The Industrial Revenue Bonds (IRB) Program is to incent expansions of manufacturing facilities in the state of Wisconsin.
This program primarily supports the following WEDC Strategic Pillar and Focus Area:
Business Development: Business Retention and Expansion
IRBs are tax-exempt bonds that can be used to stimulate capital investment and job creation by providing private borrowers with access to financing at interest rates that are lower than conventional bank loans. The IRB process involves five separate entities – the borrower, lender, bond attorney, issuer, and WEDC. Each year, federal law establishes a “volume cap” which applies at the state level. The volume cap limits the amount of bonding authority that a municipality or county can issue to businesses in that year. Once the annual cap is established under federal law, WEDC allocates bonding authority to the various municipalities and counties to issue IRBs pursuant to Wis. Stat. §238.10 and the Policy on the Allocation of Volume Cap.(1) The municipalities and counties sell the IRBs and loan the proceeds to eligible businesses undertaking eligible projects.
(1) Wis. Stat. §238.10
At the federal level, Industrial Revenue Bonds are covered by Section 103 and 141 through 149 of the Internal Revenue Code and Income Tax Regulations, which establish the nature and size of the projects that quality for federal tax exemption of interest.(2)
Manufacturers can use the bond proceeds for building, land or equipment but not working capital. There are restrictions on bond size and total capital expenditures. Manufacturing includes nearly every type of processing that results in a change in the condition of tangible personal property.
According to federal tax law, the maximum size of an IRB issue is $10 million.(3) For bond issues exceeding $1 million, capital expenditures in the municipality where the project is located cannot exceed $20 million during the three years before and the three years after the date the bonds are issued.(4) The $20 million capital expenditure limitation includes any principal user of the facility and also related persons (more than 50% owner of stock or partnership interests). Also, the total amount of IRBs outstanding at all related operations of the business, in all states, may not exceed $40 million.(5) “Exempt” projects do not have to comply with the $10 million maximum bond size, the $20 million capital expenditure limit, and the $40 million aggregate limit. Exempt projects include:
- Docks and wharves
- Mass-commuting facilities such as high-speed rail
- Facilities for furnishing water
- Sewage facilities
- Solid waste disposal facilities
- Facilities for the local furnishing of electric energy or gas
- Facilities for local district heating and cooling
- Qualified hazardous waste facilities(6)
WEDC can allocate volume cap for both exempt and non-exempt projects.
To qualify for an IRB volume cap allocation, the following must be satisfied:
- Notice of intent: At least 30 days prior to entering into a revenue agreement with a municipality or county, the business benefitting from the bonds must give WEDC a notice of intent to enter into the agreement, on a form prescribed by WEDC.(7) No later than 20 days after the receipt of this notice, WEDC will estimate whether the project is expected to eliminate, create, or maintain jobs on the project site and elsewhere in the state and the net number of jobs expected to be eliminated, created, or maintained as a result of the project.(8)
- Good faith estimate: Prior to adoption of an initial resolution, WEDC must receive a good faith estimate of attorney fees which will be paid from bond proceeds.(9)
- Initial resolution: Within 20 days following publication of notice, WEDC must be provide a copy of the initial resolution together with a statement indicating when the public notice required under §66.1103(10)(b) was published.(10)
- Notice of closing: After the closing of the bond issue, WEDC shall be notified of the closing date, any substantive changes made to documents previously filed with WEDC, and the principal amount of the financing.(11) This notice must be filed with WEDC within five business days from the date of the closing. The notice must also include the following information: buyer/underwriter, type of sale (public or private), term, and interest rates.
