Upcoming Private Activity Bond Authority Board Meeting
The next Private Activity Bond Authority (PAB) Board Meeting is scheduled for Wednesday, July 10, 2013, at 9:00 a.m. The meeting will be held at our office located in the World Trade Center at City Creek, 60 East South Temple, 3rd Floor, Canyonlands Conference Room #341, Salt Lake City, Utah. A copy of the agenda will be posted approximately one week before the meeting.
A printable "PAB General Information" sheet is available by clicking here.
Information on the individual programs and applications can be found by clicking on the appropriate link listed below.
- Multi-Family Housing
- Qualified Redevelopment Projects
- Single Family Housing
- Student Loans
- Exempt Facilities
The Private Activity Bond (PAB) is Utah's tax-exempt bonding authority creating a lower cost, long-term source of capital under the Federal Tax Act of 1986. The Federal Government allocates over $32 billion per year to states on a per capita basis, with Utah receiving $291,875,000 in 2013. Each state establishes its usage priorities by statute. The Utah State Legislature has distributed our volume cap into the various allotment accounts listed below:
Small Issue Account
Volume Cap Amount: $70,050,000
Percent of Total Volume Cap: 24%
Users: Manufacturing Facilities (credit worthy companies starting or expanding their business by building/buying new structure facilities, equipment, and/or land), Multi-Family Affordable Housing (apartments) and Qualified Redevelopment Projects.
The Small Issue Account allocates volume cap to meet two critical state needs: build essential multi-family housing and create high paying jobs that will support a family.
Through the use of Multi-Family Housing Bonds and Manufacturing Facility Bonds, i.e., Industrial Development Bonds (IDBs) or Industrial Revenue Bonds (IRBs), long-term capital is made available at 100 to 300 basis points (1 to 3 percentage points) less than market rates for periods of 20 to 40 years.
Single Family Account
Volume Cap Amount: $122,587,500
Percent of Total Volume Cap: 42%
Users: Utah Housing Corporation for first-time single family homeowners.
Student Loan Account
Volume Cap Amount: $96,318,750
Percent of Total Volume Cap: 33%
Users: Utah State Board of Regents for university and college students.
The Single Family Mortgage and Student Loan Programs lower thousands of Utahns' long-term costs annually for their first home mortgage or college student loan.
Exempt Facility Account
Volume Cap Amount: $2,918,750
Percent of Total Volume Cap: 1%
Users: Water Facilities, Sewage, Pollution and Solid Waste Control Projects
What are Tax-Exempt Bonds?
A bond is a certificate representing a promise to pay a specified sum of money (face value or principal amount) at a specified date in the future (maturity dates), together with periodic interest at a specified rate.
The Tax Reform Act of 1986 distinguishes between two types of municipal bonds; Governmental Bonds and Private Activity Bonds (PABs).
Governmental Bonds are used for public purposes (e.g., highways, schools, sewers, government equipment and buildings, jails, parks, bridges, etc.) and benefit the general public. The interest on Governmental or Municipal Bonds is exempt from federal income taxes and in many cases, state and possibly local income taxation if the bonds are issued by the State, its Agencies and/or Political Subdivisions. Because of this feature, the interest rates on municipal bonds are lower than interest rates on other types of bonds. Municipal bonds are backed by the full faith and credit (taxing and borrowing power) of the municipality issuing the bonds.
Private Activity Bonds are issued for the benefit of private individuals or entities and are issued on a tax-exempt basis if they are "qualified," meaning they fit under any of the seven categories outlined by the Internal Revenue Code. (Utah uses four of the categories.) The owner (buyer) of a tax-exempt bond does not pay federal income tax on the interest received on such bonds; consequently, tax-exempt bonds bear lower interest rates than bank loans or taxable bonds. This lower borrowing cost is passed on directly to the borrowing entity.
Why Should Manufacturers Use Tax-Exempt Bonds?
- State and Federal laws allow manufacturing companies to use a city or county's name and tax-exempt financing status to issue tax-exempt bonds.
- If all tax requirements are met, bond issues are exempt from federal income taxes and possibly state and local taxes.
- Interest rates of tax-exempt bonds are usually lower than taxable bonds.
- There is no guarantee, debt, liability, obligation or pledge of faith by the city or county issuing the bonds.
- Governmental entities are willing to do this because PABs meet a public purpose or create a public benefit, i.e. creation of jobs from a new manufacturing facility.
- Tax-exempt bonds provide an alternative, low-cost, source of funds to finance capital expenditures.
Why Should Developers Use Tax-Exempt Bonds?
- Lower interest rates than conventional loans of comparable maturity.
- Higher loan amounts (greater leverage) due to lower interest rates.
- Access to greater variety of financing tools.
- Variable rate demand bonds to provide greater cash flow.
- Derivative products to customize financing to desired risk tolerance.
- Access to equity from 4% Low-Income Housing Tax Credits ("LIHTCs").
- Provides 25% to 30% more capital as a source of funds.
- Easier and quicker path to obtain necessary authorization to proceed.
Volume cap is allocated by the Private Activity Bond Review Board in 90-day certificates at the regularly scheduled meetings. Applications are submitted at least five weeks prior to the Board Meetings. For a copy of the current Board Meeting Agenda, click on the link at the top of this page.
Volume cap allocations require qualified bond counsel to complete the issuance transaction.
For more information on the individual programs and to receive applications, click here.