Exempt Facility Bonds | California Infrastructure and Economic Development Bank (IBank) (2024)

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.
Exempt Facility Bonds | California Infrastructure and Economic Development Bank (IBank) (2024)
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