CIDFAC assists California businesses by providing access to low-cost, tax-exempt industrial development bond (IDB) financing for capital expenditures. Our program allows businesses to borrow funds at competitive rates through the issuance of tax-exempt bonds either supported by some form of credit enhancement (e.g., a bank-issued letter of credit) or placed with sophisticated investors.
IDBs may be used for the following types of projects:
- Industrial projects for assembling, fabricating, manufacturing or processing which create tangible products for sale
- Manufacturing projects which use recycled or reused products and materials for the creation of tangible products for sale
- Agricultural projects which process raw materials into tangible products for resale
Eligible Uses of Bond Proceeds
- Buildings and equipment
- Machinery and furnishings
- Costs of architects, engineers, attorneys and permits
- Costs of bond issuance
Federal Eligibility Requirements
Federal restrictions on the use of proceeds include:
- 95% of proceeds must be used for the defined IDB project.
- 2% of bond proceeds may be used for costs of issuance.
- 25% of bond proceeds may be used for land costs.
- A Tax Equity Fiscal Reform Act (TEFRA) public hearing in the community where the project is located must be held before the bonds are issued.
- To acquire an existing building, a minimum of 15% of the bond proceeds must be used to renovate the facility.
- The average life of the bond issue cannot exceed 120% of the weighted average of the estimated useful life of the assets to be financed .
- The bond maturities cannot exceed 40 years.
Federal Restriction on Size of IDB Bond issues
Federal restriction on size of IDB issues include:
- The maximum face amount of an IDB issue cannot exceed $10 million per applicant, per public jurisdiction.
- Total capital expenditures in the public jurisdiction where the project is located cannot exceed $20 million during the period that runs from three years prior to issuance of the IDB through three years after issuance. The $20 million cap includes capital expenditures financed with the IDB.
- The total outstanding IDBs by any one company cannot exceed $40 million nationwide.
California Eligibility Requirements
California’s criteria for IDB projects are based on statutory requirements and on California Debt Limit Allocation Committee (CDLAC) public benefits guidelines. The criteria include public benefits associated with the creation or retention of jobs, participation in welfare-to-work programs, average hourly wage paid to workers and the energy efficiency characteristics of the project. Other rules establish requirements when a business relocates from one jurisdiction to another. See the IDB application and CDLAC's regulations for more information on California’s eligibility requirements.
The IDB Bond Approval and Issuance Process
In California, the IDB bond approval and issuance process includes the following steps:
- The local issuing authority initiates the IDB application process on behalf of the business.
- The local issuing authority or CIDFAC recommends a financing team, which may include an underwriter, financial advisor and trustee.
- Bond counsel conducts a preliminary analysis of the project to ensure compliance with federal tax law requirements.
- Generally, IDBs will require either a financial institution willing to issue a letter of credit for the face amount of the bonds or a qualified institutional investor who is willing to purchase the bonds.
- CIDFAC reviews the IDB application to ensure it meets eligibility requirements.
- CIDFAC staff develops for the Commission a detailed staff report on the issuer’s request for Commission approval.
- Upon Commission approval and the receipt of tax-exempt allocation, the finance team, the business and CIDFAC work together to issue the IDBs.