Industrial Revenue Bonds
The City of Naperville is pleased to announce that it has been allocated just under $14.5 million in volume cap for 2015.
As a home rule community, the city is granted an amount per capita each year by the state for the issuance of private activity bonds in the form of Industrial Revenue Bonds. These bonds assist manufacturers with expansion projects. The City supports the use of the volume cap as a tool available to encourage economic development and capital investment within Naperville.
The City is now seeking applications from organizations and businesses that may be able to benefit from this type of low-interest cost financing.
Benefits of Industrial Revenue Bond financing include:
- Long-term financing at interest rates lower than conventional financing, usually below prime
- Fixed or variable rate financing
- Finance up to 100% of project cost (subject to credit approval and underwriting standards of the borrower's bank)
- Interest to Bondholders on Industrial Development Revenue Bonds is exempt from federal income taxation but is not exempt from (and is subject to) State of Illinois income taxation.
Industrial Revenue Bonds Program
What projects are eligible?
Federal law defines eligible projects. IRBs are a means of financing the construction, expansion and/or equipping of, primarily, manufacturing facilities. Manufacturing generally includes nearly every type of processing that result in a change in the condition of tangible and intangible property. Intangible property includes patents, copyrights and computer software. The proceeds of the bond issue may be used to finance the cost of land, construction of new or expanded facilities, purchase of equipment, and the payment of certain costs incurred in the issuance of the bonds.
Prospective IRB users should consult with bond counsel on project eligibility and the use of bond proceeds.
Are there any limitations?
Federal tax law imposes some limitations on IRBs. The maximum size of a bond issue is $10 million subject to certain conditions. For bond issues exceeding $1 million, capital expenditures in the city during the three years before and the three years after the date on the bonds are issued cannot exceed $20 million. Also, the total amount of the IRBs outstanding at all related operations of the business, in all states, may not exceed $40 million. Because of financing costs, IRBs are typically used for larger capital projects, exceeding $1million.
The tax code also limits the amount of most types of tax-exempt private activity bonds (bonds which benefit non government persons or business) that can be issued in each state each year. This limit is called the annual statewide volume cap and is allocated to the municipalities in the State. Businesses that receive an allocation of the volume cap are also required to report on the project’s impact on employment.
Once an allocation is granted by the City the recipient will have 90 days in which to issue the bonds, or the allocation may revert back to the City for possible re-distribution.
How does the financing work?
The business must secure the buyer or the underwriter of the bond issue. The bonds are issued by the municipality, which in turn, lends the proceeds of the sale to the business. The funds come from private lenders or from public markets. Tight credit standards apply. The facilities and equipment are pledged as collateral for the loan. A letter of credit or bond insurance is often required. Since the City is not responsible for the loan, the IRB des not have any impact on the City’s credit rating.
How do I express an interest in participating in these programs?
Businesses that are interested in participating in an IRB program can contact Finance Director Rachel Mayer at (630) 420-6052. Applications will be processed as received, until such time as the volume cap should be fully allocated. The City will evaluate the proposed projects suing criteria such as, but not limited to, job creation, growth of local businesses and enhancement of tax generation.
An applicant should be prepared to make a brief oral presentation to the City and to respond to any questions.
All 2015 IRBs for the City must be allocated by December 31, 2015.