Toolkit · Local Government Finance

The Authorizing Resolution, Tax Certificate, and Continuing Disclosure Undertaking Toolkit

26 U.S.C. § 103

Type
Toolkit
Jurisdiction
National
Date
2025-02-01
Topic
Local Government Finance

This toolkit supplies the working documents for municipal bond practice. It opens with an authorizing resolution outline and a parameters delegation, followed by a tax certificate outline and a private use questionnaire designed for department managers. Middle instruments include an arbitrage tracking sheet, a rebate calendar, and a continuing disclosure undertaking outline with an event notice matrix. Later instruments cover an issue inventory, a post-issuance compliance policy, a diligence question set, and an examination response index. Each instrument states the failure it prevents.

The Authorizing Resolution, Tax Certificate, and Continuing Disclosure Undertaking Toolkit

Local Government Finance > Municipal Bonds, Disclosure, and Tax Exemption | Published 1 February 2025 - Updated 15 May 2026 | UpLaw - uplaw.us

Instrument 1: Authorizing resolution outline

Section 1. Findings. Authority under [statute]; the public purpose; the necessity of the financing; compliance with debt limits; and any referendum result.

Section 2. Authorization. Bonds authorized in an aggregate principal amount not exceeding $[__], to be issued in one or more series, for [purpose].

Section 3. Security. [Pledge; lien; flow of funds; any rate covenant and additional bonds test by reference to the indenture.]

Section 4. Parameters delegation. The [officer] is authorized to determine, within the following limits: aggregate principal not exceeding $[]; true interest cost not exceeding []%; final maturity not later than [date]; purchase price not less than []% of par; and redemption provisions not less favorable than [].

Section 5. Documents approved. Forms of the indenture, purchase agreement, continuing disclosure undertaking, and official statement approved, with authority to complete and execute with such changes as the [officer] approves, execution constituting approval.

Section 6. Tax covenants. The Issuer covenants to comply with all requirements necessary to preserve the exclusion of interest from gross income under 26 U.S.C. § 103, including the private activity limits of 26 U.S.C. § 141, the arbitrage and rebate requirements of 26 U.S.C. § 148, and applicable requirements of 26 U.S.C. § 147, 26 U.S.C. § 149, and 26 U.S.C. § 150, and covenants to take no action that would cause interest to become includable.

Section 7. Continuing disclosure. The Issuer covenants to comply with the continuing disclosure undertaking, and designates the [officer] as the person responsible for compliance.

Section 8. Post-issuance compliance. The Issuer adopts the Post-Issuance Compliance Policy attached, and directs that this issue be added to the Bond-Financed Facility Inventory.

Section 9. Official statement. Use of the preliminary and final official statements authorized; the [officer] authorized to deem the preliminary official statement final for applicable purposes.

Section 10. Further authority; severability; effective date.

Section 8 is the one most resolutions omit, and it is the provision that makes the rest of this toolkit operate.

Instrument 2: Tax certificate outline

Draft as a factual record. It is the first document an examination reads, and its representations are relied on for decades.

1. The issue. Description, dated date, principal, maturities, yield, and issue price with the basis for the determination.

2. Purpose and use of proceeds. Allocation among project costs, reserve fund, capitalized interest, and issuance costs, with the issuance cost limit under 26 U.S.C. § 147 addressed for a private activity issue.

3. Expenditure expectations. The binding obligation incurred; the expected draw schedule; the spending exception under 26 U.S.C. § 148 targeted, with interim benchmarks; and the temporary period relied upon.

4. Investment. Anticipated investments; yield restriction; the reasonably required reserve fund and its sizing; and any minor portion.

5. Rebate. Whether an exception is expected to apply; if not, the computation dates and the party responsible.

6. Private business use. A description of every existing and anticipated arrangement affecting the financed property, with the percentage of private business use expected; the private security or payment analysis under 26 U.S.C. § 141; and, for a qualified 501(c)(3) issue, the five percent basket computation under 26 U.S.C. § 145.

7. Ownership. Confirmation that the financed property is owned by a governmental unit or, for a 501(c)(3) issue, by a qualifying organization.

