Instructor: Thank you for joining us
to learn about private business use
and UVM's bond post-issuance IRS compliance requirements.
You have been asked to complete this training
because your responsibilities may include
usage decision-making on campus.
The space survey notates buildings
that were financed directly or indirectly
with tax-exempt bonds, and those spaces must be tracked.
This training will cover a PBU summary
and its importance and risk.
We'll also discuss contract considerations, document flow,
your PBU coordinators, and PBU resources.
Though PBU coordinators monitor, track,
and report the usage in bond-financed spaces,
everything starts
with who makes the decisions for use in those areas.
We need your help with these IRS regulatory requirements,
understanding private business use, regulations,
are paramount to UVM's compliance.
Let's first discuss private business use,
then we'll go into more detail
on how to apply it in your decision-making.
UVM issues tax-exempt bonds to help pay for the renovation
of its lovely older buildings
as well as the creation of new spaces.
The tax exemption saves UVM millions of dollars in interest.
However, by issuing the tax-exempt bonds,
UVM agrees to the post-issuance IRS compliance.
Tracking a private business use and bond funded spaces
occurs until the bonds retire, which could be decades.
As you will learn in this training, PBU is not intuitive,
such as nonprofits being considered private use
per the regulations.
This graphic is from UVM's PBU webpage,
where there is a list of the bond-financed spaces
with the Planon space building numbers.
The PBU definition that is paraphrased
from the section 141 of the IRS regulations
is usage of a tax-exempt bond-financed property or asset
by a non-governmental person
such as non-profit organizations,
profit businesses, and federal or foreign governments
generally equates to non-UVM users.
The allowance of PBU usage for the life of the bond
is 10% of proceeds with a $15 million cap.
That percentage can be reduced to 5%,
which is rare for universities for unrelated to
or disproportionate to governmental use,
meaning proceeds used for PBU
exceeds the amount of the use for our related purpose.
We need to ensure no egregious private use
is ever more than our related use.
Treasury services tracks each bond and its PBU percentage
by relying on what is reported through annual questionnaires
submitted by your PBU coordinators.
UVM is a governmental entity,
so the currently enrolled students,
paid staff and paid faculty using space for UVM purposes
all qualify as UVM users and do not need to be tracked.
However, everyone else
who uses and controls the bond-financed space
needs to be assessed.
Generally, local and state governmental use
would also be allowed as well as some federal usage
if covered by the by Bayh-Dole Act,
general public on campus is not an issue for PBU.
Let's look at the non-UVM users,
those who need to be tracked.
It is not intuitive.
The words private business use
make me think of profit businesses,
but the regulations
expanded the non-qualified list significantly.
Separate 501c3s
are generally considered private business use.
All the bolded bullets have separate 501c3s from UVM,
such as the UVM Foundation and UVMMC,
and their usage in a tax-exempt bond-financed space
is private business use.
The next set of bullets are generally designated
as function code 72 in the space survey
as non-institutional agency use.
Some non-institutional use
seems like UVM educational purposes,
but the PBU regulations
match the cost allocation regulations
and consider these individuals as non-UVM users,
such as visiting professors, alumni, and non-SPA research.
It helps to memorize the UVM users and track everyone else.
Another frequent question about non-UVM users
is if the usage is free, do I need to track?
The answer is yes, because the operative word is use.
There are many people on campus
helping UVM remain in regulatory compliance.
Officials are tasked with PBU regulations
when creating contracts and allowing space usage.
Officials and their teams
know what is going on in their spaces,
which is why we rely on you and your PBU coordinators
to assist in this compliance.
Private business use is just one of the many
post-issuance compliance requirements,
but considering usage allowance, contract preparation,
and document flow are the focus for officials.
Please read UVM's post-issuance compliance policy
for tax-exempt and tax credit bonds.
Not all aspects of the policy pertain to officials,
but the Vice President for Finance Administration
has delegated officials the task
to ensure ongoing usage monitoring for their areas.
Be sure to send usage contracts to your PBU coordinators
and empower them to create their own PBU teams.
We have found proper document flows to your delegates
to be effective in adhering to these IRS regulations.
Please note that any change of use, sale, or disposition
must be approved by the vice president
for finance administration prior implementation.
Please reiterate to your PBU coordinators
the length of the IRS record retention requirement.
Digital records per the regulations
must be retained for the life of the bond
plus refunding, plus three years, which could be decades.
Treasury services is available to assist PBU coordinators
with creating efficacious systems for compliance.
Why is PBU tracking and reporting important?
We've discussed that UVM issues tax-exempt bonds,
and that there are certain IRS rules
on how UVM can spend the funds
and how we use the space funded by that money.
The first risk of this slide
is how the IRS can audit any time
during the life of the bond.
We had a successful audit in 2014 for our 2007 bond,
but audits are costly and time-consuming.
There are significant tax compliance issues
leading to market disclosures and adverse publicity,
which we want to avoid.
Non-compliance could also lead to UVM rating changes,
thus increasing the future cost of borrowing.
