Interim debt

Sections NR 162.04(3) and NR 166.07(3) of the Wisconsin Administrative Code provide that the department may purchase or refinance an eligible municipal applicant's interim debt for an eligible project, subject to applicable requirements and limits established in related statutes and codes.

The Clean Water Fund Program (CWFP) and Safe Drinking Water Loan Program (SDWLP) can:

• finance construction as it takes place;
• refinance interim debt (e.g., bank loan) used to design and construct a project; and
• reimburse internal funds a municipality temporarily used to pay for project costs before receiving its loan through the CWFP or SDWLP.

What is the difference between reimbursement and refinancing?

Reimbursement - using CWFP/SDWLP loan proceeds to pay back a municipal account that advanced internal funds to temporarily pay project costs.

• Reimbursement applies when the municipality is paying project costs with ordinary municipal funds (such as property tax revenue, user charge revenue, state shared revenue, general investment earnings) and then wants to be reimbursed from the CWFP/SDWLP loan proceeds, which are subject to the IRS reimbursement regulations and therefore likely need a Reimbursement Resolution.

Refinancing - using CWFP/SDWLP funding to pay off all or part of a debt that was taken out by the municipality to temporarily finance project costs.

• Refinancing applies when the municipality takes out a debt (bank loan, State Trust Fund Loan, Bond Anticipation Note (BAN)) to pay project costs and then wants the CWFP/SDWLP loan to be used to pay off that debt, which is subject to the IRS refinancing (a.k.a. refunding) regulations and state limitations on interim debt. This would be a refinancing transaction rather than a reimbursement transaction.

Limitation on eligibility of interim debt costs

The IRS reimbursement regulations and Wisconsin administrative codes limit the eligibility of interest and issuance costs incurred on interim debt taken out by a loan applicant for project costs requested in a CWFP or SDWLP financial assistance application.

The CWFP/SDWLP CANNOT reimburse principal or interest payments made on interim debts.

The IRS reimbursement regulations do not allow for the reimbursement of principal or interest payments made by the municipality out of its ordinary municipal revenues or funds. Direct questions to staff at the Department of Administration (DOA) Capital Finance Office via DOAEIF@wisconsin.gov.

Interest payments on an interim project debt that are made from the proceeds of that particular debt (capitalized interest) may be refinanced. This is not a reimbursement transaction. Rather, such a transaction is treated as refunding, which is subject to other IRS regulations.

Net interest expense

The interest expenses will be offset with any interest earned on the investment of the proceeds from the interim debt.

Limits on issuance costs

For issuance expenses, the amount eligible is limited to $15,000 plus 0.5% of the total eligible face amount of the interim debt. If the interim debt is rolled over or renewed, the face amount may not be counted multiple times in calculating the eligible face amount of interim debt for purposes of this limit. Issuance costs may include legal fees, financial advisor fees, an underwriter's discount and/or printing costs.

Eligible term for interest costs

The period of time for which interest on interim debt is eligible for funding shall run from no earlier than 18 months* prior to the start of construction through the earliest of either of the following:

• the date of the first disbursement of the financial assistance; or
• one year following substantial completion of the project.

*Note: Applications submitted prior to Nov. 1, 2023, are subject to the former Administrative Code, and therefore, the start date for eligible interest is 12 months prior to the start of construction, instead of 18 months.

Cost proration

If the term of the interim debt exceeds the above limit, a proration factor will be applied to the interest cost using the length of the eligible term divided by the total time the interim debt is outstanding.

Interim debt as a component of a multi-purpose issue

If the interim debt is a part of a larger multi-purpose debt, the eligible amount of interest and issuance costs will be prorated according to the proportion of eligible interim debt to the total interim debt.

Supporting documentation and invoices

Eligible project, interest and/or issuance costs incurred on interim debt must be supported by appropriate source documentation and invoices totaling at least the amount to be refinanced. In addition to invoices for eligible project costs, the following documentation is needed:

• a copy of the interim debt agreement, i.e., BAN, NAN, promissory note, etc.;
• a statement of interest charged on the interim debt;
• a statement of interest earned on investment of the proceeds of the interim debt; and 
• a statement of fees charged for issuance costs, e.g., legal fees, financial advisor fees, an underwriter's discount and/or printing costs.

Contact Information

Contact information

Kim Leizinger, interim debt specialist

Corey Pope, interim debt specialist

DOA Capital Finance Office staff at DOAEIF@wisconsin.gov

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