The Tempe Industrial Development Authority (“IDA”) is a non-profit Arizona corporation, which operates as a public board under the City of Tempe, Arizona. We were formed in 1980 and are governed by a diverse Board of Directors composed of seven members.
The Tempe IDA is committed to promoting economic development and enhancing the quality of life in Tempe, Arizona. Since our inception, we have issued over $600 million in qualified private activity bonds (formerly known as “industrial development bonds”), which have provided a creative financing solution for numerous local and important projects. In addition, we have granted over $570,000 in scholarships to college-bound local students.
The Tempe IDA’s principal source of revenue is the fees we receive in exchange for serving as a conduit bond issuer in private activity bond transactions. Such revenues, net of our minimal operating expenses, are eligible for reinvestment by the Tempe IDA into the City of Tempe for various community initiatives and philanthropic projects to enhance the quality of life of the residents and businesses of Tempe.
The Tempe IDA is always interested in learning about new projects and ways to further promote economic development and the quality of life in Tempe. Our Board meetings are open to the public. If you have a project or idea you feel may be of interest to us and in furtherance of our mission, please contact us!
Qualified private activity bonds are a type of tax-exempt bond. As the name suggests, instead of being issued to finance facilities for general public use (such as public parks or roads), private activity bonds are issued for the benefit, or due to the substantial participation, of a private business. If a private activity bond constitutes a “qualified bond” (as defined under the Internal Revenue Code), the interest on the bond is excludable from the bondholder’s gross income, subject to alterantive minimum tax in certain cases. This tax exemption means that the holder of a qualified private activity bond achieves a higher yield than it would achieve on a comparable taxable (i.e., corporate or U.S. treasury) bond. As a result, the holder of a qualified private activity bond will accept a lower interest rate than a holder of a corporate bond. This means that the cost of capital is lower on private activity bonds than on an otherwise comparable taxable bond. The Tempe IDA passes 100% of the savings on the reduced interest rate to the ultimate borrower in the transaction.
Prospective investors may choose to invest in qualified private activity bonds for any number of reasons, including the appeal of the underlying asset and its management, portfolio diversification, yield, tax benefits and tax planning, and the social impact or cause associated with the underlying project. Private activity bonds may be suitable at any level within a borrower's capital structure, including as the sole debt, senior debt, or a subordinate tranche.
Qualified private activity bonds issued by the Tempe IDA are payable solely from the receipts and revenues associated with the underlying project and the ultimate borrower and are not obligations of the Tempe IDA or the City of Tempe, and are not a charge upon the general credit of the Tempe IDA or the City of Tempe. The Tempe IDA does not provide credit enhancement and has no taxing power.
The Tempe IDA charges a $3,000 application fee and an annual administrative fee of up to 6.75 basis points on the principal balance outstanding. Based on the published rates of other local industrial development authorities, the Tempe IDA charges the lowest administrative fee in the region for the service of issuing private activity bonds.
The relevant state and federal rules are complicated, and bond counsel and other professionals should be consulted at an early stage to determine whether a proposed project is eligible for tax-exempt financing and otherwise complies with legal requirements.
As a broad overview, land, buildings and improvements involving low income and workforce rental housing projects, 501(c)(3) entities, infrastructure projects such as airports, water furnishing facilities, sewage facilities, solid waste treatment and disposal facilities, recycling processing centers, mass commuting facilities, high-speed rail, electic, gas, heating and cooling facilities, public education facilities including charter schools, and green buildings, among others, may be eligible to be financed through tax exempt private activity bonds, as well as refinancing of debt associated with these items. With the exception of certain low income housing transactions, the project does not necessarily need to be physically located in Tempe or in Arizona.
Part of the 2017 Tax Cuts and Jobs Act includes significant tax breaks for investing in distressed or low income communities designated as Opportunity Zones. This new tax break allows investors to place unrealized capital gains into Opportunity Funds, which then deploy the capital into properties and businesses located in Opportunity Zones. This program provides investors with a strong tax incentive to invest in properties and businesses located in Opportunity Zones, and to hold such investments for longer terms. In fact, US Treasury Secretary Steven Mnuchin expects the program will attract $100 billion in investment into Opportunity Zone projects. This available equity will fill capital gaps in projects.
The State of Arizona has designated 168 Opportunity Zones in both rural and urban areas, including several within the City of Tempe and its urban core.
Project owners and developers now have an additional tool in the tool-belt to finance projects located in Opportunity Zones. You may be able to use Opportunity Funds and other tax incentives including private activity bonds in a single project.
Making your project 'pencil' just got a whole lot easier!
Treasury Outlines Tax Breaks for Investing in Distressed Areas
By financing your project through private activity bonds issued by the Tempe IDA as the conduit bond issuer (as opposed to financing your project with typical corporate bonds or a bank loan, for instance), your bonds may be deemed “qualified private activity bonds”, which is a form of municipal bond. This, in turn, means that the interest paid to the holders of your bonds is tax-exempt (although subject to alternative minimum tax in certain cases). From the holders’ perspective, given this tax advantage, investors in private activity bonds are typically willing to accept municipal bonds at a lower interest rate. The upshot of this is that, all other things being equal, qualified private activity bonds are generally issued at a lower interest rate than corporate bonds or bank loans.
The timing is dictated by the borrower's access to capital, ability to satisfy its lenders’ due diligence and underwriting requirements, and its ability to obtain the governmental approvals needed for the transaction. The Tempe IDA has a long track record of fast and seamless execution of transactions, both large and small. We have broad authority to serve as the bond issuer and we are motivated to assist borrowers and close upon transactions.
Please click here to see the steps involved in a private activity bond transaction.
The Tempe IDA is not a lender, underwriter or mortgage broker and we do not provide credit enhancement. Rather, we simply serve as the conduit bond issuer in private activity bond transactions, which consequently allows the borrower to obtain its financing at a lower interest rate. It is up to the borrower to line up and satisfy its lenders and underwriters. Please review our Procedural Pamphlet for more information.
The Tempe IDA Board of Directors determines how to invest and allocate IDA funds into the community. Since our inception, we have granted over $540,000 in scholarships to local college-bound students. Please click here for more information about our scholarship program.
In addition, the Tempe IDA has granted funds to various Tempe economic stimulus efforts to support local small businesses in the coronavirus pandemic, and we are a proud donor to AZ Apparel Foundation, F.A.B.R.I.C. Tempe's non-profit organization, in its production of thousands of isolation gowns (also known as "PPE") for use by local health care providers on the front lines of treating Covid-19 patients.