Industrial Development Bonds
Industrial development bonds ("IDBs") were developed by the US Congress and the Missouri General Assembly to facilitate the financing of business projects.
How They Are Issued
Sec. 100.010 to 100.200, RSMo allows cities or counties to purchase or construct certain types of projects with bond proceeds and to lease or sell the project to a company. These "industrial development" bonds may be issued either as a "revenue" bond or a general obligation bond.
Clay County has utilized IDBs for more than 20 years, providing funding assistance for a wide range of projects.
Eligible projects include the purchase, construction, extension and improvement of warehouses, distribution facilities, and industrial plants, including the real estate, buildings, fixtures, and machinery.
An industrial development "revenue " bond does not require a public vote and does not have the general credit of the city as a guarantee. Since revenue bonds are merely a "pass through" (as the bonds are sold on the basis of the company's credit), there are four reasons that Chapter 100 Revenue Bonds may be a benefit:
1. The interest received by the bondholders may be exempt from federal and state income taxes
2. Real estate or other assets may be exempt from some or all property taxes
3. The company may desire an "off-balance sheet" lease structure, with the city/county owning the facility. The lease could be structured as an "operating" lease under generally accepted accounting standards; and,
4. If the city/county owns the facility and purchases the building materials, the building materials would likely be exempt from state and local sales taxes.
General Obligation Bond
A "general obligation" Chapter 100 Industrial Development Bond requires a 2/3 public voter approval since it will have the credit of the city or county issuer as a guarantee on the bonds. The 4/7 vote on municipal general obligation bonds does not apply to "industrial development" general obligation revenue bonds. The benefit of General Obligation bonds is that the bonds are highly marketable, whether or not the company's credit is good. Even if the company's credit is good, General Obligation bonds typically will have a somewhat lower interest rate.
It is rare in Missouri for a city or county to issue general obligation, industrial development bonds. The downside to this approach is that if the company (who is the underlying borrower or lessee) defaults, the city or county must make up any deficiency to the bondholders either by their budget reserves or an increase in property taxes. The limited numbers of general obligation bonds that have been issued were for industrial buildings that were highly marketable to other companies.