Ohio Public Law Update

    View Author Summer 2008
    Soon, the Internal Revenue Service (IRS) will begin asking governmental issuers of tax-exempt bonds about their compliance with the tax requirements governing those bonds.

    Between 200 and 500 governmental issuers will receive a Post-Issuance Tax Compliance Questionnaire from the IRS in the coming weeks. You might be one of them and now is the time to prepare.

    New Developments

    The IRS continues to ratchet up its scrutiny of tax-exempt bonds. In May 2006, the IRS began mailing Compliance Check Questionnaires to a sampling of
    501(c)(3) organizations that were conduit borrowers of tax-exempt bond proceeds. These Questionnaires are not an audit, but they may trigger an audit. The Questionnaires probed compliance with the broad range of tax requirements including arbitrage and rebate rules, how bond proceeds were spent and use of bond-financed facilities. But the centerpiece of the Questionnaire was its inquiry into the procedures the conduit borrowers had in place to comply with the tax-exempt bond requirements after the bonds were issued.

    Now the IRS is turning its focus to governmental issuers of bonds.

    Completion of a Compliance Questionnaire is voluntary. However, failure to reply to this Questionnaire will raise a red flag with the IRS that will substantially increase the risk the IRS will select a nonresponding entity for an audit. The IRS unit in charge of monitoring tax-exempt bond issuers has specifically stated that a main goal of these Questionnaires is to help the IRS select the issuers most ripe for audit. Steven T. Miller, head of the IRS tax-exempt bond compliance unit, noted, rather ominously, of the governmental issuers who do not respond: "[W]e will be in contact with them later."

    In its initial round of Compliance Questionnaires to conduit borrowers, the IRS did not ask when an organization adopted its procedures for monitoring post-issuance compliance with the tax-exempt bond rules. This allowed many conduit borrowers to quickly draw up procedures and then answer "yes," they had adopted such compliance procedures. The IRS has indicated that its future Compliance Questionnaires will ask when post-issuance compliance procedures were adopted. The IRS has said that after-the-fact adoption of compliance procedures is certainly encouraged. Nevertheless, listing an adoption date for compliance procedures after the date an issuer receives a Questionnaire also could raise a red flag with the IRS.

    These Compliance Questionnaires are part of the IRS' announced plans for increased scrutiny of issuers of tax-exempt bonds. While no penalties will flow directly from telling the IRS that you do not have post-issuance compliance procedures in place, or from telling the IRS that your post-issuance compliance procedures were put in place only after receiving a Questionnaire, such answers may increase your risk of being audited.

    How Squire Sanders Can Help

    Squire Sanders has broad experience in helping clients comply with the tax-exempt bond rules including the establishment of post-issuance bond compliance programs, gathering compliance and other information, and representing clients during IRS investigations and audits of their tax-exempt bonds. Our lawyers are available to advise you on establishing a compliance program, analyzing the compliance program you currently have in place or responding to the Compliance Questionnaire. For further information and assistance, please contact the Squire Sanders public finance lawyer with whom you usually work.

    Updates to "Developments in the Prevailing Wage Law" Reported in Our Spring 2008 Newsletter

    • The Ohio Supreme Court on July 9, 2008, accepted the appeal of the decision of the Ninth District Court of Appeals in Sheet Metal Workers' International Association, Local Union No. 33 v. Gene's Refrigeration, Heating & Air Conditioning, Inc. (Case No. 2008-0780). The key issue on appeal is whether work consisting of offsite fabrication and assembly should be subject to prevailing wage requirements.

    • We trust you have seen press reports that the Ohio Department of Commerce is reviewing the application of prevailing wage, particularly in instances in which public funds are used for portions of private-public partnership projects. This is significant because the Department of Commerce is responsible for the administration of State prevailing wage requirements.

    Squire Sanders lawyers are actively following these matters and are available to provide counsel and advice regarding prevailing wage compliance in light of these pending developments.

