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What are tax-exempt IDBs? Tax-Exempt IDBs are obligations issued by a state or political subdivision on a tax-exempt basis to finance manufacturing facilities for private business users, in order to induce private entities to establish or expand businesses in that political subdivision, thus creating more jobs and related economic benefits in a community.
The proceeds of tax-exempt IDBs are loaned to the private business by the governmental entity that issues the bonds. Since tax-exempt interest rates are generally lower than conventional, taxable loans that a private business could arrange on its own, the private business can build or expand its facilities at a lower cost. Peck Shaffer has been a leader in this area of finance for many years, serving as bond counsel and underwriter's counsel on transactions nationwide.
What types of business can benefit from IDBs? Gone are the days when the construction of restaurants, shopping malls and office buildings could be financed with the proceeds from tax-exempt IDBs (although such projects can be financed through the issuance of taxable IDBs, as discussed below). Tax-exempt IDBs can be issued for "manufacturing facilities" and certain facilities related thereto. What constitutes "manufacturing" and what portion of a project can qualify for tax-exempt IDB financing is often a complex question, but our attorneys have the experience and ability to guide a transaction through the many state and federal laws that apply to such bond issues. We get to know the private borrower's business and officers through meetings and questionnaires in order to determine whether the project meets all of the tests to permit financing with tax-exempt IDBs. We "quarterback" the transaction so that all of the various parties (underwriters, issuer, trustee, credit enhancer, borrower and all attorneys) know the schedule and the bond issue runs as smoothly as possible. Such financings require on-going compliance with state and federal laws after the closing of the bond issue and Peck Shaffer is always available to the private business to answer questions and provide assistance, to ensure that the bond issue remains tax-exempt.
What are taxable IDBs? Taxable IDBs are a financing alternative for borrowings that cannot qualify for tax-exempt IDBs. Financings that exceed $10 million or those related to projects that do not qualify as manufacturing facilities, may employ taxable IDBs as a financing mechanism. (For further information see "ECONOMIC DEVELOPMENT – Taxable Obligations.")