The purpose of the County of Cattaraugus Industrial Development Agency (CCIDA) is to promote, encourage and attract such facilities in order to retain and attract job and business opportunities and economically sound commerce and industry in the various cities, towns and villages located within Cattaraugus County, New York.
The CCIDA offers many diversified products for businesses and not-for-profits in (or moving to) Cattaraugus County, including tax abatements, access to tax-exempt financing and development assistance. The CCIDA assists qualified applicants (which can be individuals, partnerships, corporations, limited liability companies or other entities) in the implementation of a wide variety of projects, including but not limited to the following: manufacturing, industrial, warehousing, research, commercial, pollution control, recreation, tourism destination, education, cultural, railroad, continuing care retirement and certain not-for-profit facilities.
STATE AND LOCAL TAX ABATEMENTS
As indicated above, the CCIDA undertakes transactions with qualified applicants that offer state and local tax abatements. The transactions offering such abatements include both revenue bond transactions (bond transactions) and non-bond transactions (straight lease transactions). Both of these transactions may give a qualified applicant the following state and local tax abatements:
MORTGAGE RECORDING TAX EXEMPTION
New York State law imposes a mortgage recording tax in Cattaraugus County of one and a quarter percent (1.25%) of the amount of the loan secured by a mortgage. Undertaking a bond transaction or a straight lease transaction with the CCIDA would exempt any mortgage granted by CCIDA in connection with the project from this tax. Example: If the IDA is in fee or leasehold title at the time the mortgage is recorded, the recording tax is abated. On a project involving a mortgage securing $1,000,000 of indebtedness, the exemption results in a savings of $12,500.
SALES TAX EXEMPTION
The aggregate state and local sales and use tax in Cattaraugus County is eight percent (8%). Undertaking a bond transaction or a straight lease transaction with the CCIDA would exempt qualified project purchases from the state and local sales and use tax. This exemption extends to (1) all equipment purchased by the benefited company, as agent of the CCIDA, (2) all materials incorporated into the facility, (3) all items purchased by the benefited company, as agent of the CCIDA, and thereafter consumed in the construction of the building (such as fuel), and (4) all tools rented by the benefited company, as agent of the CCIDA, for the purpose of construction and installation of the project. Example: On a project where $1,000,000 of project costs is subject to sales and use tax, the sales tax exemption results in savings of $80,000.
REAL PROPERTY TAX ABATEMENT
Involvement of the IDA in a project may also provide the project with certain abatements of real property taxes. The CCIDA will require that the benefited company to enter into a payment in lieu of tax agreement (a PILOT Agreement) that will reflect an abatement consistent with the CCIDA's Uniform Tax Exemption Policy. These payments will be directed to the affected taxing jurisdiction. We have attached a copy of the CCIDA'S PILOT Policy (CCIDA'S PILOT Policy (PDF)). This real estate tax abatement can be used with either a straight lease transaction or a revenue bond transaction.
STRAIGHT LEASE TRANSACTIONS
A straight lease transaction is one in which the IDA takes title to or a leasehold interest in real property (where applicable) from a qualified applicant, and leases such real property (together with the other components of the project) back to the applicant for a period of time (or sells it to the applicant on an installment sale basis). At the end of the term, the IDA re-conveys the property to the applicant for a minimal price (usually $1.00), plus payment of the IDA's expenses relating to the reconveyance. If the straight lease transactions involves conventional bank financing of the project, the IDA, as fee or leasehold owner, will join in the execution of the bank's mortgage, which in turn will permit the recording of the mortgage without the payment of mortgage recording tax. In some transactions, the applicant may sublease all or part of the project to a related entity or an unrelated third party which is an eligible tenant of an IDA project (ineligible tenants include counties, cities, towns, villages and certain tenants who move from existing locations within New York State).
The primary financial advantages to an applicant of a straight lease transaction are exemption from sales and use taxes for equipment, machinery, building materials and other personal property acquired or used in connection with the construction and equipping of the project, mortgage recording tax exemption, and real property tax abatements provided pursuant to the PILOT Agreement. The lease or sale term is negotiated by the IDA and the applicant and may be influenced by the terms of any conventional financing that the transaction will involve. The real property tax abatements under the PILOT Agreement cannot extend beyond the term of the Lease Agreement or Installment Sale Agreement.
ACCESS TO TAX-EXEMPT FINANCING
As indicated above, the CCIDA provides access to revenue bond financing. Interest on such financing may be (1) exempt from both federal and state income taxation (tax-exempt revenue bonds), or (2) exempt from only state income taxation (taxable revenue bonds).