We could negatively affect
the future tax exemption allowance.
The worst risk is a retroactive IRS declaration,
making the bond interest taxable to the buyer,
which traditionally is paid by universities
because no one ever wants to upset bond holders.
To mitigate risk, UVM provides PBU education,
tracks non-UVM usage of bond-financed spaces,
follows the record retention requirement,
and works with outside PBU consultants and bond council.
We all play a part in this compliance.
Let's safeguard UVM together.
For the PBU calculations other than SPA,
the length of time and days not hours,
amount of space used and the amount of bond proceeds
are utilized to calculate the PBU percentages.
PBU coordinators track and collect days of use and location
for each non UVM user arrangement,
but do not need to worry
about the bond proceeds or square footage,
we'll take care of that.
PBU coordinators apply this information
to treasury services in their annual questionnaires.
SPA uses the revenue method
and submits multiple spreadsheets for PBU calculations.
We have covered users,
let's look at the types of usage arrangements
by non UVM-users.
The next few slides will give context
to the types of PBU scenarios you might encounter.
One of the responsibilities of officials
is to ensure usage agreements flow
to your PBU coordinator for tracking and reporting.
It is important that formal or signed agreements
and informal arrangements made verbally or via email
are tracked for the annual reporting.
Please be sure that your PBU coordinator
is notified of use in bond-financed buildings
under your purview per the space survey,
or they won't be able to do their jobs effectively.
Leases or lease-like arrangements are almost always PBU
from non-UVM users.
Management contracts are PBU
unless they fall under all safe harbors.
Research contracts are generally handled by SPA,
but lab leases are tracked by PBU coordinators
or one of their usage administrators on their PBU team.
Watch for naming rights
and economic benefits to third parties.
Keep in mind that the UVM users
are currently enrolled students, paid faculty and staff.
Alumni and retired professors are generally PBU
unless they are being paid by UVM
as current staff or faculty.
Let's expand upon leases.
Leases and rentals by non UVM-users
are almost always private business use.
Examples include solar panels, ATMs, antennas,
parking lots, cell towers, vending machines,
events and housing, advertisement signs on or in buildings,
and lab usage arrangements.
Luckily, UES tracks the housing and events.
Real estate operation handles leases
that are a hundred percent use of space.
However, all partial use of space such as lab leases
are tracked by the area's usage administrators
if dates are not specifically stated in the contract.
However, the function code 72
non-institutional use designations in the space survey
such as retired professors are generally PBU
and need to be assessed for this annual reporting.
The safe harbors to be accepted
from private business use calculations
are summarized in the PBU webpage
and should be considered
before engaging in management or service contracts.
To have a contract exempted from PBU calculation,
we must comply with all safe harbors.
The focus is on control, risk, benefits, and burdens
falling to UVM.
Key areas are no profit sharing,
but with incentive compensation allowed
and who manages space and budget.
Sodexo is our largest management contract,
which is not within safe harbors
and is considered private business use
in UVM's bond-financed spaces.
Short-term leases under the regulations are 50 days or less.
Anything over 50 days by a non-UVM user
is private business use,
that we may be allowed to exclude the 50 days
or less arrangements from the private use calculations,
they do need to be listed in the questionnaires
and retained to show we excluded them appropriately.
Events and housing frequently fall under the 50-day mark.
Luckily, certain types of leases
are considered incidental use.
As long as the incidental use per bond is less than 2.5%,
we don't have to include them in the calculations,
but the agreement should also be listed
in the annual questionnaires
and retained by your PBU coordinators.
If we exceed the 2.5%, we have to calculate them.
Again, please be sure to forward any usage arrangements
in bond-financed spaces to your delegate.
Keep in mind, general use by the public
does not typically constitute private business use.
This slide will discuss other PBU considerations.
If the naming of a bond-financed space
is a strict donation handled by the UVM Foundation,
it is not likely private business use.
However, naming a space with onsite usage, economic benefit,
or naming of an athletic complex
may very well be private business use.
If you notice a naming arrangement
with formal or informal use,
economic benefit, corporate sponsorship,
or if it pertains to the athletic center,
please send that arrangement to treasury management email.
It is better to have it reviewed for PBU
than have an auditor find it first.
MCDEP, the Main Campus District Energy Plant,
formerly called the Central Utility Plant,
was bond-financed.
Any building it connects to
whether bond-financed or privately funded
brings that building under PBU IRS regulatory scope.
PBU needs to be monitored
in privately funded buildings connected to the MCDEP.
Plan on has designations
as bond-financed or indirect bond-financed,
but for PBU coordinator purposes, they're treated the same.
Anything connected to the central utility plant
must be tracked for private business use.
Here are a few indirectly bond-financed buildings
that were privately funded and connected to the MCDEP,
Ifhsin and Firestone.
Your PBU coordinators need to track usage by non UVM users
in these privately funded buildings
as if they were bond-financed.
When evaluating sponsored projects,
keep in mind that only basic research
may be excluded from the calculations
if all the safe harbor requirements are met.
