8.3.3 Monitoring Use of Bond-Financed Property

The use of property financed in whole or in part with the proceeds of tax exempt bonds must be monitored over the life of the bonds to ensure that the property use does not violate the applicable federal tax law restrictions. For a governmental bond issue, the principal concern is that the property becomes used in the trade or business of a nongovernmental person with the result that the bonds become taxable private activity bonds. See Section 4.6, Governmental Bonds/Private Activity Bonds. Sale of bond financed property to a nongovernmental person is an obvious concern. Private use of bond financed property can also arise in other ways, however, including through a lease, license, management contract, or sponsored research contract. Public agency issuers should review the use of bond financed property at least annually and should maintain vigilance with respect to agreements with private parties affecting the property beyond those contemplated and analyzed at the time of the issuance of the bonds. Issuers should consult with tax counsel to determine whether an arrangement creates private business use in excess of allowable amounts and to consider alternatives. Conduit issuers should consider policies and procedures that require obligated borrowers to consult with tax counsel to ensure that all applicable post issuance requirements are met.