(2) I.R.C. §103; I.R.C. §141-149
(3) I.R.C. §144(4)
(4) I.R.C. §144(a)(4)
(5) I.R.C. §144(a)(10)(A)
(6) I.R.C. §142(a)
(7) Wis. Stat. §66.1103(4m)(a)1 and §238.11(1)
(8) Wis. Stat. §238.11(2) and §238.11(5)
(9) Wis. Stat. §66.1103(10)(g)
(10) Wis. Stat. §66.1103(10)(c)
(11) Wis. Stat. §66.1103(10)(c)
Incentives and Available Funding (FY19):
IRB volume cap is allocated on a calendar year basis. The total amount for WEDC for calendar year 2018 was $299,262,858. The federal tax code allows each state to establish by law its own formula for allocating its volume cap.(12) Volume cap is allocated on a statewide basis pursuant to Wis. Stat. §238.10 and the Policy on the Allocation of Volume Cap.(13)
The incentive in this program is access to tax-exempt bonds at interest rates that are lower than conventional bank loans, typically 75% of the conventional interest rate that would otherwise apply to the financing. The bond is subject to the following limitations under federal tax law:
- No more than 25% of the net proceeds of the bonds may be used for land acquisition.(14)
- No used property can be acquired with bond proceeds, unless substantial rehabilitation is done within two years after the later of the date the property was acquired or the date the bond was issued. Substantial rehabilitation is defined as 15% of the amount financed with the proceeds of the bonds for buildings, 100% for “structures other than a building”. The rehabilitation has to take place within the existing footprint of the building to be acquired.(15)
- The average maturity of the bonds cannot exceed 120% of the weighted average economic life of the project.(16)
- Depreciation of bond financed property must be straight-line not accelerated.(17)
- All of the proceeds must be used within a three-year period.(18)
(12) I.R.C. §146
(13) Wis. Stat. §238.10
(14) I.R.C. §147
(15) I.R.C. §147(d)(2)
(16) I.R.C. §147(b)
(17) I.R.C. §147(b)
(18) I.R.C. §146(d)(3)
Activities and Expected Outcomes
Assist seven businesses through the authorization of tax-exempt municipal bond sales.
Performance is measured by the number of IRB bond issues that occur each year as a result of the volume cap being allocated, as documented by the number of bond closings.For each allocation of volume cap, the following must occur:
- Employers that do not certify to the municipality or county prior to entering into the revenue agreement that their project is not expected to result in lost jobs must submit a quarterly report every three months during the first year after the construction of the project is completed, providing information about new jobs, lost jobs, and offers of employment made to persons who were formerly at lost jobs.(19)
- Within 12 months after the project is completed or 2 years after a revenue bond is issued to finance the project, whichever is sooner, the business benefitting form the bonds must submit to WEDC, on a form prescribed by WEDC, the net number of jobs eliminated, created, or maintained on the project site and elsewhere in the state as a result of the project.(20)
WEDC may impose additional reporting requirements to evaluate project performance and to ensure compliance with statutory requirements.
(19) Wis. Stat. §66.1103(4m)(b) and §238.11(1)
(20) Wis. Stat. 238.10(3)
Application and Awards Process:
The IRB Program has a continuous application process. Applicants for an Industrial Revenue Bond volume allocation should complete an application through a regional economic development director. The completed application will be assigned to an underwriter and go through the award review process.
If bonds are not sold within 30 days from the certification date or by December 1, whichever comes first, the applicant must submit a deposit of 0.5% of the allocation (a 1.0% deposit if the allocation is requested on or after October 1) to WEDC.(21) The deposit reserves the allocation for a period equal to the lesser of 90 days from the certification date or the remainder of the calendar year. The deposit is refundable following the bond closing, but is forfeited if the bonds are not sold. However, the deposit and forfeiture may be waived if circumstances warrant. In addition, a non-refundable fee equal to 0.10% of the amount of the bond issue must be submitted with the notice of bond issuance. The fee is capped at $10,000 for exempt and non-exempt projects and may be waived by WEDC if economic circumstances warrant it.
For more information on application review, internal process and award distribution, please refer to WEDC’s award administration policies and procedures.
(21) Wis. Stat. §238.10(3)