The safe harbor exclusion
is not available for applied research.
We utilize a different method in calculating PBU for SPA,
the revenue method.
SPA provides spreadsheets notating intellectual property
to help us ascertain qualified
versus non-qualified project revenue.
Here is a list of the safe harbors
from the IRS revenue procedure 2007-47,
which can also be found on the PBU webpage.
There is no PBU for Type 1
if there is a single corporate sponsor
where UVM determines research
and exclusive arrangement to the sponsor
and the sponsor pays UVM fair market value
at the time the license or technology is available for use.
Type 2 are industry or federally sponsored research,
single or multiple sponsors with UVM determining research
and retaining the title patent or project,
sponsor gets no more
than non-exclusive royalty free license, also known as NERF.
Bayh-Dole rights come into play
when given federal government no more than NERF,
as the federal government
is generally considered private business use otherwise.
Luckily, many of our sponsored projects
fall within the Bayh-Dole Act,
allowing us to mark many projects
with the federal government as non-PBU.
If you work with SPA,
please familiarize yourself with these safe harbors,
keeping contracts within these requirements
lessens PBU impact for UVM.
When reviewing contracts,
check footers to ensure appropriate signatures,
as different types of contract footers
may vary or be updated.
Help us by making sure the contract lists location
with Planon building number and room numbers
to assist your PBU coordinators in their annual reporting.
In negotiating days of use,
keep in mind that all non UVM user usage
and tax-exempt bond-financed spaces
need to be tracked per the IRS regulations.
Listing specific dates are ideal to avoid tracking
or if the agreement can state less than
instead of approximate,
the less than total can be calculated
if tracking is not available.
Approximate number of days could be more,
than if it's not tracked,
the full access allowable may be calculated.
Consider the impact of 24/7 allowed access
for the length of a contract.
It would not be good for PBU bond percentages.
Safe harbors are listed on the UVM PBU webpage.
Once the contract is finalized,
be sure to forward a copy to your delegate
for monitoring and reporting.
We have briefly mentioned record retention.
We need to keep digitally all non-UVM usage agreements,
tracking and anything used
for the calculation of the PBU percentage
for the life of the bond,
plus any tax-exempt bond refunding, plus three years.
Again, this is decades of records
that UVM needs to maintain.
UVM also needs to retain any changes
with tax-exempt bond-financed spaces,
any transfers or purchases or sales.
Treasury services helps
by collecting the contracts and the annual reports,
but PBU coordinators should keep their monitoring data.
Treasury services is happy
to help create record retention mechanisms with PBU teams.
Who tracks what on campus?
SPA tracks SPA agreements and saves them in UVMClick.
Third-party events fall to UES primarily,
which are saved in EMS and forwarded to treasury and debt.
Full leases and sales of bond-financed assets
are tracked by real estate operations.
Partial leases and everything else in bond-financed spaces
are tracked by the associated PBU coordinator,
the PBU website list official and delegate,
also known as PBU coordinator responsibilities.
As officials, you oversee usage
in your tax-exempt bond-financed buildings,
consider PBU implications with usage allowance,
and ensure monitoring and reporting
by empowering your PBU coordinators.
Training is required every other year
per our UVM post-issuance bond compliance policy.
We need your help.
Please consider PBU
when approving or negotiating usage by non-UVM users
in the bond-financed spaces
per the space survey under your purview.
Give copies of those usage agreements
to your PBU coordinator
and empower them to create a PBU team for your area.
They have been trained on monitoring best practices,
what to track, and how to report annually for your area.
Now that you understand private business use more,
what should you expect?
PBU consideration and monitoring
are year-round activities with reporting each fall.
Your PBU coordinator will forward contracts
to the treasury management email throughout the year.
Each fall, you will receive a letter
from the Vice President for Finance Administration
regarding the annual questionnaire.
Then an email from Treasury and Debt
to confirm your delegate.
Training will be provided biannually.
Questionnaires arrive with a space survey table,
post-issuance compliance policy,
and a bond-financed space list
with approximately a month to complete the questionnaire
for the previous fiscal year.
Let's look at PBU resources.
The PBU webpage offers lots of assistance
with UVM-directed explanations.
You have access to a bond-financed space list,
training guides, safe harbor listings,
regulatory summaries and links to regulations,
and the UVM post-issuance policy.
Because you only need to track non-UVM usage
in bond-financed spaces,
the PBU webpage and Planon are good locations
to see if a building has bond financing.
As a space survey is the backbone
of tracking this IRS regulation,
space survey accuracy is vital.
The space survey lists function code 72
to easily assess those non-institutional agency designations
for this annual reporting.
And of course, treasury services
is available to assist you and your teams.
Reach out and have us join
one of your PBU coordination meetings for your area.
Thank you for participating
in this private business use training.
Your help in safeguarding UVM
with these IRS regulatory compliance requirements
is greatly appreciated.
Please let us know if you have any questions.
Thank you again, and we look forward to working with you.