Industrial Development Bonds

Cities and counties can purchase or construct certain types of projects, such as warehouses, distribution facilities, and industrial plants with bond proceeds to then lease or sell to a company. Methods of Issuance "Chapter 100" City or County Industrial Development Bonds Sec. 100.010 to 100.200, RSMo allows cities or counties to purchase or construct certain types of projects with bond proceeds and to lease or sell the project to a company. These "industrial development" bonds may be issued either as a "revenue" bond or a general obligation bond. Eligible Projects The and improvement of warehouses, distribution facilities, and industrial plants, including the real estate either within or without the limits of such machinery; except that any project of a municipality having fewer than eight hundred inhabitants shall be located wholly within the limits of the municipality. (HB 1656 of the 1998 legislative session will go into effect 1/1/99 which adds "office" projects.) Revenue Bond An industrial development "revenue " bond does not require a public vote and does not have the general credit of the city as a guarantee. Since revenue bonds are merely a "pass through" (as the bonds are sold on the basis of the company's credit), there are four reasons that Chapter 100 Revenue Bonds may be a benefit: The interest received by the bondholders may be exempt from federal and state income taxes, if the project is eligible. (See Tax-Exempt Bond Requirements) Real estate or other assets may be exempt from some or all property taxes if structured as a lease to the company. (See Property Tax Exemption/Abatement) The company may desire an "off-balance sheet" lease structure, with the city/county owning the facility. The lease could be structured as an "operating" lease under generally accepted accounting standards; and If the city/county owns the facility and purchases the building materials, the building materials would likely be exempt from state and local sales taxes. (See Sales Tax Exemption) General Obligation Bond A "general obligation" Chapter 100 Industrial Development Bond requires a 2/3 public voter approval since it will have the credit of the city or county issuer as a guarantee on the bonds. The 4/7 vote on municipal general obligation bonds does not apply to "industrial development" general obligation revenue bonds. The benefit of General Obligation bonds is that the bonds are highly marketable, whether or not the company's credit is good. Even if the company's credit is good, General Obligation bonds typically will have a somewhat lower interest rate. It is rare in Missouri for a city or county to issue general obligation, industrial development bonds. The downside to this approach is that if the company (who is the underlying borrower or lessee) defaults, the city or county must make up any deficiency to the bondholders either by their budget reserves or an increase in property taxes. The limited number of general obligation bonds that have been issued were for industrial buildings that were highly marketable to other companies. Tax-Exempt Interest The interest paid to bondholders may be exempt from federal income taxes if the project meets eligibility requirements that would allow a lower interest rate. (See Tax-Exempt Bond Requirements for eligibility.) Most industrial revenue bonds would be exempt from state income taxes whether or not they would be exempt from federal income state income taxes are low, this is a negligible benefit. Taxable bonds may be issued if the project does not meet the federal eligibility requirements, but there is no significant benefit compared to conventional financing by a bank or other lenders. Property Tax Exemption/Abatement Upon the approval of the city/county issuer, it may be possible to exempt/abate most of the real and/or personal property tax of new real estate improvements and new machinery financed by a Chapter 100 bond.

Eligible Projects The and improvement of warehouses, distribution facilities, and industrial plants, including the real estate either within or without the limits of such machinery; except that any project of a municipality having fewer than eight hundred inhabitants shall be located wholly within the limits of the municipality. (HB 1656 of the 1998 legislative session will go into effect 1/1/99 which adds "office" projects.) Revenue Bond An industrial development "revenue " bond does not require a public vote and does not have the general credit of the city as a guarantee. Since revenue bonds are merely a "pass through" (as the bonds are sold on the basis of the company's credit), there are four reasons that Chapter 100 Revenue Bonds may be a benefit: The interest received by the bondholders may be exempt from federal and state income taxes, if the project is eligible. (See Tax-Exempt Bond Requirements) Real estate or other assets may be exempt from some or all property taxes if structured as a lease to the company. (See Property Tax Exemption/Abatement) The company may desire an "off-balance sheet" lease structure, with the city/county owning the facility. The lease could be structured as an "operating" lease under generally accepted accounting standards; and If the city/county owns the facility and purchases the building materials, the building materials would likely be exempt from state and local sales taxes.