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ctcLink Accounting Manual | 40.70 Certificates of Participation (COPs)

40.70 Certificates of Participation (COPs)

2022-06-30

To increase the efficiency and cost effectiveness of lease/purchase activity, the State established a master lease purchase program administered through the Office of the State Treasurer (OST or TRE). This program uses certificates of participation (COPs) as a financing mechanism.  COPs are a funding method used for the purchase or construction of a fixed asset. They are essentially loans with the Office of the State Treasurer, which are backed by bonds issued by the state. They require semi-annual payments on interest and annual payments on principal.

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Equipment/Real Estate Acquisition Program

Under this program, a capital asset is generally acquired with a single transaction.

Construction Program

Under this program, an asset is constructed. The construction activity takes place over a period of time and involves multiple transactions. If the construction period is lengthy and debt service on the COP is required during the construction phase. Interest costs during construction phase are not capitalized.

COP Refunding Program

When advantageous and permitted by statute or COP covenants, the state refunds outstanding COPs. Refunding occurs when new COPs are issued to provide resources to satisfy the debt service requirements of an outstanding COP issue.

An economic gain or loss arises because of a refunding. The economic gain or loss is computed by determining the difference between the present value of cash flow requirements of the refunded debt and the present value of cash flow requirements of the refunding debt.

The economic gain or loss must be disclosed in the notes to the financial statements.

Current Refunding

To qualify as a current refunding, the refunded debt must all mature or be redeemed within 90 days from the date of issuance of the refunding debt.

Advance Refunding*

The net proceeds of the refunding issue are used to purchase U.S. Government securities, which are placed in irrevocable trusts with escrow agents to provide for all future debt service payments on the refunded COPs until the COPs are called or mature. The refunded COPs are considered to be defeased. Neither the liability for the refunded COPs nor the securities held in the irrevocable trusts are reflected in the college’s financial accounting records.

* At this time OST only issues current refunding and does not issue advance refunds of COPs.

OST issues bonds three times a year generally in February, June, and October.

To participate in the bonds, colleges must submit required paperwork (beginning with the Notice of Intent) to OST approximately 3 months prior to the bond sale. For real estate financing leases, agencies are required to obtain State Board and legislative authorization in the capital budget.  

An overview, guidance and forms are available on the OST website.

Funds normally become available within 30 days of the sale of the bonds.  Colleges will be notified by OST of the placement of funds into a Local Government Investment Pool (LGIP) construction account in the college name.

The college should record the COP entries as of the date the funds were deposited into the LGIP account.

Colleges must submit a Request for Release of Proceeds from with supporting documents (e.g., title, invoices, etc.) to receive the funds.

 


40.30.10.4 Deposits in Transit <<  40.70 >>  40.70.40 Accounting for COPs - Governmental


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Page Manager: slocke@sbctc.edu
Last Modified: 3/12/24, 8:59 AM

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