Industrial Development Bond (IDB) Financing Program
A Local Economic Development Tool
CIDFAC approves the issuance of IDBs in the state. IDBs provide manufacturing and processing companies low-cost, low-interest financing for capital expenditures. Eligible capital expenditures include the acquisition of land, building construction, building renovation and the purchase of machinery and equipment.
CIDFAC is a state agency within the California State Treasurer’s Office. What makes CIDFAC unique in state government is that it approves the issuance of IDBs as a partner with local governments. The local government can be a city, county, economic development authority, redevelopment agency or a joint powers authority. The local entity oversees the application through the various issuance processes. Under state law, IDBs are issued by the local entity, but must be approved by CIDFAC.
As part of its services, CIDFAC provides technical assistance to local agencies and independently reviews IDB applications for compliance with federal and state statutes and public benefit provisions such as job creation.
Absent Local Government Participation, Can a Manufacturer or Processor Still Issue an IDB?
The California Infrastructure Economic Development Bank (CIEDB) can issue IDBs in those locations where the local government does not wish to participate in the issuance process.
Local Government IDB Issuance Process
- The borrower must be a “manufacturing company” requesting from $1 million to $10 million.
- The borrower must submit an application to the local issuing authority.
- The local issuer approves an inducement resolution. This document starts the clock for reimbursement of eligible costs with bond proceeds.
- The local issuer schedules a Tax Equity Fiscal Reform Act (TEFRA) hearing. This is a public hearing that provides an opportunity for the local community to voice any project concerns or to provide project support.
- The local issuing authority submits the IDB application to CIDFAC.
- CIDFAC staff reviews the IDB application to determine public benefits and the debt repayment security for the financing proposal.
- CIDFAC at its monthly Commission meeting approves (or denies) IDB applications.
- After the IDB project is approved for issuance, CIDFAC staff reviews the bond financing documents and certifies the bonds for sale.
Why Are IDBs Important to Local Governments and How Can IDBs Benefit a Community?
- IDBs are a financing tool that can be used to encourage manufacturing businesses to locate or remain in a community.
- Manufacturing businesses increase employment opportunities by creating new, good paying jobs.
- Manufacturing businesses increase local tax revenue.
What Are Other Benefits of IDB Financing through CIDFAC?
There are several financing benefits that extend beyond low-cost financing. These benefits include:
- Leveraging dollars: IDB funds may be supplemented with available local economic development dollars, redevelopment funds or other local funding.
- Expediting Projects: When local governments are involved in the issuance process they become not only a CIDFAC partner but a partner with the IDB borrower as well. Local governments have the ability to expedite the project review and permitting processes.
- Access to Other Financial Assistance: Local governments may have knowledge of supplementary sources of grant and loan funds and financial credits available for borrowers’ projects. This knowledge can provide a mechanism for the borrower to access numerous federal and state incentive programs, from loans or grant programs to federal tax credit programs. For example, a local government may be able to help a borrower relocate a project into a state Enterprise Zone or federal Empowerment Zone. For businesses that operate in these areas, federal and state government incentives provide significant financial benefits.
- Community Benefits: The local IDB issuance fee allows local governments to generate revenue to benefit the local community and local businesses.
Special Programs Increase Access to IDB Financing
CIDFAC has developed special programs to provide California manufacturers better access to financing:
- State Teachers Retirement System (STRS) letter of credit. This program was developed as a mechanism for bonds to be issued under STRS’ strong credit rating while allowing borrowers to maintain their existing banking relationships. CIDFAC borrowers are traditionally small to medium-sized businesses. These businesses traditionally have banking relationships with small regional banks as opposed to major banking institutions. These regional banks generally do not have an investment-grade credit rating. However, to issue IDBs in the public market, an investment-grade rating is required. Consequently, the typical IDB borrower is forced to transfer its banking relationship from their regional bank to a major bank.
The STRS letter of credit program allows the borrower to maintain its existing banking relationship with the small bank while STRS issues a master letter of credit/wrap that allows the bonds to receive an investment-grade rating. STRS guarantees the regional banks stand-by letter of credit, not the borrower s credit. Therefore, the rates for this structure are cost effective to the borrower.
Copyright 2016 State of California