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Industrial Development Bonds Program

Industrial Development Bonds (IDB), also known as Private Activity Bonds, are a special financing vehicle made available in Texas, pursuant to the Texas Development Corporation Act of 1979, as amended, and the Internal Revenue Code. IDB's may provide lower interest rate paid on the bonds is exempt from federal income taxes. As of this date, the State of Texas does not impose an income tax. The City of El Paso created an Industrial Development Authority to serve as the issuer for Industrial Development Bonds for manufacturing projects located within the City.

Benefits of IDB financing include:

  • Tax-exempt IDB bonds may provide 100 percent of the financing for the cost of the land, building and equipment, as well as the development and related costs of the project.
  • Repayment schedules on the bonds may be tailored to meet the needs of the User subject to the requirements of the Internal Revenue Code and the purchaser of the bonds.
  • IDB's are exempt from registration with the Securities and Exchange Commission since they are municipal bonds.
  • IDB's may be issued prior to the commencement of construction. Therefore, tax exempt financing may be used for interim as well as permanent financing simultaneously. In the event that the user should choose to construct the facility prior to the formal delivery of the bonds, then any applicable interest charges for interim financing may be reimbursed out of bond proceeds.

IDB's can be advantageous to users who require between $1,000,000 and $10,000,000 in financing. Restrictions on the total amount of capital expenditures of the user apply to the issuance of IDB's. Capital expenditures may not exceed $10,000,000, pursuant to the requirements of the Internal Revenue Code.

The Industrial Development Authority of the City of El Paso serves as a conduit for the issuance of IDB's. The faith and credit of the City is not used to guarantee the bonds, nor does the city place the bonds. As in other types of financing, the strength and credit history of the user and the credit enhancement provided will determine the interest rate and marketability of the bonds. Typically, bonds are purchased by large financial institutions. The assistance of a Placement Agent or Investment Banker is recommended. The user must agree to hold the issuer and the city harmless as to the issuance of the bonds and the transaction related thereto.

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