Qualified private activity bonds (tax-exempt and taxable) for infrastructure projects that serve the general public. Bond proceeds are used for defined qualified purposes by a non-governmental entity (the “conduit borrower”). Projects are generally government-owned and leased to private parties but may consist of improvements to private facilities. Qualifying facilities include airports, docks and certain other transportation related-facilities; water, sewer and certain other local utility facilities; solid and hazardous waste disposal facilities; and other types of facilities.
Who Can Apply
Examples of Exempt Facility Revenue Bonds
Public airports frequently build facilities which are leased or made available on a long-term contractual basis to air carriers for passengers or freight. Typical examples are terminals, hangars, aircraft repair facilities, freight forwarding/warehousing facilities, etc. If tax-exempt bonds are to be used to finance such facilities, numerous limitations and conditions exist.
Airports, docks and wharves, mass commuting facilities, facilities for the furnishing of water, sewage facilities, solid waste disposal facilities, facilities for the furnishing of local electric energy or gas, local district heating or cooling facilities, qualified hazardous waste facilities, high-speed intercity rail facilities, environmental enhancements of hydro-electric generating facilities, and qualified public educational facilities.
Some of the conditions which must be met are:
- The facilities must be open to use by the general public. This test can be met if the user is a common carrier, transporting passengers or freight on non-discriminatory basis, or the facilities are otherwise open to the public, like a terminal. Certain facilities “functionally related and subordinate” to the actual transportation facilities may be financed, but require close scrutiny.
- The facilities must be owned by a governmental unit. Normally this will be the public airport entity. The bonds can, but do not have to be, issued by the entity which owns the facilities. There are some technical limitations on office space, food and beverage and retail space, and lodging facilities.
Requirements Related to Issuance
The following is an overview of several general rules related to the issuance of Exempt Facility Revenue Bonds (qualified private activity bonds):
Volume Cap Limit
The volume cap limit for certain qualified private activity bonds limits a maximum amount of tax-exempt bonds that can be issued to finance a particular qualified purpose during a calendar year. It is important that, to meet the volume cap requirements in order to maintain the tax-exempt status of the bonds are either subject to or not subject to volume cap.
Qualified Private Activity Bonds Subject to Volume Cap
Exempt facility bonds [mass commuting facilities, facilities for the furnishing of water, sewage facilities, solid waste disposal facilities, facilities for the local furnishing of electric energy or gas, local district heating or cooling facilities, qualified hazardous waste facilities, privately owned high-speed intercity rail facilities (only 25% of the bond proceeds), qualified enterprise zone and empowerment zone facilities].
Qualified Private Activity Bonds Not Subject to Volume Cap
Exempt facility bonds [airports, docks and wharves, environmental enhancements of hydro-electric generating facilities, qualified public educational facilities, governmentally owned solid waste disposal facilities, governmentally owned high-speed intercity rail facilities, privately owned high-speed intercity rail facilities (only 75% of the bond proceeds)]
Applicable Exempt Facility Bond Limitations:
- The average maturity of bonds may not exceed 120% of the average reasonably expected economic life of the financed facilities as determined under section 147(b) of the Code.
- Any tax-exempt bond, including a qualified private activity bond, will not be treated as tax-exempt if the payment of principal or interest is directly or indirectly guaranteed by the federal government or any instrumentality of the federal government. [Certain exceptions apply under section 149(b) of the Code.]
- Up to 2% of the cost of issuance may be financed with the bonds proceeds. 95% or more of the net proceeds are to be used to finance an exempt facility. Exempt facility bonds include qualified enterprise zone facility bonds for use in empowerment zones and enterprise communities.
- Exempt facility bonds can be current refunded. However, section 149(d) of the Code disallows the advance refunding of these bonds.
- The straight line depreciation method should be used for assets purchased with tax exempt bond proceeds.
How to Apply
Applications are continuously accepted and are available below. We encourage you to call us before applying. IBank representatives provide technical assistance and work with you throughout the process. IBank’s Board of Directors normally meets each month to consider approval of applications received prior to the meeting date. Check here for board meeting deadlines.
- Application Fee to Request Extension of the Expiration Date of IBank Approving Resolution – EFB
- Policies and Procedures for Conduit Revenue Bond Financing for Economic Development Facilities Updated 06/27/207
- Post-Issuance Tax Compliance Policy for Tax Exempt Bonds
- Exempt Facility Revenue Bond Fees
- Request of Post-Bond Issuance Actions Complete this request form if you wish for the IBank to take post-bond issuance actions in connection with outstanding IBank bonds. Such actions include, but are not limited to, agreement modifications, Letter of Cred it substitutions, mode conversions, redemption, and agent substitutions.
For more information contact:
Fariba Khoie, Bond Program Manager
California Infrastructure and Economic Development Bank (IBank)
Mailing Address: P.O. Box 2830, Sacramento, CA 95812-2830
Telephone: (916) 341-6600
Nothing contained herein should be construed or relied upon as legal advice. Instead, this information is intended to serve as an overview of the general subject of the use of tax-exempt bonds by nonprofit corporations, from which better-informed requests for advice, both legal and financial, can be formulated.