The Debt Management Division of the Oregon State Treasury works closely with the Oregon Facilities Authority to provide bond issuing services for Oregon Non-Profits.
The Oregon Facilities Authority helps charities of all sizes secure low-cost financing to remodel, expand, construct, or purchase new facilities, through the use of tax-exempt conduit revenue bonds. OFA Bonds can also be used to refinance existing debt previously incurred for such purposes. When nonprofits save on borrowing costs, they can devote more money toward their core missions–serving the citizens of Oregon.
OREGON FACILITIES AUTHORITY
The Oregon Facilities Authority (OFA) helps charities of all sizes secure low-cost financing to remodel, expand, construct, or purchase new facilities, through the use of tax-exempt conduit revenue bonds. OFA Bonds can also be used to refinance existing debt previously incurred for such purposes. When nonprofits save on borrowing costs, they can devote more money toward their core missions–serving the citizens of Oregon.
The OFA was created in 1989 and is empowered to issue bonds that assist with the financing of property and facilities for health, housing, educational and cultural uses. The Authority reviews proposed projects and makes recommendations to the State Treasurer about the issuance of bonds.
In addition to OFA’s traditional bond program, the Authority offers a streamlined program for simple (and generally smaller) transactions, called the “SNAP Bond Program”.
For more information, please feel free to call the OFA Executive Director, Gwendolyn Griffith at 503-802-5710.
OFA Application Process
A borrower interested in issuing through OFA — whether in the traditional or SNAP program — should contact the Executive Director to discuss the project. A borrower makes an application to OFA (applications forms are on the website), and appears at the next monthly OFA meeting for preliminary approval. If the application receives preliminary approval, the borrower works with OFA and others to prepare the transaction for closing. When the bond documents are substantially complete, the borrower again appears at the OFA meeting for final approval. Final approval means that OFA recommends the transaction to the Office of the State Treasurer, which works with the borrower to close the transaction.
Post Issuance Compliance
Closing a tax exempt bond transaction is not the end of the story. Nonprofit borrowers must also remain in compliance with various federal tax and securities laws throughout the life of each bond, to ensure that the interest on the bond remains tax exempt. This process is called "post-issuance compliance." Both the Internal Revenue Service (the IRS) and the Securities and Exchange Commission (the SEC) have recently stepped up their compliance efforts for all tax exempt bonds. The IRS' goal is to make sure that all the requirements for tax exemption continue to be met during each year that the bonds are outstanding. The SEC wants to make sure that investors have the necessary information to make informed choices in buying, selling and holding these bonds.
OFA is taking four major steps to help OFA borrowers meet their post-issuance compliance obligations.
First, during 2014, OFA will be offering free educational materials to help borrowers learn about post-issuance compliance requirements.
Post-issuance compliance can be complicated, particularly for projects with both charitable and other uses. In May, September and November of 2014, OFA will be offering free seminars on post-issuance compliance. The dates of these seminars will be posted on the website. Additional information about post-issuance compliance is included in this section of the website. See "Post-Issuance Compliance Documents."
Second, OFA has developed Suggested Post-Issuance Compliance Procedures for borrower adoption, a copy of which is included in the Documents section of this portion of the website.
The IRS strongly suggests that each tax exempt bond borrower have written post-issuance compliance procedures in place. OFA has worked closely with the Office of the State Treasurer and OFA's bond counsel to create Suggested Procedures. No OFA borrower is required to adopt these Suggested Procedures. Some OFA borrowers already have procedures in place, and others may prefer to develop their own procedures. However, an organization without post-issuance compliance procedures may find it helpful and cost-effective to adopt these Suggested Procedures. We urge each borrower to consult its legal counsel in adopting any post-issuance compliance procedures.
Third, OFA will be asking each OFA borrower to certify, annually, that it has met certain minimum post-issuance compliance requirements.
Beginning in 2014, OFA will be asking each OFA borrower to certify that it has written post-issuance compliance procedures in place that conform with current law, and to provide the names of compliance officers for the organization. We will also be asking about the organization's filing of Schedule K as part of its Form 990 and certain other compliance matters.
Fourth, all future OFA borrowers will be required to have acceptable post-issuance compliance procedures in place as a condition to closing an OFA bond.
All of OFA's recent borrowers have adopted appropriate procedures prior to the closing of their bonds, have identified their post-issuance compliance officers, and have begun the process of implementing compliance procedures.
