NBGS bonds at no risk in status change
NORTH BENNINGTON -- Two North Bennington Graded School District school improvement bonds will not lose their favorable tax status if the Prudential Committee closes the public school and leases the building to an independent school, according to legal opinions the board received this week.
Questions of whether the bonds would be impacted if the building was no longer used as a public school were raised days prior to the most recent vote to close NBGS and lease the building to the Village School of North Bennington in October.
One of the bonds in question is a tax-exempt municipal bond from 1996 when the district borrowed nearly $700,000. The remaining balance is $170,000 in principal and another $30,000 in interest. That bond was sold to the Vermont Municipal Bond Bank, whose attorney Paul Giuliani told the board it should not have to worry about the tax status being impacted.
"Paul gave us a pretty extensive memorandum and the conclusion is that there's a way there will be no tax consequences for the bond," the district's attorney Joseph O'Dea said at Tuesday's Prudential Committee meeting.
The bond would become a "private activity bond" and lose its tax-exempt status if more than 10 percent of the bond-financed property were used by a private entity, such as the Village School, but because the Bond Bank lumped it into many other bonds totaling $90 million, North Bennington's bond makes up just 0.007 of the overall bond.
"Accordingly, the proposed change in use of the elementary school will not result in the Bond Bank 1996 Series 1 bonds being classified as ‘private activity bonds,'" Giuliani wrote in an opinion.
Still, Giuliani recommended the district take an extra precaution of making funds available to redeem the bond by depositing all Village School payments made under the lease agreement to an escrow account for the purpose of paying debt service on the outstanding bond.
The other NBGS bond is a 15-year Qualified School Construction Bond (QSCB) from 2011 when the district borrowed $425,000. The QSCB loan program was created for school construction by the federal stimulus in 2009 and requires the federal government to pay the 5.5 percent interest on the district's bond. Because the QSCB program is only available to public schools there was some question whether closing the public school and leasing the building to a private entity would negate the federal reimbursement obligation.
A Dec. 17 opinion by Colin McNiece, of the Boston law firm Mintz Levin, which specializes in bond laws, states that leasing the building to the Village School would be in compliance with the QSCB requirements based on a Private Letter Ruling from 2005 by the Internal Revenue Service regarding a charter school. McNiece wrote that the Village School is a "instrumentality of the state," which qualifies it for QSCB loans.
"An organization that might be treated as an instrumentality of the state, should also constitute a ‘public school facility' for purposes of the application of the bond proceeds. If such treatment of the school as an instrumentality and a public school facility is applied, the bonds would remain in compliance with the required application of QSCB proceeds," the opinion from McNiece states.
Raymond Mullineaux, Chairman of the Prudential Committee, said he was pleased the questions regarding the bonds have been "put to rest."
Concerns about the bonds were a hot topic at the town meeting on the eve of the Oct. 23 vote to authorize the closure of NBGS and may have contributed to the article passing by just 26 votes with 52 percent of the turnout favoring the change. In comparison, more than two-thirds of voters passed similar questions in March.
Voters on Jan. 3 will be asked to approve the same questions as they were in October after a petition calling for a revote was submitted last month.
Contact Dawson Raspuzzi at email@example.com or follow on Twitter @DawsonRaspuzzi
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