City Council Study Session Agenda and Packet 2011 10 25

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Industrial Development Bonds Frequently Asked Questions What are Industrial Development Bonds? Industrial Development Bonds (IDBs) are tax - exempt Private Activity Bonds issued by a state or local governmental entity on behalf of manufacturing facilities to finance qualified capital projects. The private user benefits from the governmental entity's tax - exempt status and its ability to issue debt obligations at tax - exempt rates. As a result, the manufacturer receives a lower interest rate on the financing than comparable taxable or conventional financing. Who is eligible to receive tax - exempt IDB financing? The Tax Code only permits the issuance of qualified small issues for manufacturers, defined as companies that assemble, fabricate, manufacture, or process a product for resale. A "manufacturing facility" is defined as facility used in the manufacturing or production of tangible personal property. The definition includes processing that results in a change in the condition of such personal property. What can the tax - exempt bond proceeds be used to finance? The proceeds of an IDB issue can be used for the following purposes: • Building and Equipment • Machinery and Furnishings • Land, Landscaping • Costs of Issuance (limited amounts) • Cost of architects, engineers, attorneys, permits (limited amounts) What is the maximum amount of tax - exempt financing for a manufacturer? The maximum face amount of a tax - exempt IDB is $10 million per company, per public jurisdiction. The capital expenditures for a manufacturing company that receives tax - exempt financing cannot exceed $20 million during the six (6) year period covering the three (3) years prior to and three (3) years following the issuance of the bonds, including the amount of the bond issue. In addition, a company may not exceed $40 million in tax - exempt bonds, in aggregate, for all locations. 5