We at OFA believe that a robust post-issuance compliance program helps ensure ongoing tax exemption for OFA bonds as well as providing the market with necessary information. In addition, it reduces future compliance worries for OFA borrowers. Yet an effective post-issuance compliance program must be a collaborative effort among OFA, each OFA borrower and the Office of the State Treasurer. We at OFA will continue to monitor post-issuance compliance developments, and we count on our borrowers to be strong partners in compliance efforts.
If you have any questions regarding post-issuance compliance requirements for OFA borrowers, the Suggested Procedures, or other compliance efforts, please email the OFA Executive Directors at firstname.lastname@example.org
Executive Director and Authority Members
Chief Financial Officer, Mercy Corps
Director of Housing, Central City Concern
J. Kevin McAuliffe
President, McAuliffe Finance, LLC
Finance Director, City of Eugene
Regional Director of Design & Construction
Providence Health & Services - Oregon
Executive Director, Northwest Housing Alternatives
2015 Meeting and Application Schedule
Frequently Asked Questions
What is OFA?
OFA is the state agency that helps nonprofits access low-cost financing for Capital projects through the issuance of tax exempt conduit revenue bonds.
What are tax-exempt conduit revenue bonds?
Most people know that municipalities can issue tax-exempt bonds in order to borrow money at low interest rates for public projects. What most people don’t realize is that nonprofits can also access the tax-exempt bond market and enjoy these low rates of interest. But nonprofits can’t issue bonds directly. Instead, they must be issued through a governmental entity, like OFA. The government agency issues the tax-exempt bonds and the proceeds are then loaned to the borrowing nonprofit. The bonds are called “conduit” bonds because OFA acts as a conduit between the borrower (the nonprofit) and the people or institutions that buy the bond. The interest paid to the purchasers of these bonds is tax-exempt, so the interest rate paid by the borrowing nonprofit is lower than for taxable borrowing.
How does OFA add value?
OFA provides a sound process for bond issuance oversight and a reliable, cost-effective
process for issuance. OFA and its team of professionals have experience in a wide range
of nonprofit financings (taxable and tax-exempt). The Office of the State Treasurer is
also involved in the process.
A nonprofit that issues through OFA can benefit in the following ways:
- Because all OFA does is bond financing, it has developed expertise in the world of tax exempt financing, as well as an effective and efficient issuance process.
- OFA has negotiated attractive fees with bond counsel and trustees. These fees can lower the overall cost of issuance to a borrower and provide certainty in this portion of the issuance costs.
- OFA's Financial Adviser reviews all bond transactions, and offers insight and advice about the transaction to OFA, which is also available to borrowing nonprofits. This helps a nonprofit know how its transaction compares with other transactions in the wider world of tax exempt financing, an important aspect of oversight.
- OFA can assist any §501(c)(3) borrower with a project in the state of Oregon and is the only conduit issuer that can provide these services state-wide.
The OFA Executive Director can help a borrower "get started" in exploring tax exempt bond financing options. OFA's experienced team of professionals can assist a nonprofit in choosing the best offering method and structure and creating a successful bond offering.
Does the State guarantee repayment of an OFA Bond?
No. Oregon does not guarantee repayment. The bonds must be repaid by the loan payments made by the nonprofit.
May all nonprofits use OFA’s services?
Only organizations that qualify under Internal Revenue Code §501(c)(3) can borrow through OFA. The financed facilities must be located within Oregon and must serve a public purpose. The facilities must not be used for sectarian purposes. The OFA Board may impose additional requirements for borrowers and projects.
A nonprofit borrower must be creditworthy in order to qualify for a bond, so the
nonprofit should talk to its financial advisors about this issue prior to considering a bond
May bonds be issued for any purpose?
No. Bonds can only be issued for the purchase, construction, renovation, improvement or remodeling of facilities of a nonprofit, or for equipment purchases. These facilities must be used in the nonprofit’s mission (not rented out to for-profit entities, for example). Bonds can also be used to refinance existing loans that were taken on for these purposes.
How are bonds sold?
Bonds are sold in one of two ways: a “public offering” or a “private placement.” It is up to the borrowing nonprofit to decide which method of sale to use, and the nonprofit’s financial advisor plays a big role in this decision.
In a public offering, members of the public or institutions may purchase the bonds. The
nonprofit receives assistance from an underwriter and others to help structure the
transaction. A public offering usually results in the lowest interest rate, but typically has
higher up-front costs. Bonds must be "investment grade" in order to be issued in OFA
In a private placement, an institution (such as a bank or insurance company) purchases the bond and holds it as an investment. These bonds are not rated. This is usually a less complicated transaction than a public offering, and has lower up-front costs – but not always.
