Industrial Revenue Bonds
Missouri offers a variety of methods of issuing low-cost, long-term industrial revenue bonds (IRBs). The proceeds of an IRB issue may be used to finance up to 100% of the cost of fixed assets such as land, buildings, machinery, and equipment. The following public corporations and government agencies are authorized to issue IRBs to facilitate the financing of business projects in Missouri: Industrial Development Corporations, Municipalities (general obligation or revenue bonds), Planned Industrial Expansion Authorities, Land Clearance for Redevelopment Authorities, Special Business Districts, Port Authorities, the Environmental Improvement and Energy Resources Authority, and the Missouri Development Finance Board.
Missouri Development Finance Board. The Missouri Development Finance Board (MDFB) is authorized to issue IRBs to attract new industry and to help existing industry expand in the state.
Tax-Exempt IRBs. The MDFB may issue such bonds to provide small and mid-sized manufacturers with long-term, below-market rate financing for fixed assets such as land, buildings, machinery, and equipment. In addition to financing expansion projects, bond proceeds can also be used to retire the outstanding principal of previous tax-exempt issues.
Taxable IRBs. The MDFB has the authority to issue taxable bonds to provide virtually any type of business or industry with low cost, long-term financing for fixed assets. The participation of the borrowers’ banks through letters of credit may result in lower issuing costs and more attractive interest rates than conventional bank financing on some projects between $5 and $50 million.
Missouri BUILD Program. The MDFB may issue IRBs to finance public or private infrastructure used to support larger business projects or to finance new capital improvements of the business at the project location. The Business Use Incentives for Large Development (BUILD) Program provides Missouri state income tax credits to the business in the amount of debt service payments for the IRBs related to a portion of project costs. If tax credits exceed tax liability, the business may receive a refund for the unused portion. New or expanding manufacturers, and specified other employers, must invest a minimum of $15 million in capital improvements and create at least 100 new jobs within three years. Eligible office projects must invest at least $10 million in capital improvements and create at least 500 new jobs within three years.
Industrial Development Corporations. Missouri law permits cities and counties to establish special public corporations called Industrial Development Corporations (IDCs) to issue IRBs. An IDC has the authority to issue tax exempt or taxable bonds. Financing industrial development through an IDC, rather than with a municipal bond issue, is advantageous because a bond approval election is not required. Property may be owned by an IDC and leased to a company. Abatement of property taxes is not available.
Municipalities. Cities or counties may purchase or construct projects with bond proceeds and lease or sell the project to a company. The bonds may be issued as a “revenue” bond or a “general obligation” bond. General obligation bond issues require a two-thirds public voter approval. Revenue bonds do not require a bond approval election. Municipal IRBs can be issued to provide funds to purchase, construct, expand or improve industrial plants. The bonds can be sold as federal and state tax-exempt, if the project is less than $10 million, and if the company has less than $40 million in outstanding tax-exempt bonds, and the company is a manufacturer. It may be possible to exempt most of the real and personal property tax of bond-financed buildings and machinery if the city or county owns the property and leases it to the company.
Community Development Block Grant Program
Qualified job-creating businesses located in “non-entitlement” areas of Missouri may qualify for programs funded by the federal Community Development Block Grant (CDBG) program administered through the Missouri Dept. of Economic Development. Within the greater Kansas City area, Kansas City, Independence, Lee’s Summit, and St. Joseph do not qualify as “non-entitlement” areas. As CDBG-funded, the following programs require that at least 51% of the new jobs due to the project must be taken by persons considered of low or moderate income.
Action Fund Loans. These loans are targeted to manufacturing, processing, and assembly businesses and may be used for the purchase of new machinery and equipment or working capital. The Action Fund loans are designed to provide “last resort gap financing” where the economic impact of the project outweighs the default risk. Action Fund loans can cover the lower of: $400,000 per project, 30% of the cost of a project, or $20,000 per new job. Payments may be deferred for up to three years until cash flow is positive, if the growth rate supports the cash flow projections. The term of the loan is not to exceed 10 years.
