Woods Rogers’ team of bond and tax-exempt finance lawyers helps cities, counties, municipalities, and towns handle general obligation and revenue bond financing. We work with a wide array of government and public agencies in issuing government bonds and providing support during the complete life-cycle of the bonds.
Additionally, we help private entities fund capital projects through tax-exempt financing. We work with tax-exempt leasing and industrial development bonds for manufacturing facilities, multifamily and single-family housing for elderly and lower-income tenants, 501(c)(3) facilities (churches, colleges, schools, nonprofits), hospitals, and other forms of conduit financing.
Our broad experience in private and public finance helps us find the right solutions for all parties involved in a bond issues, including municipalities, issuing authorities, corporate trustees, bond purchasers, underwriters, and conduit borrowers.
Frequently Asked Questions on Tax-Exempt Financing
Any entity that plans to finance a capital project should consider whether it would save money by financing on a tax-exempt basis.
Q: What is the advantage of using tax-exempt financing?
A: The short answer is that it enables a borrower to borrow at a lower interest rate. The lender in a tax-exempt financing is not taxed on the interest it receives on the loan for federal income tax purposes. Because the lender will retain all of the interest paid on the loan and not merely the interest reduced by taxes, the lender can accept a lower interest rate and still be in the same economic position as if it held a taxable obligation.
The borrower, who would directly or indirectly pay the principal and interest on the loan, would benefit by paying a lower interest rate than it would have paid if the project had been financed by a conventional loan. It is not uncommon for a borrower to reduce its interest rate by 2.0 percent or more by using tax-exempt financing.
Q: Who can use tax-exempt financing?
A: Among others, the following types of entities may qualify for tax-exempt financing:
- State and local governments, authorities and agencies
- 501(c)(3) organizations (charities)
- Owners of apartment buildings for lower-income tenants
Q: How does a borrower determine whether it qualifies?
A: The Internal Revenue Code contains complex rules that must be met in order for a financing to be tax-exempt. The quickest and most efficient approach for determining eligibility is to discuss the project with a lawyer who works with tax-exempt financings on a regular basis.
Q: At what point should a lawyer be consulted?
A: Project costs often cannot be financed on a tax-exempt basis unless certain preliminary steps are taken. To maximize the benefit of a tax-exempt financing, a bond lawyer should ideally be consulted before the borrower legally commits itself to paying any of the project costs.