T O HELP small manufacturers meet the demands of increasing competition, Congress would be wise to end the "sunset" provision on tax-exempt small issue industrial development bonds.
Using the benefits of municipal bonds, low-cost financing is provided for the acquisition, construction and leasing of facilities and the purchase of machinery and equipment.
As part of the 1986 tax reform act, Congress put a Dec. 31, 1989, expiration date on development bonds. Later, it relented enough to push the date to next Sept. 30. There are bills pending that would make the extension permanent. They should be passed.
These bond issues are not big deals. The average project, nationally, gains $1.6 million for the beneficiary in low-interest financing and creates or saves 25 jobs. Yet, the bonds are an efficient way to provide public-sector help so that small manufacturers can survive or grow in the face of overseas competition, technological changes and environmental requirements.
Tax-exempt small issue ($10 million or less) bonds used to be the mainstay of the Erie County Industrial Development Agency, accounting for the bulk of its activity. Since tax reform, changing economics have forced banks out of this market, and the ECIDA has lacked the lead time necessary to develop and market deals.
The ECIDA can use the bonds to offer four different cost-saving features to manufacturers. Because bond-holders' income is tax-free, money is borrowed by the manufacturer at a lower interest rate. Because ECIDA, as a public agency, takes paper ownership of the facilities, they are exempt from regular property taxes, pay no sales tax on construction materials and are free of the state mortgage recording tax.
Overall, ECIDA has arranged about 250 small-issue bond sales since 1971. The local agency -- and its counterparts elsewhere -- should be given the legal authority to keep going.
Their activity is a rational way to provide public-sector help to create prospering businesses.