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Reimbursement Resolution

Clean Water Fund Program and Safe Drinking Water Loan Program

The following is intended to provide general guidance for the reimbursement resolution, which is also known as the declaration of official intent to reimburse.

Dept. of Treasury and IRS Reimbursement Regulations

A municipality should consult with its bond counsel as to how the U.S. Department of the Treasury and the Internal Revenue Service (IRS) regulations apply to its specific project and financing plan. The Dept. of Treasury and IRS regulations on proceeds of bonds used for reimbursement can be found in 26 CFR 1.150-2.

What is a Reimbursement Resolution?

The reimbursement resolution, required by the Dept. of Treasury and IRS, declares the municipality's official intent to reimburse a municipal account with financial assistance proceeds (from a bond or promissory note) and meets the requirements established in 26 CFR 1.150-2.

The reimbursement resolution shows municipal intent to borrow at a future date to reimburse the general fund, or another fund, for project expenses paid by the municipality.

Submit Reimbursement Resolution with Application

A reimbursement resolution is required as part of a complete application for financial assistance from the Clean Water Fund Program (CWFP) or the Safe Drinking Water Loan Program (SDWLP).

  • Upload an electronic copy of the adopted reimbursement resolution with the application through the online application system.

Note: The BIL-funded Lead Service Line (LSL) Replacement Program does not require a reimbursement resolution with the application for LSL projects because the bonds are considered taxable due to the private activity.

In order to ensure compliance with IRS regulations, the CWFP and SDWLP strongly encourage municipalities to adopt a reimbursement resolution before spending any money from municipal accounts that will be reimbursed with CWFP/SDWLP loan proceeds.

Ineligible for Reimbursement

Failure to pass a reimbursement resolution can result in project costs that cannot be reimbursed by the CWFP or SDWLP. Project costs paid by a municipality out of its internal accounts, before adopting a reimbursement resolution, may not be eligible for reimbursement from the CWFP/SDWLP loan proceeds.

Exceptions

The U.S. Department of Treasury and IRS regulations contain two exceptions to the reimbursement resolution requirement described above.

Preliminary Expenditure Exception

A municipality may use CWFP/SDWLP loan proceeds to reimburse internal municipal accounts without first adopting a reimbursement resolution for "preliminary expenditures" not in excess of 20% of the total CWFP/SDWLP loan amount. Preliminary expenditures include engineering for facilities plans, engineering reports, plans and specifications, surveying, soil testing, loan closing costs and similar costs that are incurred prior to the start of construction. Preliminary expenditures do not include land acquisition, site preparation, and similar pre-construction costs.

De Minimis Exception

A municipality may use CWFP/SDWLP loan proceeds to reimburse internal municipal accounts without first adopting a reimbursement resolution if the amount of the reimbursement does not exceed the lesser of $100,000 or 5% of the CWFP/SDWLP loan amount.

Resolution Content

A reimbursement resolution must be adopted within 60 days of when the first payment of project costs to be reimbursed is made and contain the following three elements.

Statement of Expectation to Reimburse

The reimbursement resolution must contain a statement that the municipality reasonably expects to reimburse expenditures with proceeds of debt to be incurred by the municipality. The reference to "debt" need not specifically refer to a CWFP/SDWLP loan.

Description of Project

The reimbursement resolution must contain a general description or function of the project (include the DNR-assigned project number, if known). The reimbursement resolution could also include an identification of the fund or account to be reimbursed and a description of the general functional purpose of the fund or account (for example, the "sewage system capital improvements fund").

Maximum Principal Amount

The reimbursement resolution must state the maximum principal amount of debt expected to be issued for the project, i.e., the estimated amount of the CWFP/SDWLP loan.

Sample Resolution

Questions regarding the sample reimbursement resolution should be directed to the municipality's bond counsel.

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18-month Rule

Municipalities should submit invoices for reimbursement in a timely manner to comply with 26 CFR 1.150 2(d)(2)(i). In general, the reimbursement of municipal accounts from CWFP/SDWLP loan proceeds must occur not later than eighteen months after the later of:

  • the date the original expenditure is paid; or
  • the date the project is placed in service or abandoned, but in no event more than three years after the original expenditure is paid.

Principal and Interest Payments

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.

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

What is the Difference Between "Reimbursement" and "Refinancing"?

Chapters NR 162.04(3) and NR 166.07(3), Wis. Adm. 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.

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

Eligible Municipal Accounts

The CWFP/SDWLP may only reimburse a municipal account that is funded by ordinary municipal revenues. This does not include accounts created by the issuance of debt. A borrowed money or related account mandated by Wisconsin Statutes for the issuance of debt cannot be reimbursed.

Old Reimbursement Resolutions

If the municipality's reimbursement resolution is more than 2-3 years old at the time the project is starting, it is suggested that the reimbursement resolution be reviewed to determine if the amount stated in the original resolution still covers the estimated amount of the CWFP/SDWLP loan. If not, the municipality will need to adopt a new reimbursement resolution indicating the maximum principal amount of debt expected to be issued for the project that will be reimbursed through the CWFP/SDWLP loan.

Contact Information

Contact Information

Direct reimbursement resolution questions to your bond counsel.

Direct debt issuance questions to your municipal advisor.

Direct project-specific questions to the assigned DNR loan project manager.

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