What are the federal tax law limitations imposed on the investment earnings?
If, during a calendar year, a school corporation issues obligations of not more than $15 million, of which not more than $5 million are for nonconstruction purposes (e.g. warrants, refinancing bonds, equipment notes or lease purchase agreements), the school corporation qualifies as a “small issuer” under the Internal Revenue Code and is allowed to keep all of the investment earnings on its warrant proceeds. If a school corporation issues obligations exceeding the foregoing amounts in a calendar year it is required to rebate a portion of its investment earnings on the warrant proceeds to the federal government unless the school corporation complies with the Safe Harbor Provisions. To comply with the Safe Harbor Provisions a school corporation must show, within six months of issuance of the warrants, an actual cumulative cash flow deficit which exceeds 90 percent of the amount of warrants issued by the school corporation.
