Industrial Development Bond (IDB)

Municipal bond issued by a state or local government, or by a development agency, to finance the private industrial projects generating tax revenues and certain public works projects. These bonds are of two types: development bonds financing the renovation or improvement of public facilities, and industrial revenue bonds, for which a private corporation is responsible for payments to bondholders. Industrial bonds are subject to special IRS rules governing the tax exemption of interest. The tax exemption on many of these bonds, other than bonds financing airports, water treatment plants, and certain other public works related projects, was eliminated by the Tax Reform Act of 1986. Bond ratings on revenue bonds are based on the credit rating of the private corporation backing the lease or rental agreement covering the facilities, because the ultimate source of repayment is the corporation, rather than the bond issuer. See also Private Purpose Bond; Public Purpose Bond.

Debt issued by a municipality to finance plants and facilities that are then leased to private industrial businesses; also called industrial revenue bond. The subsequent lease payments are used to service the bonds. The intent of IDBs is to attract private industry to promote local economic development. IDBs appealed to investors because they were exempt from federal income taxes. Exemption for IDBs is being phased out. A new category of tax-exempt bonds, called qualified redevelopment bonds, is to be used to finance land acquisition and redevelopment in blighted areas.