8. No federal guarantee; registration. Confirmation under 26 U.S.C. § 149 and the definitions at 26 U.S.C. § 150.

9. Records. The records to be maintained, the retention period, and the custodian.

10. Certifications and reasonable expectations. Signed by an officer with knowledge, on the basis stated.

Instrument 3: Private use questionnaire

Give to department and facility managers annually, and require completion before any arrangement is executed.

Facility: [address and building] Issue: [name] Period covered: [ ]

During the period, did any non-governmental person or entity:

  1. Own any part of the facility? [ ]
  2. Lease any space, for any term, including month-to-month or partial-day use? [ ] Describe.
  3. Operate or manage any part of the facility under a contract? [ ] Describe the compensation, including any share of revenues or net profits.
  4. Provide services under an arrangement giving it control over the facility or its operations? [ ] Describe.
  5. Conduct sponsored research in the facility? [ ] Describe the sponsor's rights to any resulting technology.
  6. Hold naming rights, exclusive use rights, preferential parking or seating, or a right of first refusal? [ ] Describe.
  7. Purchase output of the facility under a contract? [ ] Describe.
  8. Operate a concession, food service, gift shop, pharmacy, or similar enterprise? [ ] Describe.
  9. Occupy space under any arrangement not described above? [ ] Describe.

Are any of the arrangements above proposed but not yet executed? [ ] Describe, and do not execute pending review.

Certification by the responsible manager, with date.

Why this form works. It asks operational questions in operational language. A manager asked "does any arrangement create private business use" will answer no; the same manager asked "did anyone lease space, for any term" will answer accurately.

Instrument 4: Arbitrage tracking sheet

Item Entry
Issue and closing date
Bond yield
Spending exception targeted 6-month / 18-month / 24-month / none
Benchmark 1: date and required percentage Actual spent; met?
Benchmark 2: date and required percentage Actual spent; met?
Benchmark 3: date and required percentage Actual spent; met?
Final benchmark Actual spent; met?
Temporary period expiration
Reserve fund: size, sizing basis, yield
Minor portion, if used
Rebate computation dates Date 1: [ ] Date 2: [ ] Final: [ ]
Computations performed by
Payments made: date and amount
Investment records custodian and location

The recurring failure this prevents. An issuer that believed it met a spending exception, did not track the interim benchmarks, and discovers years later that rebate was owed from the beginning — plus penalty and interest.

Instrument 5: Rebate and disclosure calendar

Date Obligation Issue Owner Completed
Annual report filing
Rebate computation
Rebate payment
Spending benchmark
Governing body review
Manager questionnaires distributed
Compliance history verification before financing

Event notice triggers to monitor continuously, each filed within ten business days: payment defaults; non-payment defaults; unscheduled draws on reserves or credit enhancement; substitution of providers; adverse tax opinions or determinations; modification of holder rights; bond calls and defeasances; release or sale of pledged property; rating changes; bankruptcy or insolvency; merger or sale of substantially all assets; trustee changes; incurrence of financial obligations and agreements affecting holders; and defaults or events accelerating financial obligations.

The two most commonly missed are marked in bold, and both are known to someone in the finance office on the day they occur.

Instrument 6: Continuing disclosure undertaking outline

1. Purpose and obligated persons. Executed for the benefit of holders; identifying each obligated person. In a conduit financing, the borrower is the obligated person and undertakes directly.

2. Annual report. Filed not later than [__] days after the end of each fiscal year, containing: [enumerate the tables, statistics, and operating data by reference to specific sections of the official statement]; and audited financial statements when available, with unaudited statements filed if the audit is delayed.

3. Event notices. Filed within ten business days of occurrence, for each enumerated event.

4. Filing location and format. As required by applicable rules.

5. Termination. Upon defeasance, redemption, or payment in full.

6. Amendment. Permitted on stated conditions, with an opinion that the amendment does not materially impair holders' interests.

7. Remedy. Specific performance only; a failure is not a default under the indenture.

8. Responsible officer. Designated by title.

Drafting cautions. Do not promise data the issuer does not produce, because the undertaking runs for decades and the data source may not. Reference official statement sections precisely, since vague content descriptions produce compliance disputes. And confirm that the responsible officer position will continue to exist.

