HEFA can finance any capital project and its associated costs which relate to the primary charitable purpose of the institution.  For example, eligible projects include new construction, renovation, and addition to facilities; furniture and equipment; health care technology; telecommunications equipment; computers, software, wiring and installation; energy conservation equipment; vehicles; and other capital assets. HEFA can also refinance outstanding mortgages, loans and other taxable or tax-exempt debt.

Examples of projects which are typically ineligible
Facilities and projects which are not related to the core mission of the organization cannot be financed with tax-exempt proceeds, for example, projects that produce unrelated business taxable income.  We will assist institutions in obtaining preliminary legal review of the eligibility of a particular project if there is any question.  If there are ineligible parts of a larger project, these parts are usually carved out and financed with taxable proceeds.  Financings can often be structured to meet the various thresholds that have been established by tax law in order to maximize the amount of a project that can be funded through tax-exempt debt.

HEFA also cannot finance projects for any facility to be used for religious instruction or worship (for example chapels), or any facility used primarily by a school or department of divinity.

Related project costs which can be financed
Many associated project components and costs are eligible for tax-exempt financing.  For example, HEFA can usually finance the following costs:

• architectural, engineering
• financial and legal services
• plans, surveys and feasibility studies
• administrative expenses
• demolition and removal of a facility
• site preparation
• furniture, equipment, machinery, and landscaping
• reasonably required amounts to make the project operational

Costs associated with the closing or issuance
Associated issuance costs such as underwriter’s fees, bond counsel, trustees and other charges may be included in the financing.  However, tax law limits the amount that can be financed with bond or loan proceeds to 2 % of net proceeds.  Costs in excess of 2 % must be paid as an equity contribution on the part of the borrower or from other sources.

Interest during construction when the project is not yet producing revenue
In a bond issuance, a portion of the bond proceeds can be used to pay the interest for a specified period of time.  This use of proceeds is called capitalized interest.

Reimbursement of capital expenditures that have been incurred
The institution’s Board of Directors should take a vote to approve or record its intentions for the institution to reimburse itself for prior expenditures from tax-exempt proceeds.  If your institution has a project on the horizon, we recommend that such a vote be taken.  HEFA can provide standard language that is acceptable to the IRS for such intent.   Expenditures made 60 days prior to the vote are eligible for reimbursement.  Project planning costs may be reimbursed without a vote.

Debt refinancing
Refinancing an outstanding bond issuance can be completed on an advanced or current refunding basis.  A current refunding occurs when the bonds are “callable‿ by the institution.  The bonds are called and new bonds are sold to pay off the bondholders.  In an advanced refunding, the borrower issues new bonds and escrows a sufficient amount to meet debt service obligations to the existing bondholders until the call date.  The borrower pays debt service only on the refunding bonds.

Tax-exempt bonds issued after the passage of the 1986 tax law may be advance refunded only once.  There are no limits as to the number of current refundings (i.e. where the outstanding bonds can be called immediately).

For more information on project eligibility, please contact Lyle Lawrence, Deputy Director of Financing Programs.

Institutional Eligibility
HEFA’s enabling legislation has been modified over the years to include many types of nonprofit organizations primarily in four broad categories: health care, higher education, cultural and scientific institutions, and educational institutions for people with disabilities. Organizations must be located within Massachusetts and have a 501(c)3 determination letter from the IRS. In the case of higher education, public institutions are also eligible.

Health Care Institutions
In the field of health care, eligible organizations include hospitals, nursing homes and health maintenance associations, as well as nonprofit organizations such as health centers, visiting nurses associations, MRI imaging centers, etc., that are affiliated with hospitals, nursing homes or HMO’s.

Higher Education Institutions
For eligibility in higher education, institutions must be authorized by law and have the purpose of providing education beyond the high school level. However, the organization does not have to grant degrees. Organizations which are a nonprofit affiliate of an institution for higher education also qualify for financing, provided they are engaged in research, education, or other activities which are approved by the trustees or other governing body of the institution.

Cultural and Scientific Institutions
To be HEFA eligible, the organization must be a major regional resource and have demonstrated broad community support through fundraising and other support.  It must also provide certain educational services or resources for research.

Human Service Agencies
Since human service agencies fall under HEFA’s statute as “schools for the handicapped‿ they must provide educational services to people with disabilities.  Educational services may be broadly defined.  The organization must be accredited or licensed by the appropriate agency, and 70% of the consumers or students must be disabled as determined by an appropriate educational, rehabilitation, medical or mental health authority.  Also, the organization must be determined to be a major resource to people with disabilities.

For more information on HEFA eligibility, please contact Lyle Lawrence, Deputy Director of Financing Programs.