Industrial Development Bonds

RCED-92-247R: Published: Jul 24, 1992. Publicly Released: Aug 24, 1992.

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Pursuant to a congressional request, GAO provided information on small issue industrial development bonds (IDB), issued by state or local governments to help private companies finance the construction or expansion of small manufacturing projects. GAO noted that: (1) the federal government forgoes about $2 billion annually in tax revenue for IDB interest, which is tax exempt; (2) in 1991, states issued about $1.2 billion in IDB; (3) the Internal Revenue Code (IRC) only requires that IDB be restricted to manufacturing projects that do not exceed $10 million and does not require IDB issuers to establish criteria to assess public benefits of IDB-financed projects; (4) most states and localities do not have any criteria other than IRC requirements for issuing IDB; and (5) in 1991, Ohio approved 33 IDB-financed projects, but generally did not target IDB approval for such public benefits as fostering economic development in distressed areas, creating jobs, assisting start-up companies, and keeping manufacturing operations in the United States.

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