4.9.1.1 Small Issuer Exception

The small issuer exception allows a public agency to retain all arbitrage earnings realized from the investment of the gross proceeds of certain bond issues that are not qualified private activity bonds. The small issuer exception is available only to issuers that possess general taxing powers (even if those powers may only be exercised after voter approval of the tax). The exception may be applied to a bond issue if the amount of the issue, together with the amount of any other bonds issued or expected to be issued by the issuer by the issuer and all closely related public agencies during the same calendar year, does not exceed $5 million. Additionally, the issuer must expect to spend at least 95% of the net proceeds of the bonds for the governmental purpose for which the bonds are issued. A recent amendment to the tax code raised the $5 million limit to $10 million to the extent the additional bonds are issued to finance construction of public school facilities.