PURPOSE: To promote industry and develop trade by inducing manufacturing, industrial, governmental and commercial enterprises to locate in or remain in Virginia.

FUNCTION: The interest on these bonds enjoys a tax exempt status for federal income tax purposes and for Virginia income tax purposes, thus the bonds generally carry lower interest rates than conventional financing.

ELIGIBLE PROJECTS:
501 (c)(3) Associations
Medical Facilities
Elementary, Secondary Facilities
Pollution Control
Higher Education Facilities
Parking Facilities
Industrial Facilities

HOW TO APPLY: As early as possible in the planning of the project, the applicant should contact Michael Graff, General Counsel of the IDA for specific information on procedural considerations and to determine the information the Authority will need to evaluate the request. At this stage, approaching potential lenders on a preliminary basis is necessary and to consult with legal counsel knowledgeable on industrial development revenue bonds.

POLICY & PROCEDURAL GUIDELINES: The Alexandria IDA has established the following policy and procedural guidelines governing its consideration of industrial revenue bond applications:
1) All types of projects which are authorized under the Alexandria IDA?s legislation will be considered for approval on a case-by-case basis.
2) The Alexandria IDA will charge the applicant an administrative fee.
3) The Alexandria IDA pays no costs, taxes, etc., all of which the applicant will bear.

WHAT IS TAX-EXEMPT FINANCING? Tax-exempt financing is a mechanism by which state and local government can promote a variety of public purposes, such as economic development and charitable activities, education , and healthcare. In Virginia, the Industrial Development and Revenue Bond Act provides the legal framework for such financing. Under the Act, local industrial development authorities act as conduits, issuing their bonds and lending the proceeds to 501(c)(3) organizations, small manufacturers and others. The financial markets set interest rates on such bonds below comparable rates for taxable financings because bondholders can exclude interest on the bonds from their gross income.

WHO IS ELIGIBLE TO USE TAX-EXEMPT FINANCING? In general, the only organizations which may benefit from tax-exempt financings are those organizations which are exempt from federal income taxation by virtue of their Section 501(c)(3) status under the Internal Revenue Code, small manufacturing companies, governmental entities and certain solid waste disposal projects and other utilities. The internal Revenue Code was substantially amended in 1986, however, and it is possible that certain exempt organizations which do not have 501(c)(3) status may have undertaken tax-exempt financing before that time.

WHAT KINDS OF NEW PROJECTS CAN BE FINANCED? Under applicable federal and state law, a variety of projects can be financed. In exempt organizations, all property financed with tax-exempt bonds must be owned by a 501(c)(3) organization or governmental unit; in addition, proceeds of tax-exempt bonds cannot be used in connection with a trade or business unrelated to the 501(c)(3) organizations exempt purpose. State law permits an exempt organization to finance any of the following if they are within the Commonwealth: educational facilities; medical facilities; athletic, health and recreational facilities and operation centers; and facilities for museums and historical education, demonstration, and interpretation. Working capital and certain interest payments on tax-exempt bonds may also be included in the financing.

IS IT POSSIBLE TO REFINANCE EXISTING DEBT? Because of ambiguities under Virginia law, the ability of an exempt organization to refinance existing debt will vary. Under certain circumstances, the organization may be required to obtain the approval of a Virginia court of competent jurisdiction before proceeding with the transaction. Generally, however, refinancing of existing debt will be possible from the state law perspective.

Under federal tax law, the refinancing of tax-exempt debt issued on or after August 16, 1986 is generally possible if the proceeds of the new tax-exempt debt are used immediately to pay off the old tax-exempt debt and certain other limitations are met. For bonds issued before August 16, 1986 changes in the federal tax law since that date have imposed new restrictions on refinancings. Under the so-called ?transition rules,? such refinancings may still be possible upon compliance with certain limitations on the amount financed, the average maturity of the new bonds, and the amount of issuance costs financed. Certain new requirements will also be imposed on the new bonds; these relate to public hearing requirements, arbitrage and information report; and changes in use of the bond-financed project.

WHAT IS THE MINIMUM SIZE OF A TAX-EXEMPT FINANCING? While the law imposes no minimum size on tax-exempt financings, the complexities involved in structuring and obtaining approvals for such financings can result in transaction costs which are higher than those for comparable taxable financings. These transaction costs may make it prohibitive to undertake financings of less than a certain size, since the advantage to the borrower of lower interest rates would be offset by the increased transaction costs. It has been our experience that a bond financing is generally most efficient when the size of the financing is at least $1-$2 million. There are several strategies for dealing with these higher transaction costs. One is to combine present projects with projects to be financed within the next few years. Another is to combine financings of an exempt organization and its affiliates in a single issue.

HOW ARE TAX-EXEMPT FINANCINGS STRUCTURED? An exempt organization has the same options in structuring a tax-exempt financing which it would have in a taxable financing. Interest rates may be fixed or variable; repayment schedules can be arranged to meet the cash flow needs of the exempt organization; and various forms of credit enhancement or ratings may be called into play to improve the interest rate on the financing. The usual issues relating to credit and security must also be addressed. It is the job of the underwriter to ensure that each of these issues is addressed in a way that will accommodate the exempt organizations desire to minimize its debt service and the constraints imposed by the financing while addressing bondholders? concerns with payment and security.

HOW DO I GET STARTED? The exempt organization would generally contact an investment bank or law firm knowledgeable in the subject of tax-exempt financing for assistance in assembling a financing team. The financing team typically consists of the underwriter, officials of the exempt organization, and necessary governmental approvals, sell the bonds and draft the necessary legal documents.

Advantage Alexandria

• Facade Improvement Grants
• Micro-Loan Program
• R&D Tax Credit
• IDA Bond Financing
• Transit Assistance Program
• Virginia Enterprise Zone
• Virginia State Incentives