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Originally Posted by Mr.Kris
The bonds on the tax bill are for infrastructure - roads, sewers, etc.
The bonds for the rec facilities are financed (serviced) through the amenity fees.
The IRS is questioning the bonds for the rec facilities stating that they are "arbitrage" bonds.
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Definition of 'Arbitrage Bond'
A debt security with a lower interest rate issued by a municipality prior to the call date of the municipality's existing higher-rate security. Proceeds from the issuance of the lower-rate bonds are invested in treasuries until the call date of the higher-interest bonds.
Arbitrage bonds are used by municipalities when they wish to arbitrage the difference between current lower interest rates and bonds that they may have issued at higher coupon rates in the past. This strategy, which enables them to reduce the net effective cost of their borrowings, is particularly effective when interest rates and bond yields are declining.
Investopedia Says
Investopedia explains 'Arbitrage Bond'
The chief attraction of municipal bonds is their tax exemption feature. Arbitrage bonds may qualify for a temporary tax exemption as long as the proceeds from net sales and investments are to be used in future projects. If, however, the project experiences a significant delay or cancellation, the municipality may be taxed.
I have way too much time on my hands......