The Internal Revenue Code designates certain exempt facilities which may be
used in the trade or business of a for-profit person or enterprise and can be financed by
the issuance of tax- exempt private activity bonds without any limit as to the size of the
bond issue. Such exempt facilities are as follows:
1. The amount of outstanding bonds when added to the capital expenditures of all
principal users (users of 10% or more by space, value or purchase of output) in the city
or unincorporated area that the project is located during the 3 year period prior to the
issuance of the bonds and ending 3 years after issuance of the Bonds cannot exceed
2. The amount of tax-exempt bonds of any principal users of the facilities during the
period described in the preceding sentence cannot exceed $40,000,000 each.
3. Issues sold at substantially the same time (15 days), pursuant to the same plan of
financing and reasonably expected to be paid from substantially the same source may have
to be treated as part of the same issue for purposes of limitation of "1" above.
4. Can only include minimal office facilities necessary for the operation of the
5. Bonds issued to finance manufacturing facilities are subject to the state volume cap
(approximately $224,000,000 per year).
6. 95% or more of the proceeds must be use for land or depreciable property.
7. No more than 2% of the proceeds of the Bonds may be used to pay the costs of
issuance of the Bonds.
8. Only expenditures paid within 60 days prior to the adoption of an official intent
resolution, and any time thereafter, may be reimbursed with Bond proceeds.
9. Bonds must be issued not later than 18 months after the later of (a) the date any
payments are made, or (b) the date the project is first placed in service (but in no event
later than 3 years after the date payments were made).
10. Weighted average maturity of the Bonds cannot exceed 120% of the weighted average
life of the facilities financed.
11. Generally no more than 25% of the net proceeds of an issue may be used to finance
12. Bonds proceeds may not be used to finance existing facilities or used equipment
(a) In the case of an integrated building and equipment, an amount at least equal to
15% of the acquisition price is used for rehabilitation; or
(b) In the case of structures other than buildings (i.e. docks and wharves) an amount
equal to at least 100% of the acquisition price is spent on rehabilitation.