Industrial Infrastructure Grants. This program provides grants to eligible communities to assist in providing public infrastructure such as water, sewer, and roads to support new or expanding businesses or to prevent the relocation or closing of a facility. Once the city or county has exhausted their available resources, the maximum grant per project is the lower of: $1,500,000, 35% of the company’s capital investment, or $10,000 per job.
Interim Financing Loans. In order to provide cash flow relief to induce a manufacturing company to initiate a project, the Dept. of Economic Development provides funding through a city or county sponsor to facilitate a partner business. Funds can be used for the purchase of new fixed assets or permanent working capital. The loan term is typically 18 months and payment of principal and interest is deferred until the end of the term.
Loan Guarantees. Eligible job-creating businesses may receive up to an 80% loan guarantee on funds obtained from a private lender, up to a maximum of $400,000 or $20,000 per job, whichever is less. Application is made through a city or county. Funds may be used for the purchase of new fixed assets or permanent working capital. Depending on the use of the funds, the term of the loan may be as great as 15 years. Manufacturing, processing, and assembly companies are prioritized. The company must demonstrate that other public programs (i.e., SBA 7a and similar programs) have been exhausted before this program is used.
Speculative Building Loans. The purpose of this program is to provide an inducement for a speculative industrial building. The Dept. of Economic Development provides funding through a city or county government on behalf of an eligible borrower. An eligible borrower is a nonprofit development corporation. The maximum funding available is $1 million per project. Funds can be used for the purchase of land, the development of on-site infrastructure, the purchase of an existing building and improvements, or the construction of a new building. The term of the loan is a maximum of 30 months. The interest is 2% of the amount borrowed. At least one job must be created for every $25,000 in loan proceeds.
The Brownfield Redevelopment Program
This program encourages Missouri businesses to remediate contaminated sites on which abandoned buildings are located, and to refurbish and occupy such buildings, thereby creating employment opportunities. In addition to the programs’ tax credits, program benefits include loan guarantees and direct loans to business to finance capital improvements at the project location. Grants can also be issued for the improvement of public infrastructure for the project. In addition, public entities can obtain grant funding (up to $100,000 or 50% of the cost) for feasibility studies or other due diligence costs. The maximum amount of funding available to a project through loans and grants is $1 million in aggregate.
The eligible project must be in a blighted area and must comply with the Dept. of Natural Resources’ environmental conditions. A new company must create and maintain 10 new jobs, and an existing company must retain 25 jobs to receive benefits.
Market Development Program
This program aims to encourage businesses to convert materials recovered from solid waste into marketable products. Eligible projects include the final processing or conversion of recovered materials in usable industrial feedstock or the manufacturing of products from feedstocks. Eligible expenses include new equipment or conversion of existing equipment as well as installation, operation, and maintenance. Funds are provided as a loan secured by the machinery and equipment financed by the loan proceeds. The loan is canceled after two years if the conditions (maintenance of operations and reporting) are met. Financial assistance offered to any one project is limited to $75,000.
Tax Increment Financing
Tax increment financing (TIF) is designed to help finance improvements to property in designated redevelopment areas using the tax revenues that result from improvements to those areas. Any city or county in Missouri may designate redevelopment projects and adopt TIF by passage of local ordinances.
Up to 100% of the increased amount of real property taxes and 50% of local sales, utility, and (in Kansas City) earnings taxes resulting from improvements in a redevelopment area are paid in lieu of taxes into a “special allocation fund.” Additionally, up to 50% of state withholding taxes or 50% of state general sales taxes (1.5%) generated by a TIF project may supplement local TIF funding. The amount redevelopment project costs funded and the length of time local taxes are redirected into the fund (it can be up to 23 years) is negotiated by the local TIF commission based on the least amount to cause the project to occur. TIF project funds may be derived from a bond issue (paid from the net new local taxes), or a reimbursement to the developer for approved costs.
Eligible redevelopment project costs are defined very broadly and include, in part: the costs of studies, surveys, plans and specifications, land acquisition, land preparation, professional service costs and fees, and construction costs of both public and private improvements.