Economic Development - Industrial Revenue Bond Program (IRBs)
The IRB program has been available in Skokie since 1979. IRBs were used extensively in the 1980s, but IRS Code changes greatly curtailed their availability and applicability for a number of years thereafter. Recently there has been renewed interest in IRBs due to favorable rates on tax exempt debt and the ability to secure long-term financing. IRBs were used in 1998 to help two manufacturing companies relocate to Skokie by purchasing and renovating a building in the West Industrial Area of Skokie. Another company used IRBs in 2003 to purchase and renovate a facility in the central part of Skokie to relocate a manufacturing operation from Chicago. The Village's IRB cap can also be transferred to another municipality for a fee that benefits Skokie's Economic Development Fund.
IRBs provide long term, low interest financing to manufacturing firms for capital projects such as new development, equipment purchases, real estate acquisition and major renovations for businesses involving manufacturing processes. The bonds are issued under the auspices of the Village of Skokie, and therefore, all interest is exempt from federal income taxes. Interest rates are generally 30-40% less than the prevailing prime lending rates. The Village gives funding priority to applications that demonstrate property improvement, reuse or redevelopment of existing facilities, job creation/retention, business expansion, and property tax generation, or attraction of new industries to the Village.
The primary benefit of IRB financing is that it allows the manufacturing entity to achieve substantial interest savings over conventional financing. There are some application fees and generally higher legal expenses, but for the right borrower IRBs can be very beneficial. Usually it is not cost effective to the borrower to issue less than $1 million in IRBs at a time.
IRS regulations limit the use of IRBs to manufacturers or facilities that are used by not-for-profit (501(c)(3) companies. With respect to manufacturers, at least 95% of the bond proceeds must be used toward expenditures related to the manufacturing process. No more than 25% of the proceeds can be used to purchase land. Companies that are using IRBs are also limited to no more than $10 million in capital expenditures in the period three years before and three years after the bond issuance.