Instrument 7: Post-issuance compliance policy

1. Purpose. To preserve the tax-exempt status of the Issuer's obligations and to satisfy continuing disclosure undertakings.

2. Compliance Officer. The [position] is designated Compliance Officer, with authority to obtain information from any department and to require review of any proposed arrangement.

3. Inventory. The Compliance Officer shall maintain the Bond-Financed Facility Inventory in the form attached and update it upon each issuance.

4. Private use review. No department shall execute any lease, management agreement, service contract, research agreement, naming rights arrangement, concession, joint venture, or other arrangement granting a non-governmental person rights in a facility on the Inventory without the Compliance Officer's written confirmation following bond counsel review.

5. Annual questionnaires. Each department managing an inventoried facility shall complete the Private Use Questionnaire annually.

6. Arbitrage. The Compliance Officer shall maintain investment records, monitor spending exception status, and cause rebate computations to be performed and payments made when due under 26 U.S.C. § 148.

7. Continuing disclosure. The Compliance Officer shall maintain the calendar, cause annual reports to be filed, and monitor and file event notices.

8. Records. All records relating to each issue shall be retained for the life of the issue plus [] years, or the life of any refunding issue plus [] years, whichever is later.

9. Training. The Compliance Officer shall train department and facility managers annually.

10. Annual report to the governing body. Documenting compliance and any exceptions.

11. Remediation. Upon discovery of any potential violation, the Compliance Officer shall promptly notify counsel and shall not delay pending further investigation, given the time-limited nature of remedial actions and voluntary correction programs.

Section 11 exists because delay is the characteristic failure. Remedial windows run from the change in use, and voluntary programs close when an examination begins.

Instrument 8: Diligence question set

Ask in the drafting session; answer in the document.

Area Questions
Financial condition General fund balance trend; operating margin; one-time revenues used; structural gap between recurring revenues and expenditures
Pensions and benefits Funded ratio and discount rate; ratio at a lower rate; assumption changes in the last three valuations and their rationale; actuarially determined contribution versus actual
Debt All obligations including leases, certificates, direct placements, and financial obligations; covenants and proximity to thresholds
Enterprise (revenue financings) Coverage trend; last rate increase and the process for raising rates; unfunded capital needs; customer concentration
Projections Internal projections, and whether they are consistent with the document — this is where enforcement matters begin
Litigation Pending, threatened, and exposure
Continuing disclosure For each undertaking, was every annual report timely with the required content, and every event notice filed within ten business days? Verify against filings
Conduit obligor Financial condition and trend; loan covenants; who prepared the obligor disclosure

The materiality frame for any contingent matter is Basic Inc. v. Levinson — probability weighed against magnitude — and the antifraud provisions that apply notwithstanding the registration exemption at 15 U.S.C. § 77c are 15 U.S.C. § 77q, 15 U.S.C. § 78j with 17 C.F.R. Part 240, and 15 U.S.C. § 78t, with related requirements at 17 C.F.R. Part 230 and the regulatory framework at 15 U.S.C. § 78o-4.

Instrument 9: Examination and inquiry response index

Tab Contents Relevant to
A Transcript and closing documents Both
B Tax certificate and supporting computations Tax
C Proceeds allocation and expenditure records Tax
D Investment records and rebate computations Tax
E Every agreement affecting use of financed property, with dates Tax
F Private use questionnaires and review confirmations Tax
G Official statement, preliminary and final Securities
H Diligence record and drafting session materials Securities
I Board materials, budget projections, actuarial reports Securities
J Continuing disclosure filings and the compliance history verification Both
K Internal communications regarding disclosure Securities
L Compliance policy, inventory, and calendar Both

Framing for a securities inquiry. Determine who made the statements at issue under Janus Capital Group, Inc. v. First Derivative Traders; assess private exposure against the scienter requirement of Ernst and Ernst v. Hochfelder and the pleading standard of Tellabs, Inc. v. Makor Issues and Rights, Ltd.; note the absence of private aiding and abetting liability under Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A. and the narrow scheme liability of Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc.; and recognize that the in-connection-with element is construed broadly under Securities and Exchange Commission v. Zandford and that regulatory theories are not limited by the private-action constraints.

