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Escrow Verification

Escrow Verification

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In order to take advantage of improved market conditions and achieve economic savings, districts may issue new bonds at lower interest rates and use the proceeds to redeem higher interest debt. The district may also choose to refund bonds with restrictive covenants that may be an obstacle to future growth and success. The proceeds of the refunding issue are invested in an escrow account held by a trustee until the refunded bonds can be redeemed.

According to the Internal Revenue Code, the yield on the interest earned in the escrow account cannot exceed the interest yield on the refunding bonds. The district is required to engage a CPA to confirm the adequacy of the escrow to meet debt service requirements on the refunded bonds, and to confirm that the yield on the escrow does not exceed the yield on the refunding bonds.