Through its Private Activity Bond Program, the Iowa Finance Authority issues tax-exempt bonds on behalf of private entities or organizations for eligible purposes. These bonds help companies improve, expand and succeed.
In general, only bonds that serve a public purpose and are issued by state and local governments for the benefit of everyone are tax-exempt. However, there are some bonds that serve private interests that are allowed to be tax-exempt. These are bonds that, while they benefit private interests, also have substantial public benefits. Such bonds are called private activity bonds. These bonds are repaid from the revenues received by the private users.
The responsibility for repayment of the bonds rests with the applicant. Neither IFA nor the State of Iowa has any liability to repay the debt. IFA does not buy the bonds or sell the bonds. Applicants are responsible for finding an entity to purchase the bonds.
IRS regulations regarding qualified private activity bonds are detailed and stringent. Examples of private activity bonds that are tax-exempt include:
Privately-owned solid waste disposal facilities
Qualified affordable multifamily residential rental projects
Industrial revenue bonds
Bonds for projects of 501 (C) (3) private non-profit corporations
Some of these tax-exempt private activity bonds require an allocation of private activity bond cap and some have limits on the amount of tax-exempt bonds that can be issued. If you are applying for an affordable multifamily residential rental project using 4% Low-Income Housing Tax Credits, apply through the Tax Credit Application and Compliance (TAC) system.
If the project is qualified and IFA will be the issuer of the bonds, a Private Activity Bond Program application must be completed and submitted to IFA, along with a $1,000 fee for applications up to $10 million and $2,500 fee for applications over $10 million. The application fee will be subtracted from the issuer fee at closing.
Once the application is submitted and the fee is paid, the application is considered by IFA’s board of directors. IFA’s board meets monthly. Applications must be received approximately 10 days prior to a board meeting to be considered at that meeting. If the application is approved by the board, IFA will hold a public hearing and consider approving the issuance of the bonds for the borrower at a later meeting.
Because federal tax requirements limit the amount and type of expenses that can be reimbursed with bond proceeds, the borrower should seek approval of the project by the board before beginning work or expending funds on the project. Private Activity Bond applications will expire if the bonds are not issued within 18 months.
At the time of closing, IFA requires the borrower to pay a fee, usually 10 basis points, for administrative costs. IFA does not pay for costs or legal fees of the borrower or any other costs incurred as a result of the issuance of the bonds.
There will be a $2,500 charge for any resolution coming before the IFA board that is not part of a bond issue that will have a closing fee. This would primarily include amending resolutions to prior bond issues. If a new 8038 must be issued, this is considered a new bond issue and not just an amending resolution. If an allocation of private activity bond cap is needed, please see Private Activity Bond Cap.
If a special meeting of the IFA Board is requested at a time different than the regularly scheduled Board meeting, there is a $2,500 fee. This fee is in addition to any other fees charged.