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Three Compelling Reasons to Address Surplus Bond Proceeds

By Christina L. Cromer, CPA, Principal, September 07, 2017

Do you have surplus bond proceeds remaining after completion of a project?  There are three very good reasons to develop a plan for utilizing these remaining proceeds.

  1. IRS Requirements - Most bonds issued to finance governmental projects are issued as tax-advantaged debt.  Issuers of tax-advantaged debt must comply with the arbitrage requirements of the Internal Revenue Code.  The arbitrage rules are designed to prevent issuers from issuing more bonds than needed, issuing bonds earlier than needed, or leaving bonds outstanding for longer than needed to accomplish the governmental purpose of the issue.  Surplus proceeds that remain long after the project has been completed are a red flag to the IRS.
  2. Indiana Code Requirements - The Indiana Code prescribes the manner in which surplus bond proceeds may be used.  Some examples of how remaining proceeds may be used include principal and/or interest payments, maintenance of a debt service reserve, or for use towards a project of the same purpose or type as the original issue.  Bond counsel and your municipal advisor should be consulted to determine which uses are allowable and what makes the most financial sense for your situation.
  3. Financial Stewardship - Constituents expect their elected officials to be financial stewards of their communities’ limited financial resources.  When surplus bond proceeds remain, thoughtful consideration should be exercised in managing those resources.  Borrowing money comes at a cost, and current investment rates are not doing much to offset the interest costs on borrowed money.   By allowing borrowed money to sit around, you are paying interest and your community is receiving no benefit from those excess proceeds.

If we can assist you in the development of a plan for prudent utilization of surplus bond proceeds, please contact us at .(JavaScript must be enabled to view this email address).


Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at


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