Industrial Revenue Bonds

The Benefits of Industrail Revenue Bonds

Industrial Revenue Bonds (IRBs) are tax-exempt obligations issued by governmental bodies for the benefit of private companies to facilitate the financing of certain business projects. The debt service on the bonds is paid solely by the borrowing company. The interest paid to bondholders may be exempt from federal income tax code; consequently, IRBs may provide lower interest rates than conventional financing. IRBs, and documents underlying them, including mortgages and notes, are also usually exempt from Florida documentary stamp taxes and intangible taxes.

Eligible Projects for IRB Financing

The federal income tax regulations permit IRBs to be issued for (i) manufacturing facilities (”Manufacturing Facility”), (ii) water, sewer, solid waste and qualified hazardous waste facilities (”Exempt Facilities”), and (iii) not-for-profit organizations designated by the IRS as a qualified Section 501(c)(3) organization (”Non-Profit”).

Project Costs that can be Financed with IRBs

Proceeds from IRBs may be used to finance the purchase, construction, extension, renovation and improvements of eligible projects, including real estate located within Polk County, buildings, fixtures, and machinery.

Limitations on Financing with Industrial Development Bonds

Subject to federal allocation limits, the maximum amount that can be borrowed on a tax exempt basis for a manufacturing facility is $10 mllion. This may be further limited by capital expenditures made by the company within the past three years, and in the following three years, in the jurisdiction where the financed project will be located. There are generally no limits on the amount that can be borrowed to finance on a tax-exempt basis an Exempt Facility or Non-Profit. Some additional limitations include:

• At least 95 percent of the amount financed must be spent on qualified project costs (which includes the cost of land and depreciable property).
• Less than 25 percent of the net proceeds can be used to finance the acquisition of land.
• No more than two percent of the proceeds of tax exempt bonds may be spent on bond issuance costs.
• In general, to be eligible to be reimbursed from bond proceeds, expenses must not be incurred more than 60 days prior to the Polk County Industrial Development Authority’s initial resolution that starts the bond issuance process

The Process for Issuing IRBs

Interested applicants should first consult with a financial advisor and legal counsel to determine if their proposed project qualifies for IRB financing and whether the interst savings justify the costs of using IRB financing. If the project is eligible for IRB financing, an application with the Polk County Industrial Development Authority (the “Authority”) should be completed and submitted. All information provided to the Authority becomes property of the Authority and may be subject to public records laws under Chapter 119, Florida Statutes. The Authority must make certain findings regarding the financial responsibility of the proposed borrower and the structure of the financing before it can proceed with a financing. Following a public hearing on the proposed financing, the Polk County Board of County Commissioners will consider a resolution approving the issuance of the IRBs. For Maufacturing Facilities or Exempt Facilities, in most cases, a state-wide limitation on the amount of IRBs that can be issued, known as “volume cap,” must be complied with.

The borrower is fully responsible for repaying the loan that is secured by teh IRBs and all costs associated with the financing. The borrower is also responsible for obtaining credit endorsements, such as a bank letter of credit or otherwise arranging for the purchase of the bonds in a manner acceptable to the Authority. The process for issuing IRBs can take as little as two months but may take longer depending on the complexity of the request.

Contacts

Michael Craig, Polk County Attorney

IRB Financing Specialist

Charles Sands

Bond Counsels for Companies

Ed Vogel

Hank Morgan

Enterprise Florida’s Enterprise Bond Program

• $800,000 to $2 million or more
• Small Industrial Revenue Bonds

Louis Laubscher