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.

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$3.4 billion

Total green and social bonds issued by IBank

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59,327

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

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$52.5 billion

Total bond activity

Municipal Bonds

Bonds issued by government agencies 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 agencies are tax-exempt. This means interest on these bonds are excluded from gross income for federal tax purposes. In addition, interest on the bonds is exempt from State of California personal income taxes.

Who is a conduit bond issuer?

As a conduit issuer, IBank does not underwrite the bonds in house. 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 and agrees to repay the bonds.

Exempt Facility Bonds

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 local utility facilities; solid and hazardous waste disposal facilities; and other types of facilities.

Examples of Exempt Facility Revenue Bonds

Public airports frequently build facilities which 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 furnishing of local 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, and qualified public educational facilities.

Basic Criteria

The facilities must be open to use by the general public. This test can be met if the user is a common carrier, transporting passengers or freight on non-discriminatory basis, or the facilities are otherwise open to the public, like a terminal.
The facilities must be owned by a governmental unit. 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.

View our most recently issued IBank Bonds

IBank issues bonds for a variety of projects throughout the state including museums, educational facilities and performing arts centers, research institutes, manufacturing facilities and more. Some of the most iconic projects that have been financed with the help of IBank issued bonds include the Bay Area Toll Bridge, the Petersen Automotive Museum, the Academy Museum of Motion Pictures, the J. Paul Getty Museum, the B Street Theatre (Sophia) and more. Check out some of the projects that have used IBank issued bonds.

View our most recent issued IBank 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.