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of Summit, Medina, and Portage Counties
The Community Improvement Corporation (CIC) is an Ohio non-profit corporation created for the purpose of approving projects for industrial development revenue bond financing. Most CICs approving projects have an application form and many require the payment of a fee. Most CICs will meet shortly after receiving a completed application and will consider and approve the project at that meeting.
What is Industrial Development Revenue Bond Financing?
Industrial Development Bond financing involves the issuance of tax-exempt bonds by a public body, such as a city, county, development authority or state, to finance the construction, improvement or acquisition of land or property for a manufacturing facility. Under this program businesses may borrow up to $10,000,000 on a tax-exempt basis.
What are the advantages of Industrial Development Revenue Bond Financing?
The primary advantage to a company using Industrial Development Revenue Bond s is the lower tax-exempt rate or interest. Historically, the spread between interest rates on Industrial Development Revenue Bond issues and comparable conventional financing have ranged from 2% to 3% for the same quality company.
Another tax advantage is that the company treats the project as its own, thereby permitting the company to take depreciation (on a straight-line basis) and to expense the interest.
Industrial Development Revenue Bonds may be sold without registration under the Securities Act of 1933, as amended. This gives the borrowing company access to the public debt market without incurring the costs of being subject to the time delays inherent in registered debt offerings.
What costs can be financed in one issue?
Costs in connection with the acquisition or construction of the Project (including land, buildings, and equipment), legal fees, architectural fees, underwriting costs, interest during construction when capitalized and other miscellaneous costs related to the issuance of the Bonds can be financed in one issue. It should be noted, however, that at least 95% of the proceeds of the bonds must be applied to the costs of the land or depreciable property and that no more than 2% of the proceeds from the sale of the bonds can be used to finance issuance costs. In addition, when bond proceeds are used to acquire existing depreciable assets, the purchaser may be subject to certain rehabilitation requirements.
What are the guidelines?
The following are various qualifying and limiting criteria which must be met to qualify for Industrial Development Revenue Bond Financing:
- The Project to be financed must be a manufacturing facility.
- The Project must provide additional employment or preserve existing employment.
- In Ohio, prevailing wage rates must be paid to laborers and mechanics employed on the construction of a project.
- "Capital Expenditures" made by or on behalf of the owner and/or principal user of the facilities being financed by Industrial Development Revenue Bonds, if such expenditures are for facilities located in the same municipality or county as the bond financing facility, are applied against a $10,000,000 ceiling and thereby correspondingly reduce the amount of tax-exempt bonds that may be issued. These expenditures include any "Capital Expenditures" made during the six year period beginning three years immediately proceeding the date of the bond issue and three years after such date.
- No manufacturing facility or related entity may benefit from more than a total of $40,000,000 of Industrial Development Revenue Bonds.
- A so-called "State Volume Cap" allocation in an amount equal to the par amount of bonds to be issued must be obtained.
- Any bond proceeds which are directly or indirectly used to purchase land or an interest in land must be less than 25% of the net proceeds of the bond issue.
- If bond proceeds are being used to acquire an existing manufacturing facility, the purchaser is required to perform rehabilitation work on the building equal to or exceeding 15% of the portion of the purchase price of the building financed with bond proceeds. Bond proceeds may not be used to acquire existing personal property unless the purchaser performs rehabilitation work on the property equal to or exceeding 100% of the portion financed by bonds.
- Issuance costs in excess of 2% must be funded from a source other than bond proceeds.
What is the procedure for obtaining Industrial Development Revenue Bond Financing?
After a company has decided on the site location, the general design and estimated costs of the proposed project, a meeting between company representatives and the Community Improvement Corporation (CIC) should be called. The purpose of the meeting would be to confirm that the proposed project qualifies for bond financing and to discuss the general structuring of the bond issue, timing parties involved costs, etc. After general agreement is reached on the areas listed above, the company, with the assistance of bond counsel, would formally request the governmental Issuer's approval for the issuance of bonds and begin the process of choosing a placement agent. In most states, the Issuer's approval, commonly referred to as "inducement legislation", involves the filing of an application outlining the proposed project and applicants business directly with Issuer, after first obtaining the approval of the Community Improvement Corporation. Upon passage of the inducement legislation, the company would be legally obligated to proceed with the issuance of bonds, however, the company should demonstrate its reasonable expectation to proceed with the project. Generally, the inducement legislation must be acted upon by the company within one year of its passage. Once the inducement legislation has been passed and a placement agent chosen, the company, bond counsel, and the placement agent, together with all other parties directly involved with the bond issue, would proceed to prepare the necessary documentation leading to closing, delivery and payment of the bonds. This process typically requires approximately 45 days, but can be accomplished in less time when necessary. Once the bonds have been issued, the company is required to expend all of the bond proceeds within 3 years of the date bonds are issued.
For further information on the Community Improvement Corporation of Summit, Medina and Portage Counties contact:
Gregg Cramer
Senior Director, Business Development, Greater Akron Chamber
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