The CCIDA is authorized to issue taxable and tax-exempt revenue bonds for qualified projects. Qualified projects include commercial, industrial, manufacturing, tourism and certain types of projects for not-for-profit corporations. The CCIDA acts a conduit financing entity for the financing of qualified projects with the proceeds of the sale of bonds. Banks, investment bankers, insurance companies and other financial institutions selected by the benefited company, purchase the bonds. Typically, the bonds are structured so as to convey the project to the CCIDA, then selling or leasing the project back to the benefited company with the lease or purchase payments being equivalent to the debt service payments due on the bonds. This type of structure enables the benefited company to realize significant exemptions from certain United States (Federal) taxes and provides the same security to the financial institution purchasing the bonds as in a conventional financing at a lower cost to the client (in most cases the rates are a net two (2)% below conventional rates for eligible projects.
BENEFITS OF CCIDA BONDS
Eligible projects depending on the type of project financed and the financing structure, bonds issued by the CCIDA may have a lower interest rate than conventional financing structures. CCIDA tax-exempt bonds provide the holders of such bonds with certain exemptions from United States (Federal) income taxes, resulting in significantly lower interest rates (perhaps as much as 2% lower than comparable conventional rates) for the eligible project. CCIDA bonds (both tax-exempt bonds and taxable bonds) also provide the holders of such bonds with certain exemptions from income taxes imposed by the State of New York and municipalities within New York State (including the City of New York).
Using bonds issued by the CCIDA to finance a project may also enable a company to borrow at fixed rates and for a longer term that might not otherwise be available in the conventional financing market. In addition, projects financed with IDA bonds are eligible for real property tax abatements. CCIDA tax-exempt bonds may be used to finance projects as small as several hundred thousand dollars and as large as federal and state law will allow. The actual amount of CCIDA bonds to be issued will depend on the type of project, the financing structure of the project, and the requirements of the lender. In many cases, depending on the lender, the project may qualify for 100% financing.
PROJECTS ELIGIBLE FOR TAX EXEMPT BONDS
A company should consider financing its project with tax-exempt CCIDA bonds if the project constitutes a manufacturing facility, a not-for-profit facility, or an exempt facility (i.e. airport, dock or wharf, mass commuting facility, solid waste disposal facility or hazardous waste facility) as defined by the Internal Revenue Code (the Code). The use of tax-exempt CCIDA bonds could lower your net interest rate 2% to 3% per year.
Monies generated from the sale of CCIDA tax-exempt bonds issued to finance manufacturing or exempt facilities may only be used to finance land, building and equipment costs, not working capital, inventory, operating expenses or stock-in-trade. Monies generated from the sale of CCIDA tax-exempt bonds issued to finance not-for-profit facilities can also be used to finance working capital and to refinance certain existing conventional loans
It is important to understand that CCIDA issues bonds on a non-recourse basis and provides no credit enhancement. The bonds of CCIDA are not a debt of Cattaraugus County or the State of New York. Accordingly, the ability of the IDA to sell the bonds is premised solely on the creditworthiness of the Company. The bonds are paid out of the rental payments paid by the Company under a lease agreement or through the installment purchase payments paid by the Company under an installment sale agreement between the Company and IDA. The payments are typically assigned by the IDA to a corporate trustee who ensures that the funds are disbursed to the proper recipients.
The property involved will generally be used as collateral and the direct guaranty of the Company will generally be required. While IDA involvement does not guarantee the bonds in any way, the involvement by the IDA does convey certain value to the lender, including: (1) lower start-up costs based on incentive packet (2) a known, or predictable, phase-in of property taxes and (3) a local commitment to the project.
Before proceeding with a bond transaction it is important to weigh the cost of funds if the Company borrowed the money directly through a commercial lender transaction against the additional costs of documenting a bond transaction, in the form of bond counsel fees and, potentially, letter of credit fees, underwriter fees, underwriter counsel fees, letter of credit issuer counsel fees, trustee fees and other incidental costs.
The projects that generally qualify for tax exempt bond financing are as follows:
- (a) a manufacturing facility within the meaning of 144(a)(12) of the Code.
- (b) a facility for a 501(c)(3) organization under 145 of the Code.
- (c) an exempt facility under 142 of the Code (e.g. the following types of facilities: airport, dock, wharf, mass commuting, sewage, solid waste disposal, qualified residential and hazardous waste).
An added benefit of tax exempt bond financing is being able to access the public market without incurring the cost of registration with the Securities and Exchange Commission, allowing the Company to obtain a long term, fixed rate financing or lower variable rate with a long term commitment which is available in the public market at an affordable cost.
CATTARAUGUS COUNTY FINANCING PROGRAMS GUIDE
For additional information on other local, regional, state & federal loan programs and grants that are available throughout Cattaraugus County, please download this Cattaraugus County Financing Programs Guide (pdf)