Revenue Bond Financing
The Lansing Economic Development Corporation (LEDC) offers Tax Exempt Revenue Bonds as a source of financial assistance to economic development projects in Lansing. These bonds are issued on behalf of a qualified manufacturing or not-for-profit business, whose own credit worthiness or project viability is sufficient to attract a bond buyer, or with a letter of credit from a bank guaranteeing repayment of the bond. The proceeds from the bond's sale are used by the business (borrower) to finance their project. The borrower is then responsible for making all bond interest and principal payments. Because the interest earned on the bond is excluded from gross income for federal and state income tax purposes, the bond can offer a lower than market (prime) interest rate and still be attractive to a potential buyer. Thus, the business can obtain mid to long term project financing at an average of 75%-85% of the prime interest rate.
Eligibility Project Costs
For manufacturing projects, at least 95% of the bond proceeds must be used for land and depreciable property constituting a qualified manufacturing facility. Thus, bond proceeds can be used to acquire real estate, or construct buildings, or to purchase and install equipment that is directly related to the manufacturing process. At least 75% of bond proceeds must be used for core manufacturing facilities, which are directly related and ancillary to the manufacturing process. Non-production areas, i.e., lunch rooms, loading docks, office space, parking, conference rooms and storage areas may comprise no more than 25% of the project. No more than 5% of the project may relate to office space that is not directly related to onsite activities, i.e., sales staff, etc. If acquiring an existing facility with used equipment, at least 15% of the proceeds attributable to acquisition costs must be used for qualified rehabilitation expenditures. Generally, working capital, inventory or the acquisition of used equipment is ineligible. The practical minimum bond size for manufacturing firms is $750,000, the maximum size is $10,000,000.
For non-profit corporations, eligible uses of bond proceeds include those directly related to the purchase or construction and equipping of a facility in which the corporation's business is conducted. The creation or purchase of space for tenants to generate unrelated income is prohibited. The credit worthiness of the borrower must be solely sufficient to back the bond issued. The practical minimum bond size for non-profit corporations is $750,000, there is no maximum size limit.
What is the Process?
1. Application for financing assistance for a project presented to the Lansing Economic Development Corporation Board of Directors.
2. LEDC Board of Directors review application to determine whether proposed project constitutes public purpose within meaning of Section 2 of the EDC Act.
2a. If the LEDC Board of Directors finds that the proposed project does constitute a public purpose and that it is otherwise satisfied with the application, it issues a resolution of inducement (necessary to qualify bond issue for tax-exempt status).
2b. LEDC Board of Directors designates project area and recommends project district area and notifies Mayor and City Council in writing of the project area designation; also requests the Mayor to appoint two additional directors to the LEDC to serve only in respect to that project.
3. City Council receives project area designation and refers it to its Planning & Development Committee.
4. Mayor appoints two additional directors who are representative of neighborhood residents and business interests likely to be affected by the proposed project; these appointments are submitted to City Council for confirmation and are referred to Council's Planning & Development Committee.
5. Planning & Development Committee reviews designation of project area by Economic Development Corporation as well as its recommendations regarding the establishment of Project District Area boundaries. Committee also considers the necessity of establishing a Project Citizens District Council (PCDC) (requirements in Section 20 of the EDC Act) and reviews Mayor's appointment of Temporary Directors. The Planning & Development Committee's findings on these matters are forwarded to the City Council for action.
6. City Council certifies project area, establishes project district area, determines necessity of establishing PCDC, and confirms appointment of additional directors of the Corporation.
6a. If a PCDC is to be established, City Council appoints at least nine members.
7. LEDC, augmented by Mayor's two appointees, prepares project plan (contents Section 8 (4) of EDC Act) in consultation with PCDC (if established).
8. LEDC Board approves plan, certifies that the project will not have the effect of transferring employment of more than 20 full-time persons from another Michigan municipality and forwards the project plan to the Mayor and City Council for review and approval.
9. If implementation of project plan will require a zoning change or the taking of private property pursuant to Section 22, Mayor refers plan to Planning Board.
9a. After consulting with PCDC, Planning Board reviews the project plan and submits its findings and recommendations in accordance with Section 9 (1) of the EDC Act to the Mayor and City Council.
10. City Council schedules public hearing on plan, in accordance with Section 17 of the EDC Act.
11. A Public hearing is held to provide public opportunity for expression of opinion, for argument on the merits, and for introduction of documentary evidence pertinent to proposed project plans; upon conclusion of hearing, plan is referred to City Council's Planning & Development Committee for recommendation.
12. PCDC, if established, notifies City Council in writing of its findings and recommendations concerning the proposed project plan promptly after public hearing.
13. Planning & Development Committee of Council reviews plan and recommends approval, approval with modification, or rejection of project plan in accordance with Section 10 (2) of EDC Act; recommendation forwarded to full Council for action.
14. City Council reviews Committee's recommendation and acts to approve, approve with modification, or reject the project plan in accordance with Section 10 (2).
15. Bond Council prepares closing documents.
15a. LEDC Board authorizes issuance of bonds, approves closing documents.
15b. Bond closing takes place.
