Tax-Exempt Bond Financing

The Delaware Economic Development Authority (DEDA) provides statewide financial assistance to new or expanding businesses, governmental units and certain organizations that are exempt from federal income taxation (collectively, "assisted persons") by issuing tax-exempt bonds and lending the proceeds of such bonds to these assisted persons. Tax exempt bonds bear lower interest rates than comparable taxable bonds, because the interest paid to bond holders is exempt from federal and Delaware income taxes. DEDA is able to pass on this lower interest rate to the assisted persons.

DEDA does not guarantee the payment of principal or interest on the bonds, and the bonds are not backed by the full faith and credit of the State of Delaware. Tax exempt financing may be cost effective for projects involving the issuance of more than $750,000.

Applications are reviewed by DEDA's staff for their financial feasibility and their impact on Delaware's economy. If DEDA accepts an assisted person's application after review, the Council on Development Finance holds a public hearing on the proposed project and makes a recommendation to the Chairperson of DEDA. The Chairperson of DEDA must approve an application before DEDA can issue a bond.

Eligible Projects: The availability of tax-exempt status for bonds issued to finance a given project is governed by various provisions of the Internal Revenue Code of 1986 (the "Code") and the regulations and administrative rulings (the "Regulations") of the Internal Revenue Service. The Code and Regulations impose numerous, detailed restrictions on the amount of tax-exempt bonds a state may issue. These regulations may be issued for a specific project and on the permissible uses of the bond proceeds. These rules are considerably more detailed than the brief descriptions that follow. In general, eligible projects include the following major categories:

• Qualified 501(c)(3) Bonds
  Tax-exempt bonds can be issued for the benefit of organizations that are tax exempt under Section 501(c)(3) of the Code, if 95 percent of the net proceeds of the bonds are used by the organization in furtherance of its exempt purpose. Depending on the project being financed, certain other limitations may apply.
• Exempt Facility Bonds
  Tax-exempt bonds can be issued to finance certain types of utility projects, including sewage facilities, solid waste disposal facilities, facilities for the local furnishing of electricity and gas and other types of facilities.

Sale of Bonds: After approval of a bond issue by the Chairperson of DEDA, the assisted person applying for tax-exempt bond assistance is responsible for arranging for the sale of the bonds.

For further information concerning bond financing, please contact Sanskriti Inamdar at (302) 672-6855 or by email at Sanskriti.Inamdar@state.de.us.