Industrial revenue bond

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An industrial revenue bond (IRB) is a unique type of revenue bond organized by a state or local government. The bond issue is sponsored by a government entity but the proceeds are directed to a private, for-profit business.

Bond Structure

An IRB differs from traditional government revenue bonds as the bonds are issued on behalf of a private sector business. IRBs are typically used to support a specific project, such as a new manufacturing facility.

The bond issue is created and organized by a sponsoring government, with the proceeds used by the private business. The business is responsible for bond repayment. The sponsoring government holds title to the underlying collateral until the bonds are paid in full. This arrangement provides tax exempt status to the bonds, and many times a property tax exemption on the collateral. The sponsoring government is not responsible for bond repayment and the bonds do not affect the government’s credit rating. IRBs are desired as the private business receives a lower interest rate (due to the bonds tax-exempt status), a property tax exemption, and a long-term, fixed rate financing package. [1]

Bond proceeds may be used for a variety of purposes, including land acquisition, building construction, machinery and equipment, real estate development fees, and the cost of bond issuance.[2]

IRS Statute

In the United States IRBs are governed by IRS statute and include the following provisions:[3]

  • Maximum amounts of IRBs can vary from state to state. For instance, Arkansas limits the bond amounts to $10 million.
  • Total capital expenditures at the project site may not exceed US$20 million total
  • Total IRBs outstanding at the company in the U.S. may not exceed US$40 million total

See also

References

  1. ↑ "Industrial Revenue Bonds Explained". City of Albuquerque. Retrieved 13 September 2011. 
  2. ↑ "Wisconsin Industrial Revenue Bond Program". Wisconsin Department of Commerce. Retrieved 14 September 2011. 
  3. ↑ "Industrial Revenue Bonds". Arkansas Economic Development Corporation. Retrieved 13 September 2011. 
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