Industrial-bond program extended

November 03, 1990|By David Conn

The state of Maryland recently told Sen. Barbara A. Mikulski, D-Md., that the small-issue industrial development bond program is a great economic development tool and should be spared the federal budget ax.

So Ms. Mikulski co-sponsored a bill to extend the life of the program, which gives the states the authority to designate certain private-use bonds as exempt from both federal and state income taxes. It was scheduled to expire on Sept. 30.

Although Ms. Mikulski and others wanted to make the program permanent, when the dust settled from the budget negotiations the industrial-development bond program emerged with another year of life: It now will expire on Dec. 31, 1991, unless Congress acts to save it again.

"We have to fight the battle again next year," said Benjamin Hackerman, executive director of the Maryland Industrial Development Financing Authority. "This is what we consider the No. 1 financial vehicle for manufacturers to acquire equipment or expand."

The program is worth it, according to Ms. Mikulski. "This is a great program for Maryland," she said in September when she co-sponsored the bill to save it. "For a few dollars in lost tax revenue, we get new jobs, a stronger economy, and a jump start in the competitive world marketplace."

Kevin McCarty, executive director of the Washington-based Council of Industrial Development Bond Issuers, considers the one-year revival a victory in light of the divisive scramble to cut spending and find new taxes.

"The Maryland [congressional] delegation was very helpful, and the governor particularly, in keeping this thing rolling," said Mr. McCarty, whose organization consists of state and local government agencies which authorize the bonds.

Maryland has authorized the sale of $300 million to $400 million of the bonds since the program's inception in 1965, said Mr. Hackerman. Nationwide, Mr. McCarty said, about $3 billion in such bonds are issued each year.

Baltimore's Donut Delight Inc. was one of the recipients last year. The main supplier of doughnuts to the region's 7-Eleven, WaWa and Royal Farm stores, the bakery was able to use its $1.9 million in bonds to relocate from its Camden Yards site and expand enough to hire 30 more workers, according to owner Charlie Burman.

He said the program allowed him to finance the move to Georgetown Road at 9.25 percent. "If I had gone for conventional financing, I would have paid prime and a point [or about 11 percent], on a floating basis," Mr. Burman said.

The bonds were issued by Donut Delight and ultimately purchased by T. Rowe Price Associates Inc. for one of its tax-exempt bond funds, Mr. Burman said. The state, while it authorized the tax-exempt status, did not issue the bonds, but has guaranteed up to 40 percent of the $1.9 million if Donut Delight defaults on the bonds. The only other cost to Maryland, and to the federal government, was the loss in tax revenue from the people who bought the bonds.

Mr. McCarty said the Joint Taxation Committee of Congress estimated the program would cost about $10 million in federal taxes the first year, and up to $250 million over five years for a one-year extension.

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