Low Cost Project Financing Aid for Manufacturers Doubled in 2007

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Economic Development Agency financing assistance for new capital projects increased to $20 million. Manufacturers can finance up to $10 million with low interest rate, tax-exempt bonds. Helps increase economic development, create jobs, expand local economy.

The New Year has brought manufacturing companies a new, potentially cost saving financial benefit -- an increase in the limit of capital expenditures for projects that can be financed through industrial development agencies. The increase to $20 million is double the amount that was previously allowed, according to Joseph P. Carlucci, partner at Cuddy & Feder LLP, a law firm headquartered in White Plains, NY.

Under the old capital expenditure rules, a manufacturer seeking financing assistance from industrial development or economic development agencies, was limited to spending only $10 million in costs for a particular project. As a result, a manufacturer could not spend more than $10 million on capital expenditures for that particular project.

Now manufacturers that are spending up to $20 million in acquisition, construction and equipment costs can apply for a tax-exempt bond issue to cover up to $10 million of the costs of the new facility, and finance the remainder with a taxable bond issue, or other financing, Carlucci said. Federal tax code rules that govern the issuance of tax exempt bonds by state, regional and local industrial development agencies (or economic development agencies ) increased the maximum aggregate project cost limit from $10 million to $20 million as of January 1, 2007. However, the $10 million tax-exempt bond financing limit has not changed but now $10 million in tax-exempt bonding can be used with other funding sources to finance a $20 million project.

With construction loan rates now at, or near, 8.5 percent, manufacturers will now be able to finance up to $10 million of new facility costs through federally tax exempt bonds at rates that are currently about 3.8 percent, Carlucci said. A significant portion of the remaining costs could be financed with taxable bonds issued by industrial development agencies, with such taxable bonds carrying interest rates that now range between 3.75% to 4.75%, still lower than conventional bank loans, he said. Carlucci heads the industrial development agency practice group at Cuddy & Feder.

The new $20 million spending limit is available if the company's total expenditures are made within the geographic area within which the industrial development agency is authorized to issue bonds and if the total expenditures, including the funds from the bond issue, do not exceed $20 million over a six year period, said Robert C. Schneider, Special Counsel at Cuddy & Feder. The six year period includes the three years prior to the bond issue, and three years following, he said. Any manufacturing company can also apply for a $1 million initial bond to finance a new facility with a "stand alone" tax-exempt bond, he added.

Economic development authorities or industrial development agencies are created by state statue to enhance economic development, create jobs and increase property rateables by providing incentives and financing assistance to companies and non-profit organizations planning capital projects. More than 1000 such agencies are in operation across the country. Although the state statues may vary, the federal code providing tax exemption on certain bonds is uniformly applied throughout the country.

In addition to the lower interest rates available through IDA tax-exempt bonds, such financing also offer longer payment periods, with bonds typically issued with a 10 to 30 year maturity, and at times a 40 year maturity, Carlucci said. The tax-exempt and taxable bonds issued through the various agencies are not obligations of the state, county or municipality issuing them. The bonds are the obligation of the manufacturer or organization benefiting from the bonds and are payable out of the project revenues.

Media Contact: Marty Gitlin, Duran/Gitlin Group. (914) 528-7702


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