CANNOT REIMBURSE PRINCIPAL AND INTEREST PAYMENTS

The IRS reimbursement regulations do not allow for the reimbursement of principal or interest payments made by the municipality out of its ordinary municipal revenues or funds. [Interest payments on an interim project debt that are made from the proceeds of that particular interim debt issue (capitalized interest) may be refinanced (this is not a "reimbursement" transaction). Rather, such a transaction is treated as a "refunding" which is subject to other IRS regulations.]

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MUNICIPAL ACCOUNTS ELIGIBLE FOR REIMBURSEMENT

The EIF may only reimburse a municipal account that is funded by ordinary municipal revenues. This does not include accounts created by the issuance of debt. A borrowed money account, or similar account mandated by Wisconsin Statutes for the issuance of debt, cannot be reimbursed.

OLD REIMBURSEMENT RESOLUTIONS

If the municipality's Reimbursement Resolution is more than 2-3 years old at the time the project is starting, it is suggested that the Reimbursement Resolution be reviewed to determine if the amount stated in the original Resolution still covers the estimated amount of the EIF loan. If not, the municipality will need to adopt a new Reimbursement Resolution stating the maximum principal amount of debt expected to be issued for the project, i.e. the new estimated amount of the EIF loan.

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CONCLUSION

DNR and the Department of Administration suggest that a municipality adopt a Reimbursement Resolution whenever project costs are being paid out of a municipal account with the expectation to reimburse that municipal account with proceeds from a debt issue.

SAMPLE RESOLUTIONS

Questions regarding these Sample Reimbursement Resolutions should be directed to the municipality's bond counsel.

Adobe Acrobat Reader is needed to view and print the following portable document format (PDF) files. To download Adobe Acrobat Reader for free, please see the DNR Download Page.

Note: This web page is only intended to provide general information. The municipality should consult with its bond counsel and local attorney as to how the IRS reimbursement regulations apply to its specific municipal project and financing plan.

For further assistance, please contact an EIF project manager.