Private activity bonds are an attractive source of financial assistance to economic development projects in Michigan. They provide profitable firms with capital cost savings stemming from the difference between taxable and tax-exempt interest rates.
Public facilities, which generate a revenue stream, (parking structures for instance) have traditionally been financed by municipalities through tax-exempt “revenue bonds.” Private activity bonds apply this same tax-exempt finance mechanism to the “public purpose” of economic development. The governmental unit borrows money from private capital markets, secured only by the project’s revenues rather than the government’s full faith and credit. Interest income earned on bonds issued by a governmental entity to finance a project for a private company which has demonstrated a good public purpose is exempt from federal, state, and local income taxes, thereby reducing the cost of capital (including the cost of letters of credit, remarketing fees, etc.).
For more information, download the Private Activity Bond fact sheet.
