Exempt Facility Bonds

Government agencies issue bonds to finance a variety of economic or public development projects for private and public entities. When investors purchase bonds, they essentially lend money to the borrower through the issuer. In return for the bond proceeds, the borrower promises to pay the investors/bondholders the principal amount plus a specified rate of interest over the life of the bonds based on the bonds debt service payment schedule. In this way, a bond is similar to a complex loan.



$5.5 billion

Total green and social bonds issued by IBank



60,627

Jobs that have been created through bond-financed projects in California



$55 billion

Total bond activity

Municipal Bonds

Bonds issued by government entities are called municipal bonds. The proceeds of the bonds are used to finance projects that benefit the community such as roads, schools, bridges, sewers, parks or water treatment. Most bonds issued by government entities are tax-exempt. This means interest on these bonds is excluded from gross income taxes for federal tax purposes. In addition, interest on the bonds is exempt from state of California personal income taxes. IBank issued bonds, including federally taxable bonds, will be exempt from the state of California interest income taxes.

What is a conduit bond issuer?

As a conduit issuer, IBank does not underwrite bonds. IBank issues bonds on behalf of a borrower and then lends those proceeds to that borrower. The bonds are special, limited obligations payable solely by the borrower’s payments. The borrower provides security to the bondholder(s) and agrees to repay the bonds.

Exempt Facility Bonds and Public-Private Partnerships

Tax-exempt financing for projects that are government-owned or consist of private improvements within publicly owned facilities. Bond proceeds are used for defined qualified purposes by a non-governmental entity (the “conduit borrower”). Projects are generally government-owned and leased to private parties but may consist of improvements to private facilities. Qualifying facilities include, but are not limited to, local airports, docks and wharves; utility facilities; solid and hazardous waste disposal facilities; and other types of facilities.

IBank can issue tax-exempt and/or taxable bonds for public entities that own, control, or maintain assets that could be enhanced projects with or without a P3 structure. P3s usually involve long term contracts of up to 30 – 50 years and may cost from millions of dollars to over a billion dollars. IBank’s Policies and Procedures for Conduit Revenue Bonds allows issuance of large scale bonds over a billion dollars with maximum final maturity up to 50 years. IBank can assist in financing the eligible exempt facility projects with housing components if the maximum cost of the housing component is up to 20 percent of the total project cost.

Examples of Exempt Facility Revenue Bonds

Public airports frequently build facilities that are leased or made available on a long-term contractual basis to air carriers for passengers or freight. Typical examples are terminals, hangars, aircraft repair facilities, freight forwarding/warehousing facilities, etc. If tax-exempt bonds are to be used to finance such facilities, certain limitations and conditions exist.

Qualified Purposes

Airports
Docks and wharves
Mass commuting facilities
Facilities for the furnishing of water
Sewage facilities,
Solid waste disposal facilities
Facilities for the local furnishing of electric energy or gas
Local district heating or cooling facilities
Qualified hazardous waste facilities
High-speed intercity rail facilities
Environmental enhancements of hydro-electric generating facilities
Qualified public educational facilities
Broadband internet
Carbon capture facilities

(Carbon capture facilities and broadband internet were added by IIJA, H. R. 3684 on November 5, 2021).

Basic Criteria

The facilities must be open to use by the general public. For example, in the case of airports, criteria can be met if the user is a common carrier, transporting passengers or freight on a non-discriminatory basis, or the facilities are otherwise open to the public, like a terminal. Normally this will be the public airport entity. There are some technical limitations on office space, food and beverage and retail space, and lodging facilities.
Certain facilities such as airports, docks and wharves, mass commuting facilities, and environmental enhancement of hydroelectric generating facilities must be owned by a governmental unit.
Volume cap allocation from state and/or federal agencies is required for bonds issued to finance certain facilities. Certain facilities such as high-speed intercity rail facilities, Broadband internet, and carbon capture facilities require a volume cap allocation for only 25 percent of the issue.
Private activity bonds financing exempt facilities for airports, docks and wharves, government-owned solid waste disposal facilities, government-owned high-speed rail facilities, environmental enhancements of hydro-electric generating facilities, qualified public educational facilities, qualified green building and sustainable design projects, qualified highway or surface freight transfer facilities, new empowerment zone facilities, and current refunding bonds that do not exceed the outstanding amount of the refunded bonds are not subject to volume cap allocation.
Exempt facility projects that require a volume cap allocation will need to submit a separate application to the California Debt Limit Allocation Commission (CDLAC). The CDLAC meeting schedule and application due dates can be found under Meeting Agendas, Schedule and Materials.

Examples of IBank Issued Bonds

IBank issues bonds for a variety of projects throughout the state including museums, educational facilities and performing arts centers, research institutes, charitable organizations, energy-efficiency projects for healthcare facilities (with a P3 structure), manufacturing facilities, exempt facilities and more. Some of the most iconic projects that have been financed with the help of IBank issued bonds include projects for Mercury Air Group, Stockton Port District, Pacific Gas and Electric Company and Brightline West Passenger Rail. Check out some of the projects that have been financed with the IBank issued bonds.

Examples of IBank Issued Bonds

Frequently Asked Questions and Fact Sheet

IBank Issued Bonds

Q: What are the requirements related to issuing an exempt facility bond?

A: Each state, annually receives a certain amount of the volume cap allocation from federal government that limits the maximum amount of tax-exempt bonds that can be issued to finance certain types of qualified projects during a calendar year. A project should qualify to receive volume cap allocation before an exempt facility bond can be issued.

Q: What qualified Private Activity Bonds are not subject to volume cap?

A: Exempt facility bonds [airports, docks and wharves, environmental enhancements of hydro-electric generating facilities, qualified public educational facilities, governmentally owned solid waste disposal facilities, governmentally owned high-speed intercity rail facilities, privately owned high-speed intercity rail facilities (only 75% of the bond proceeds)]

Q: What qualified Private Activity Bonds are subject to volume cap allocation ?

A: Exempt facility bonds [mass commuting facilities, facilities for the furnishing of water, sewage facilities, solid waste disposal facilities, facilities for the local furnishing of electric energy or gas, local district heating or cooling facilities, qualified hazardous waste facilities, privately owned high-speed intercity rail facilities (only 25% of the bond proceeds), qualified enterprise zone and empowerment zone facilities]. Industrial Development Bonds (IDBs) are subject to volume cap allocation as well.

Q: What are some applicable Exempt Facility Bond limitations?

A: Some limitations to Exempt Facility Bonds are:

Any tax-exempt bond, including a qualified private activity bond, will not be treated as tax-exempt if the payment of principal or interest is directly or indirectly guaranteed by the federal government or any instrumentality of the federal government. [Certain exceptions apply under section 149(b) of the Code.]
Up to 2% of the cost of issuance may be financed with the bonds proceeds. 95% or more of the net proceeds are to be used to finance an exempt facility. Exempt facility bonds include qualified enterprise zone facility bonds for use in empowerment zones and enterprise communities.
Exempt facility bonds can be current refunded. However, section 149(d) of the Code disallows the advance refunding of these bonds.
The average maturity of bonds may not exceed 120% of the average reasonably expected economic life of the financed facilities as determined under section 147(b) of the Code.