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Private corporations, partnerships, and individuals can obtain financing through the issuance of securities by governmental entities. Usually financing is at lower interest rates than those obtained through conventional financing.
The State, City or County will issue by industrial development revenue bonds.
The issuer of the bonds applies the sales proceeds derived to the purchase, construction, improvement, or equipment of a specific project. This project may be a manufacturing, industrial, commercial, agricultural, or any kind of facility, building, or structure used by a company in its trade or business.
In exchange, the developer assumes the obligation to make payments that are enough to cover the principal and interest on the bonds as they become due.
The Political Subdivision's repayment obligation is limited to the revenues derived from the payments made by the developer; thus, the issuer merely acts as a conduit for the financing.
Industrial revenue bond transactions are extremely complex in nature and have numerous and extensive legal ramifications.
Chapter 1433, Gov't Code establishes the basic Texas frame work for such bonds.
Three different real estate interests can be created:
In its own account, or as a lender,
For resale to the public, as an underwriter, or
On behalf of some other lender, as a nominee.
Note: It is not uncommon for these transactions to deviate from this typical model.Chapter 311 Tax Code establishes a Tax Increment Financing system where the local governments enter into an agreement with a developer to use all or part of future taxes to pay for improvements to property. The improvements must be used only in the Tax Increment Financing district. The Tax Increment Financing district can include land in addition to the property being developed.