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requirements that are violated by the developer-owner of the
project.
The Whitewater project was never built; no units were ever
built for rental to low- and moderate-income tenants or to anyone
else. Indeed, the Whitewater project could never have been built
with bond proceeds because, on February 20, 1986, $16,110,817.98
(91 percent) of the $17,778,146.53 of the Whitewater bond
proceeds was invested in a GIC that had the same maturity as the
bonds.
The appropriate test is whether the issuer reasonably
expects, at the time the bonds are issued, that substantially all
of the bond proceeds will be devoted to the exempt facility and
the issuer thereafter takes steps to ensure that the bond
proceeds are used in a manner consistent with those expectations.
In addition, in conduit financing transactions such as Whitewater
and Ironwood, the expectations and subsequent conduct of the
conduit borrowers, the Whitewater and Ironwood partnerships, must
also be considered. Industrial development bond financing by
definition contemplates significant involvement by
nongovernmental parties. Interest on industrial development
bonds is exempt from taxation only if the exempt facility rules
are met. Because the exempt facility rules require proceeds to
be spent in a specified manner and because a conduit borrower is
a necessary party to an exempt facility financing, testing
compliance with the exempt facility rules in the use at hand
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