The American Recovery and Reinvestment Act of 2009 (the "Recovery Act"), recently signed into law by President Obama, expands the types of facilities that may be financed with "qualified small issue" tax-exempt bonds – so-called industrial development bonds ("IDBs"). Under prior law, the facilities that could be financed with IDBs were essentially limited to manufacturing facilities that produce tangible personal property (including related land acquisition and depreciable property). Under the Recovery Act, the concept of a financeable manufacturing facility has been broadened to include facilities used in the creation or production of intangible personal property, such as copyrights, patents, formulae, and computer software. Companies must act quickly, however, to access this new source of tax-exempt funding. At present, the new law only applies to bonds issued in 2009 and 2010.
Accessing IDB financing requires consideration of, and compliance with, many state and federal requirements, including obtaining a "volume cap" allocation and surviving the scrutiny of a public hearing. IDBs are generally limited to $10 million in principal amount and are subject to a $20 million capital expenditure limit within a six-year period within the jurisdiction where the facility is located. In addition, borrowers are also limited to a $40 million cap, including their tax-exempt financings in all jurisdictions. Please contact any of our Public Finance Team members listed in the left-hand margin with questions regarding the Recovery Act or IDBs or any other public finance issues.