Background worth stating once. The exemption is a statutory subsidy that Congress may condition — South Carolina v. Baker — and state-level differential treatment of in-state issues is secure — Department of Revenue of Kentucky v. Davis.

A closing note

Instruments 1 through 3 are drafted at the transaction. Instruments 4 through 7 operate for decades afterward. Instrument 8 is used at every subsequent financing. Instrument 9 is used when something has gone wrong.

The ratio of effort is inverted relative to the ratio of consequence. The transaction documents receive weeks of specialist attention; the compliance instruments receive none unless someone insists. And every significant failure in municipal finance is a failure of the second group, discovered years after the first group was perfected.

Instrument 10: The two closing memoranda

Produce both at every closing. Each takes an hour and each creates awareness the compliance policy depends on.

To the governing body.

Re: [Issue] — Continuing obligations

The [Issue] closed on [date] in the amount of $[__]. This memorandum summarizes what the Issuer has committed to for the life of the bonds.

1. Payment. Debt service of approximately $[__] annually through [year], payable from [source].

2. Covenants. [Rate covenant and coverage requirement; additional bonds test; reserve requirement; flow of funds — in plain language.]

3. Tax status. Interest is excludable from gross income. That status depends on how the financed facilities are used and how proceeds are invested, for as long as the bonds are outstanding. Certain arrangements — leases, management contracts, research agreements, naming rights, concessions — can cause the interest to become taxable retroactively.

4. Facilities affected. [List by address and building.]

5. Disclosure. The Issuer must file annual financial information by [date] each year and must file notice of specified events within ten business days.

6. Responsibility. [Position] is the Compliance Officer.

7. Consequence of non-compliance. [Plainly stated.]

To the operating departments.

Re: Buildings financed with tax-exempt bonds — required review

The following buildings were financed with tax-exempt bonds: [list].

Before signing any agreement that gives an outside person or company the right to use, occupy, manage, or receive services from any of these buildings — including leases of any length, management agreements, service contracts, research agreements, naming rights, sponsorships, and concessions — send it to [name, contact] for review.

This is not a formality. An agreement signed without review can cause the Issuer to owe a substantial sum to the federal government and can require early redemption of bonds. It has happened to other jurisdictions, and it is entirely preventable by a one-week review.

If you are unsure whether an arrangement is covered, send it.

Instrument 11: Records retention schedule

Record Retention
Transcript and closing documents Life of the issue plus [3] years; if refunded, life of the refunding issue plus [3] years
Tax certificate and supporting computations Same
Proceeds allocation and expenditure records Same
Investment records and rebate computations Same
Agreements affecting use of financed property Same
Private use questionnaires and review confirmations Same
Official statements and diligence records Same
Continuing disclosure filings and confirmations Same
Compliance policy, inventory, and calendars Permanent

The refunding trap. Records must survive not only the original issue but any refunding of it, which can extend the retention period by decades. Issuers that retained records for the original term and destroyed them at maturity have found themselves unable to substantiate a refunded issue's tax position.

Instrument 12: Quick reference

Question Authority
Is interest excludable? 26 U.S.C. § 103
Is this a private activity bond? 26 U.S.C. § 141 — both the use test and the payment or security test
Is it a qualified 501(c)(3) bond, and what is the basket? 26 U.S.C. § 145 — five percent
What additional requirements apply to private activity bonds? 26 U.S.C. § 147
Are the arbitrage and rebate rules satisfied? 26 U.S.C. § 148
Registration and definitions 26 U.S.C. § 149; 26 U.S.C. § 150; regulations at 26 C.F.R. Part 1
Is the security exempt from registration? 15 U.S.C. § 77c
What antifraud provisions apply? 15 U.S.C. § 77q; 15 U.S.C. § 78j with 17 C.F.R. Part 240; 15 U.S.C. § 78t; related at 17 C.F.R. Part 230
What governs dealers and municipal advisors? 15 U.S.C. § 78o-4

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