Division of Finance & Administration

PBU Usage Arrangements in Tax Exempt Bond-financed Spaces

Departmental ongoing monitoring will be done to ensure that there is no more than the permitted amount of Private Business Use per bond. In general, the permissible amount of Private Business Use is the lesser of (i) 10% or (ii) $15 million of the sale proceeds of an issue of bond used for Private Business Use.

Additionally, the unrelated or disproportionate use of a tax-exempt bond (TEB)-financed space meets the private business use test if the amount of private business use and private security/payments attributable to unrelated or disproportionate PBU exceeds 5% of the proceeds of the issue. Use may be considered disproportionate to a related government use to the extent the amount of PBU proceeds used exceeds the amount of proceeds used for the related government use. IRC § 141(b)(1) and (3)

The following uses of TEB property shall require the Vice President for Finance and Administration’s prior approval:

Use by third parties (i.e., other than the University), including but not limited to leases, licenses, naming rights, fee-for-use or other usage arrangements;
Management or service contracts under which the manager or service provider’s compensation is based, in whole or in part, on income from operation from the facility (refer to IRS Revenue Procedures 2017-13, and 1997-13, and IRS Notice 2014-67 safe harbor requirements); and
Any other use that could potentially be considered Private Business Use under applicable Federal Law.

All non-SPA usage arrangements in TEB-financed spaces must be forwarded to Treasury.Management@uvm.edu for review.

Management & Service Usage Arrangements

Management and Service Usage Arrangements in TEB-financed spaces may constitute PBU. IRS Revenue Procedure 2017-13 supersedes IRS Revenue Procedure 97-13, applies to contracts on or after 1/17/17, and is comprised of principle-based concepts on control of facility, risk of loss, and who derives benefits and burdens of TEB-financed property.

Management contracts include but are not limited to dining services (including food courts and cafes), retail services (including bookstores and gift shops), facility management, or vivarium services (management of an animal facility). Incidental arrangements such as janitorial, office equipment repair, or elevator maintenance are generally excluded from private business use.

Safe harbor summary under IRS Revenue Procedure 2017-13:

Service provider compensation must be deemed reasonable and at least paid annually.
Service provider compensation includes payments to reimburse actual and direct expenses of manager such as fixed rate per year plus reimbursables for a variable rate.
Service provider may not receive share of net profits.
Incentive compensation is allowed if it is based on one or more measures such as quality, performance, or productivity of the service provider, but not profit share.
Service Provider may not bear any share of net losses on the managed property except for a compensation penalty such as not keeping the property’s expenses below a specified target.
Term of contract cannot exceed 30 years or 80% of the weighted average of expected economic life of TEB-financed space.
Owner controls managed space by a significant degree.
Owner approves annual budget, capital expenditures, disposition of property, rates charged, and general use and services provided.
Owner bears risk of loss to property.
No inconsistent tax positions allowed between owner and service provider.
Owners’ exercise of rights must not be impeded by contract.
Governance with no more than 20% of voting power of the governing body is vested in directors of the manager.
Governing body of the owner does not include the chief executive officer (CEO) of the manager.
CEO of manager is not CEO of owner.

Usage arrangements that might be considered private business use must be reviewed by the Vice President for Finance and Administration.

Naming Rights & Other Substantial Economic Benefit or Special Legal Entitlement

Naming Rights of bond-financed facility, or a portion thereof, for a for-profit business will give rise to private use under certain circumstances. Naming contracts must be reviewed for private business use implications.

Other Substantial Economic Benefit or Special Legal Entitlement may occur if the bond-financed property provides a substantial economic benefit to a private party or if the private party has a special legal entitlement to the property.