New Financing Opportunities for Private Businesses

Federal legislation, as recently interpreted by the Internal Revenue Service, contains provisions that liberalize the tax-exempt bond rules to assist with the economic development efforts following the severe flooding and tornadoes in the Midwest during May-August 2008.  The legislation allows Indiana to authorize over $3 billion and Illinois over $1.5 billion of tax exempt bonds for private business.  Because of this legislation, business owners may finance the cost of the acquisition, construction, reconstruction or renovation of nonresidential real property (including new improvements associated with such property) on a tax-exempt basis (i.e., lower interest cost), including costs incurred since the time of the disasters.

Traditionally, private entities could utilize tax-exempt financing only for small manufacturing facilities and solid waste facilities.  With this new legislation, however, Indiana and Illinois may designate any business as a replacement of another business damaged by the disasters, thereby permitting tax-exempt bond financing for a wide range of uses that would not have been permitted under normal tax rules.  Tax-exempt disaster financing can then be used for bigger factories, shopping centers, warehouses, restaurants, car dealers and office buildings and the bonds do not have to be used to replace or repair the property that was actually damaged by the disasters.  Although certain restrictions do apply, this is a tremendous opportunity for private business to finance projects at a lower, tax-exempt interest rate.

If you have questions about your eligibility to benefit from this legislation, you may contact Philip Genetos or Denise Barkdull.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.