Tax-Exempt Commercial Paper / Equipment Financing Program
The California State University Office of the Chancellor, under the delegation of authority granted by the Board of Trustees, has implemented a tax-exempt commercial paper program to fulfill the equipment financing needs of CSU campuses and auxiliary organizations. The CP program is focused on providing a cost-effective financing vehicle to complement the existing vendor financing program.
Commercial paper will be issued by The California State Institute (the "Institute"), a CSU auxiliary with tax-exempt bond issuance authority, and managed by the office of Financing and Treasury (FT) of the CSU Office of the Chancellor.
In an effort to avoid arbitrage and rebate requirements set forth by the Internal Revenue Service, the Institute issues commercial paper with the primary purpose of applying the proceeds from the note issuance as reimbursement to campuses and auxiliary organizations for their actual equipment acquisition expenses incurred prior to the tax-exempt CP issuance. In that respect, the Institute will not issue CP in anticipation of the campus making payment and/or receiving and accepting the equipment. The amount of equipment financing is limited to $5 million dollars per transaction, and the minimum at $100,000. The CP issuance will be on a quarterly basis, with debt service repayment derived from lease payments from campuses and/or auxiliary organizations.
The Institute launched the first tax-exempt CP equipment financing on June 1, 2006, with a particular focus only on the financing of costs associated with Common Management System (CMS) software implementation. On September 1, 2006 and thereafter, the Institute began issuing commercial paper for financing of costs for equipment, as well as CMS. Starting June 1, 2007, CP may be issued to refinance existing equipment.
The Institute internally sets the loan rate on an annual basis. For the period of June 1, 2014 through May 31, 2015, the loan rate is set at 2.00%.
Interest may be capitalized only during the period necessary to complete the acquisition and installation of equipment (i.e. the installation and testing period for software).
Further details on CP equipment financing program are provided in the following sections for campuses and/or auxiliary organizations interested in this financing program.