IDBs are tax-exempt securities issued by a governmental entity to finance qualified capital projects for use by private businesses. The local governmental issuing authority acts as a conduit for the IDB financing. The loan is made to the governmental entity and the entity, in turn, lends the funds to the business.

Because the obligation is issued by a governmental entity, the interest income earned by the bondholder (GE) is not subject to federal income tax. Therefore, GE Government Finance can offer a low interest rate. The tax-exempt interest savings are passed on to the manufacturing or processing company.

Exempt Facility Bonds

A type of tax-exempt financing that is not subject to the $10 million capital expenditures limitation* is an exempt facility bond.

The Internal Revenue Code is very specific regarding the types of facilities that can be financed with an exempt facility bond. Some specific uses include airports, docks and wharves, solid waste disposal facilities and local district heating or cooling facilities. The structure of these transactions varies from project to project.

Empowerment Zones

The Empowerment Zone's purpose is to create jobs and business opportunities in the most economically distressed areas of inner cites and the rural heartland. Tax-exempt and taxable conduit bonds issued by government issuers for privately owned projects provide certain federal securities laws and state securities laws exemptions, as well as exemptions in some states from the property taxes and sales taxes on the private owner financing the project. Projects located within an Empowerment Zone can have wide ranging uses, such as warehouse, distribution, office space, or manufacturers with Capital Expenditures in excess of $10,000,000.