    Recent Legislation of Interest

    House Bill 138, effective September 11, 2008, changes the procedures related to judicial sales of property to, among other things, ensure that deeds in foreclosure proceedings are promptly recorded so that the property owners may be found. The Bill further authorizes certain political subdivisions to purchase tax delinquent vacant land or abandoned or nonproductive lands if the taxes and charges exceed the county auditor's market value, without appraisal or foreclosure sale. Further, properties that under current law are forfeited to the State after failure to find a purchaser in foreclosure could be transferred to a political subdivision at the option of that political subdivision.

    House Bill 554 (Ohio Economic Stimulus Bill), most provisions of which were effective June 12, 2008, provides increased and/or accelerated State funding for local government infrastructure and broadband initiatives, coal research and development, advanced energy, and logistics and distribution projects; establishes the Bioproducts Development Program and Biomedical Development Program, both to be administered by the Third Frontier Commission; and extends the historic building rehabilitation tax credit for two additional years, providing limits on the amount of those credits.

    Recent Decisions of Interest

    Tax Commissioner may not exempt property from taxation unless the exempt use began by the tax lien date (January 1) of the year for which the exemption is sought. Sylvania Church of God v. Levin, 118 Ohio St.3d 260

    Unsuccessful bidder's procedural due process rights were not violated where the contract and relevant municipal ordinances provided that the contract would be awarded to the "lowest and best bidder" and even the lowest and best bid could be rejected if the bid "is not in the best interest of the city"; no property interest is created when a city properly exercises its discretion and does not award a contract to a party deemed not to have complied with the requirements of the invitation to bid. Cleveland Constr., Inc. v. Cincinnati, 118 Ohio St.3d 283

    Whether a governmental regulatory action substantially advances a legitimate state interest is no longer an appropriate test in evaluating constitutional takings claims based on such action; property owner in such case does not need to allege a denial of all economically viable use and may be able to claim a partial regulatory taking under the Penn Central standard. State ex rel. Gilmour Realty, Inc. v. Mayfield Hts., 119 Ohio St.3d 11

    In city's action challenging constitutionality of
    R.C. 9.481, prohibiting municipal enactment of employee residency legislation, statute was held constitutional as within legislature's authority to enact employee welfare legislation under Article II, Section 34 of the Ohio Constitution. Dayton v. State, 2008-Ohio-2589 (Ohio App. 2nd Dist.)

    In city's action to declare unconstitutional R.C. 9.481 that invalidates municipal employee residency requirements, summary judgment for state and unions was error since statute was not properly enacted under general employee welfare provision of Article II, Section 34 of the Ohio Constitution. Cleveland v. State, 2008-Ohio-2655 (Ohio App. 8th Dist.) Note: as evidenced by this case and the prior case, there is a "split" among Ohio Appellate Districts as to the constitutionality of
    R. C. 9.481 that will hopefully be resolved soon by the Ohio Supreme Court.

    Based on the requirements set forth in R.C. 7.12, an online version of a newspaper is not a "newspaper of general circulation" on its own merits. 2008 Op. Att'y General No. 2008-013

    An audio tape recording of a meeting of a board of township trustees created by the township fiscal officer for the purpose of taking notes to create an accurate written record of the meeting is a public record for purposes of R.C. 149.43. 2008 Op. Att'y General No. 2008-019

    Under R.C. 5901.37, the board of county commissioners is required to pay from the general fund the expenses necessary to care for and "properly preserve" veterans' monuments located in all cemeteries within the county including private, township and municipal cemeteries. 2008 Op. Att'y General No. 2008-027

    A golf cart is a motor vehicle and may not be driven on public streets and highways unless it meets the statutory requirements that are applicable to motor vehicles including operating and equipment requirements. The Americans with Disabilities Act does not require a public entity to refrain from enforcing motor vehicle equipment and operating standards in order to allow a person who is disabled to use a golf cart for personal transportation on public streets and highways. A public entity may be required, however, to grant to a person who is disabled a more limited modification to such standards if the facts developed from an individualized inquiry demonstrate that the limited modification is reasonable and would enable the person to meet those standards necessary to the public safety. 2008 Op. Att'y General No. 2008-30