Res 1989-087 - Laserfiche WebLink

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The Small Issue Industrial Development Bond Pro2ram Back2round The small-issue industrial development bond program (SIDB) provides small and medium-sized businesses with access to capital at competitive rates, thereby stimulating job creation and helping American business compete in the world economy. State and local governments issue tax-exempt revenue bonds, with the proceeds going to finance the construction of new manufacturing plants or the expansion and modernization of existing facilities. The program is used in every state except Hawaii. The small-issue industrial development bond program faces a December 31, 1989 sunset date. Current Restrictions As a result of tax changes in 1984 and 1986, the SIDB program is carefully targeted. These tax-exempt bonds can be used only to finance manufacturing facilities, principally plant and equipment. This ensures that the bonds are used to create direct manufacturing jobs. No bond issue can exceed $10 million, and for most companies the bond amount is generally below $5 million. A single facility using SIDBs can have only $10 million in total capital expenditures over a 7 -year period, ensuring that only the smaller manufacturing operations will qualify. No company can have more than $40 million in tax-exempt bonds outstanding. The bonds are subject to an annual statewide volume cap of $50 per capita and must compete with other bonds (such as student loan bonds and multifamily housing bonds) for an allocation under that cap. Before it can go forward, each bond issue must be the subject of a public hearing and the local government must adopt a resolution endorsing the project. The state must make an allocation to the project from its volume cap. Interest on these bonds is subject to the alternative minimum tax, and banks are precluded from deducting their costs of carrying the bonds. Tight arbitrage rebate requirements apply to the bonds. Reasons for Extendin2 the SInS Pro2ram *The SIDB Drogram is primarily a smaIl business Drogram that Drovides affordable capital for the most dynamic sector of the economy. A 1985 study found that 80% of SIDBs were for smaIl and medium-sized businesses and that these bonds were the primary source of long-term fixed-rate financing at competitive rates for smaller companies. Small businesses have historical1y been the leading source of new jobs in t~e U.S. economy.