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Industrial Revenue Bonds
Pursuant to Chapter 33, Title 15.1 of the Code of Virginia, the Goochland County Economic Development Authority has the authority to approve tax-exempt Industrial Revenue Bonds (IRBs) for the purpose of economic development activities. Further information on IRBs can be found below.
What is an Industrial Revenue Bond?
An IRB is a long-term financing strategy for industrial and manufacturing businesses who are looking to construct new facilities, expand current facilities, and improve their equipment. IRBs can be used to assist businesses in acquiring land, constructing or expanding buildings, and purchasing industrial machinery. IRBs are typically issued through the local industrial or economic development authority. All projects financed with IRBs must meet federal tax code requirements to be eligible.
Why use Industrial Revenue Bonds?
- The interest earned on the bond is exempt from Virginia and Federal income taxation, meaning that IRBs provide lower interest rates than conventional financing.
- The bond is payable only through the revenues of the applicant and any security the applicant pledges to repay the bond.
- IRBs allow companies to finance 100% project of the projects cost, up to $10 million.
- By acting as the conduit revenue bond issuer to the applicant’s lender or investors, the Goochland Economic Development Authority can help businesses access this tax-advantaged, lower interest financing.
Federal and State Regulations
- The facility must be a manufacturing facility and no more than 25% of the bonds proceeds can be used for office space, warehouse space, or any other space on the site of the manufacturing facility.
- 95% of the bond proceeds must be spent on qualifying costs.
- No more than 25% of bond proceeds can be used to buy land.
- No more than 2% can be used for issuance costs.
- Average maturity of the bonds cannot exceed 120% of the average economic life of the facilities financed.
- Bond proceeds cannot be used to finance working capital or inventory.
- Bond proceeds can be used to acquire used property if used buildings are rehabbed with at least 15% of the bond amount.
- A company may not be the beneficiary of more than $40 million of tax-exempt bonds.
What is the range of funding in terms of dollars that can be borrowed via an EDA Industrial Revenue Bond?
There is a Federal tax law-imposed limit on the site of EDA Revenue Bonds for qualified small issue manufacturing facilities that limits the issuance to a maximum of $10,000,000.
Given the fact that EDA Industrial Revenue Bond financings are somewhat more complicated than conventional financing – primarily due to the required tax qualification analysis and Goochland EDA and Goochland County approvals – it is somewhat more expensive to document and close them. Accordingly, generally speaking, its not cost effective from a transaction costs perspective to pursue EDA Industrial Revenue Bond financing for projects of less than $5,000,000.
Industrial Revenue Bond Application Process
The IRB application process typically takes 90 to 120 days to complete. Below is an outline of what to expect during the process:
- Submit a formal written application for the issuance of bonds.
- A public notice must be published once a week for two successive weeks prior to the public hearing date.
- A public hearing will be held by the issuer. Someone from the company should be in attendance.
- If there has been no announcement of a company’s interest in Goochland, a closed meeting can be held that would exclude the public.
- Governing body approves or disapproves the issuance of the bonds.
- The final and completed application for bond allocation is submitted to the Department of Housing and Community Development.
- Bond counsel and bank counsel prepares and distributes bond and bank documents for review.
- Bond pre-closing and closing.
Interested in using Industrial Revenue Bonds for your project?
Interested parties should first consult with Goochland County Economic Development staff and Bond Counsel to help determine the eligibility of their projects.
If you have any questions regarding the usage of IRBs in Goochland County, please contact Goochland County Economic Development to discuss your project and have your questions answered.