As of January 1, manufacturers can take advantage of a new, cost-saving financial benefit – an increase, to $20 million, in the limit of capital expenditures for projects that can be financed through industrial development agencies.
According to Joseph P. Carlucci, partner at the law firm Cuddy & Feder LLP, and head of its industrial development agency practice group, this is double the amount previously allowed by the Economic Development Agency. The low-cost project financing aid will help to increase economic development, create jobs and expand local economies.
Under the old capital expenditure rules, a manufacturer seeking financing assistance from industrial development or economic development agencies, could not spend more than $10 million on capital expenditures for a particular project.
With the new regulations, manufacturers that are spending up to $20 million in acquisition, construction and equipment costs can apply for a tax-exempt bond issue to cover up to $10 million of the costs of the new facility, and finance the remainder with a taxable bond issue, or other financing, Carlucci said.
With construction loan rates now at, or near, 8.5 percent, manufacturers will now be able to finance up to $10 million of new facility costs through federally tax exempt bonds at rates that are currently about 3.8 percent, said Carlucci.
A significant portion of the remaining costs could be financed with taxable bonds, issued by industrial development agencies, with interest rates that now range between 3.75 percent to 4.75 percent, still lower than conventional bank loans, noted Carlucci.
The new $20 million spending limit is available if a company's total expenditures are made within the geographic area where the industrial development agency is authorized to issue bonds and if the total expenditures, including the funds from the bond issue, do not exceed $20 million over a six-year period, said Robert C. Schneider, Special Counsel at Cuddy & Feder.
The six year period includes the three years prior to the bond issue, and three years following, he said. Any manufacturing company can also apply for a $1 million initial bond to finance a new facility with a "stand alone" tax-exempt bond, he added.