How does an Industrial Development Authority Work?
Private Activity Bonds are issued by an IDA to provide financing for qualified projects. Interest on private activity bonds in most cases are not subject to federal income taxes. An eligible applicant submits a proposal to the IDA. After review by the IDA Board for consistency with the State Statutes and goals of the Town of Gilbert, approval or disapproval is given. The primary focus of the IDA is the creation of jobs for Gilbert and assisting in the financing of projects of benefit to the community. The proposal is then submitted to Mayor and Council for final approval.
Responsibility of the IDA and the Mayor and Council?
The applicant for a particular project will demonstrate to the IDA Board, the Mayor and Council, the bond issuers and bond buyers that the applicant has the financial where with all to pay all the principal and interest. It is not considered a debt or obligation of the municipality or the IDA nor does it affect the legal borrowing capacity of the Municipality.
Where do the bonds come from?
Arizona's allocation of the volume cap is administered by the Arizona Department of Commerce. Many types of projects that are eligible for tax-exempt financing are subject to the federally required annual volume cap which restricts the amount of certain tax-exempt private activity bonds that can be sold in any one state. Historically, in Arizona the demand for volume cap far exceeds the supply. It is important to note that not-for-profits are exempt from volume caps and this eliminates a lot of administrative nuances in processing the transaction.
What is the benefit of an Industrial Development Authority?
These bonds are beneficial as they can provide reduced interest costs and longer terms than a traditional bank loan. They are not secured by the Municipality’s credit but by the private owner of the property to be financed.
What types of projects can IDA Bonds fund?
Per Arizona law, IDA’s may issue bonds to finance various types of facilities, although not all such financings would be tax-exempt. Many must be of nonprofit status or owned by the government. Examples of the types of facilities eligible to be financed by an IDA include:
- Industrial and manufacturing facilities and the purchase of equipment and facilities for the furnishing of water, sewage and solid waste facilities and more;
- The creation of intellectual property including software development;
- Office building or buildings for use as corporate or company headquarters or regional offices;
- A health care institution as defined in Section 36-401;
- Convention and trade show facilities;
- Airports, docks, wharves, mass commuting facilities, parking facilities, or storage or training facilities;
- Industrial park facilities (tax-exempt financing is not available);
- Air or water pollution control facilities (tax-exempt financing is not available);
- Any educational institution operated by a nonprofit educational organization that is exempt from taxation under Section 501(c)(3) of the United States Internal Revenue Code not otherwise funded by state monies or any educational institution or organization established under the provisions of Title 15, Chapter 1, Article 8 and owned by a nonprofit organization;
- Research and development facilities;
- A child welfare agency, as defined in Section 8-501;
- A transportation facility constructed or operated pursuant to Title 28, Chapter 26, Article 1 or 2 (tax-exempt financing only if owned by a 501(c)(3) entity);
- A museum operated by a nonprofit corporation;
- Facilities owned by a nonprofit corporation engaged in delivering the community services listed in the statute.