City of Oak Creek

Common Council Report

Meeting Date:

Item No. 7:

Recommendation:  That the Council adopt Resolution No. 10267-081903, An Initial Resolution relating to Industrial Revenue Bond financing for Crown Prince, Inc.

Background:  Crown Prince, Inc. a textile screen printing and embroidery firm has been working with the City on a proposal to purchase the vacant, former Prime Manufacturing building at 7730 S. 6th Street in the Northbranch Industrial Park.  It is their intent to transfer 142 full time equivalent jobs from their existing facility in the Franklin Business Park.  It is expected that this relocation and expansion will result in the creation of 174 full-time equivalent jobs at the project site over the next three years.

One of the tools available to Wisconsin businesses and local units of government to foster business expansion is the Industrial Revenue Bond program (IRB).

The Department of Commerce's IRB Program allows all Wisconsin cities, villages and towns to support industrial development through the sale of tax-exempt bonds. The proceeds from the bond sale are loaned to businesses to finance capital investment projects at, primarily, manufacturing facilities. Even though IRBs are municipal bonds, they are not general obligations of the municipality. The bonds do not count against the City’s debt limit and is not a charge against the City’s general credit or taxing power.  Crown Prince will make the interest and principal payments on the loan. The City lends its name, but not its credit, to the bond issue.

IRBs are a means of financing the construction, expansion and/or equipping of, primarily, manufacturing facilities. The proceeds of the bond issue may be used to finance the cost of land, construction of new or expanded facilities, purchase of equipment, and the payment of certain costs incurred in the issuance of the bonds.

Unlike most conventional loans, IRBs can offer businesses a convenient, long-term, and, often, a fixed-rate financing package. Similar to other municipal bonds, the interest earned on IRBs is exempt from federal income taxes. As a result, the bond buyer is willing to accept a lower rate of interest in exchange for tax-free income. Typically, interest rates on IRBs may be from 1.5 to 2.5 percentage points below corporate bonds. The terms of the bond issue are negotiable and can be structured to meet the needs of the borrower. The costs of issuing the bonds, which can be sizeable, can be spread out over the term of the bond issue.

The business must secure the buyer or the underwriter of the bond issue. The bonds are sold by the municipality, which, in turn, lends the proceeds of the sale to the business. The funds come from private lenders or from public markets. Tight credit standards apply. The facilities and equipment are pledged as collateral for the loan. A letter of credit or bond insurance is often required.

The first, initial resolution expresses the City’s intent to issue the Industrial Revenue Bonds.  It is not a firm commitment to issue the bonds.  A second resolution provides a waiver from the public bidding requirements for the development.

Fiscal Impact:  There is no exposure on the part of the City.  The vacant facility is currently valued at $1,550,200.  If this project goes through, the value of the property and facilities would likely increase to approximately $3,000,000.  The local share of taxes collected would increase accordingly.

There are outstanding active assessments for street paving, curb & gutter and driveway approach on this property in the amount of $12,512.44. 

Prepared by: Doug Seymour, AICP Director of Community Development	Respectfully submitted, Robert L. Kufrin City Administrator
Fiscal Review by: Beverly A. Buretta, CMC City Clerk

File name: T:\Shared\Resolutions\10267 (Res) Initial Crown Prince IRB Resolution.Doc

Print Date: 8/13/2003 4:35 PM

Revision No. 1