What is the interest rate on these bonds?
The interest rate varies according to market conditions, the creditworthiness of the borrowing nonprofit, and other factors. In a public offering, the underwriter and others assist the nonprofit in structuring the transaction, which includes setting the interest rate on the bonds. In a private placement, the institutional lender and the borrower negotiate the appropriate interest rate.
Nonprofits will want to visit with various banks or underwriters to discuss the interest rate that applies to a particular loan because different institutions will offer different rates.
What are the costs to the borrowing nonprofit?
There are a number of fees involved in any kind of conduit bond transaction. In order for bond financing to make sense, it is critical that the savings in interest costs be greater than the costs of issuing the bonds, when calculated over the expected life of the bonds. The financial advisor to the nonprofit can assist in this calculation. The costs incurred in issuing bonds can usually be financed as part of the bond amount, within limits.
Public offerings usually involve more up-front costs than private placements, because there is a lot more to be done by lawyers and others to ensure that the bonds are suitable for public purchase. OFA publishes a fee schedule for its traditional and SNAP bonds.
There is also the time involved for the nonprofit in putting together the application and seeing the transaction through to the issuance of the bond and for the nonprofit's attorney fees, underwriter fees, and other costs of a traditional bond offering.
What are OFA’s Two Private Placement programs?
OFA offers two different private placement programs.
For simple real estate commercial loan with a bank, OFA offers the “SNAP” program, which is discussed below.
For transactions that are more complicated – that involve underwriters or placement agents, tax credits, etc. or for which a traditional real estate loan is not appropriate, OFA offers a traditional private placement program.
What is a “SNAP Bond”?
For relatively straightforward real estate loans, a nonprofit might use a "SNAP" (small nonprofit accelerated program) Bond, in which a bank purchases the bond.
A SNAP Bond transaction uses standardized bond documents and a streamlined approach, which significantly reduces costs. From the nonprofit’s point of view, the transaction looks and feels like a standard commercial real estate loan, except that the interest rate is lower and the process of approval is different.
SNAP Bond fees are based on the amount of bond for which the nonprofit applies. Bond Counsel fees are a fixed amount based on a sliding scale, with some exceptions. OFA's fees and other expected fees can be found on the OFA website.
SNAP Bonds are not suitable for complicated transactions, such as those involving placement agents, underwriters, tax credits or the need for specialized bond documents. OFA publishes a list of banks that participate in the SNAP Bond program on its website.
The OFA Executive Director can help a nonprofit sort out which transactions qualify for
the SNAP Bond program.
What is the process for getting OFA bond financing?
A nonprofit borrower will normally work with an underwriter and others (for public offerings and traditional private placements) or its bank or other financial institution (for private placements) to weigh the pros and cons of financing through an OFA bond sale. If this approach seems viable, the nonprofit should call the OFA Executive Director to discuss the transaction.
The nonprofit borrower then applies to OFA using the process described on the OFA website. The OFA Board considers the application at one of its monthly meetings. At that meeting the nonprofit and its advisors (including the Bank that will be purchasing the bonds, if applicable) will make a presentation to the Board. The Board will have questions for the nonprofit and its advisors because it has the responsibility of recommending to the Treasurer that the bond be issued. If the Board approves the application, this is the go-ahead for OFA's Bond Counsel to work with the nonprofit and others to prepare the transaction. During this phase, the nonprofit’s status as a §501(c)(3) organization and its intended use of the proceeds for its mission will be evaluated by Bond Counsel. The nonprofit has to provide a legal opinion about its §501(c)(3) status. When the documents are in substantially complete form, the applicant returns to the OFA Board for final approval.
Along the way, OFA’s advisors can help in resolving concerns that arise and making sure the transaction complies with Internal Revenue Code and applicable rules. These advisors represent OFA, however, so the nonprofit will also want to have its own lawyer and advisors look over the transaction. The process can take as little as two months, or longer – depending on the complexity of the transaction and other factors.
How can I find out more?
Contact the Executive Director, Gwendolyn Griffith, at 503-802-5710 or email: OFA@tonkon.com
The Oregon Facilities Authority ("OFA" or "Authority") is affiliated with the national organization: The National Association of Health and Educational Finance Authorities.
For more information on this organization, as well as access to its most current quarterly newsletter, NAHEFFA: www.naheffa.com
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