Industrial Revenue Bonding
The Industrial Revenue Bonds (IRB) Program is to incent expansions of manufacturing facilities in the state of Wisconsin.
This program primarily supports the following WEDC Strategic Pillar and Focus Area:
Business Development: Business Retention and Expansion
IRBs are tax-exempt bonds that can be used to stimulate capital investment and job creation by providing private borrowers with access to financing at interest rates that are lower than conventional bank loans. The IRB process involves five separate entities – the borrower, lender, bond attorney, issuer, and WEDC. WEDC allocates the bonding authority or the volume cap for the program under Wis. Stat. §238.10 and the Policy on the Allocation of Volume Cap. The municipalities and counties sell the IRBs and loan the proceeds to eligible businesses undertaking eligible projects.
At the federal level, Industrial Revenue Bonds are covered by Section 103 and 141 through 149 of the Internal Revenue Code and Income Tax Regulations, which establish the nature and size of the projects that quality for federal tax exemption of interest.
Manufacturers can use the bond proceeds for building, land or equipment but not working capital. There are restrictions on bond size and total capital expenditures. Manufacturing includes nearly every type of processing that results in a change in the condition of tangible personal property.
According to federal tax law, the maximum size of an IRB issue is $10 million. For bond issues exceeding $1 million, capital expenditures in the municipality where the project is located cannot exceed $20 million during the three years before and the three years after the date the bonds are issued. The $20 million capital expenditure limitation includes any principal user of the facility and also related persons (more than 50 percent owner of stock or partnership interests). Also, the total amount of IRBs outstanding at all related operations of the business, in all states, may not exceed $40 million. “Exempt” projects do not have to comply with the $10 million maximum bond size, the $20 million capital expenditure limit, and the $40 million aggregate limit. Exempt projects include:
- Docks and wharves
- Mass-commuting facilities such as high speed rail
- Facilities for furnishing water
- Sewage facilities
- Solid waste disposal facilities
- Facilities for the local furnishing of electric energy or gas
- Facilities for local district heating and cooling
- Qualified hazardous waste facilities
WEDC can allocate volume cap for both exempt and non-exempt projects.
Incentives and Available Funding (FY17):
IRB volume cap is allocated on a calendar year basis. The total amount for WEDC for calendar year 2016 was $283,566,850. The federal tax code allows each state to establish by law its own formula for allocating its volume cap. Volume cap is allocated on a statewide basis pursuant to Wis. Stat. §238.10 and the Policy on the Allocation of Volume Cap.
The incentive in this program is access to tax-exempt bonds at interest rates that are lower than conventional bank loans, typically 75 percent of the current prime rate. The bond is subject to the following limitations under federal tax law:
- No more than 25 percent of the net proceeds of the bonds may be used for land acquisition.
- No used property can be acquired with bond proceeds, unless substantial rehabilitation is done within two years after the later of the date the property was acquired or the date the bond was issued. Substantial rehabilitation is defined as 15 percent of the amount financed with the proceeds of the bonds for buildings, 100 percent for “structures other than a building”. The rehabilitation has to take place within the existing footprint of the building to be acquired.
- The average maturity of the bonds cannot exceed 120 percent of the weighted average economic life of the project.
- Depreciation of bond financed property must be straight-line not accelerated.
- All of the proceeds must be used within a three-year period.
Activities and Expected Outcomes
Assist 5 businesses through the authorization of tax-exempt municipal bond sales.
Performance is measured by the number of IRB bond issues that occur each year as a result of the volume cap being allocated, as documented by the number of bond closings. A notice of the IRB closing must be filed with WEDC within five business days from the date of the closing. The notice should include the following information: buyer/underwriter, type of sale (public or private), term and interest rates.
In addition to the closing notification, the following information must be submitted to WEDC:
- A good faith estimate of the attorney’s fees to be paid from bond proceeds is required to be filed with the clerk of the municipality or county and WEDC before the adoption of the initial resolution by the local government that is issuing the IRB.
- A copy of the approved initial resolution and the proof of its publication.
- Notice of Intent to Obtain a Municipal Industrial Revenue Bond – notification must occur at least 30 days prior to entering into the revenue agreement or signing the loan contract.
- IRB Job Retention Certification Form, if applicable.
WEDC may impose additional reporting requirements to evaluate project performance and to ensure compliance with contract deliverables.
Application and Awards Process:
Applicants for an Industrial Revenue Bond volume allocation should complete an application through a regional economic development director. The application will be assigned to an underwriter and go through the award review process.
If bonds are not sold within 30 days from the certification date or by December 1, whichever comes first, the applicant must submit a deposit of 0.5 percent of the allocation (a 1.0 percent deposit if the allocation is requested on or after October 1) to WEDC. The deposit reserves the allocation for a period equal to the lesser of 90 days from the certification date or the remainder of the calendar year. The deposit is refundable following the bond closing, but is forfeited if the bonds are not sold. However, the deposit and forfeiture may be waived if circumstances warrant. In addition, a non-refundable fee equal to 0.10 percent of the amount of the bond issue must be submitted with the notice of bond issuance. The fee is capped at $10,000 for exempt and non-exempt projects and may be waived by WEDC if economic circumstances warrant it.
For more information on application review, internal process and award distribution, please refer to WEDC’s award administration policies and procedures.