SAN FRANCISCO - Some provisions in the federal stimulus bill should broaden the base of eligible users of industrial development bonds and private facility bonds in a way that should particularly benefit West Coast states, say some participants in those sectors.

Through 2010, industrial development bonds are no longer limited to borrowers who build facilities to produce "tangible" products. They are now available to borrowers who produce "intangible" products, a definition that can include copyrights, patents, software, and intellectual property associated with biotechnology and pharmaceuticals, according to the Council of Development Finance Agencies, which lobbied for years for such a change.

"That type of definition seems to be particularly California-friendly," said Stan Hazelroth, executive director of the California Infrastructure and Economic Development Bank, an IDB issuer.

"This gives us an opportuinity to help with companies like bioscience and computer technology," said John Wahrgren, finance manager of the Oregon Economic and Community Development Department, an IDB issuer. "I think it will expand our ability to help small business in Oregon."

"We see it as recognizing the shift to the new economy," said Paula Connors, the California I-Bank's bond manager.

"California has a pretty large knowledge-based economy, so there are a lot of companies and a lot of jobs that can benefit from this change," said Joe DeAnda, spokesman for the California Debt Limit Allocation Committee and California Industrial Development Financing Advisory Commission, two arms of the state treasurer's office that allocate and authorize IDBs.

In California, IDBs received an initial $150 million allocation from the state's overall private-activity bond volume cap for 2009, DeAnda said.

Before any new technology businesses can take advantage of the new rules, though, state law will have to be changed to match the new federal law.

"What we're doing currently is working on some emergency legislation that would basically change California's definition to fit the new federal guidelines," DeAnda said.

The stimulus bill does not change the $10 million-per-project bond limit, or the total $20 million cap on capital costs for a project.

Private facility bonds should also get a large boost from the stimulus bill, which authorizes Recovery Zone Facility Bonds allowing private borrowers to obtain tax-exempt financing for depreciable property in "recovery zones," which is intended to encompass "areas suffering from economic distress," according to an analysis of the stimulus bill published by Orrick, Herrington & Sutcliffe LLP.

Those areas include - but aren't limited to - existing empowerment zones and those impacted by the military base closure process. There is an overall $15 billion volume cap for the recovery zone facility bonds, to be apportioned among the states through a formula based in part on employment declines in 2008.

"We should be in for a pretty nice chunk of that given our unemployment rate and the state's size," DeAnda said. California's unemployment rate has passed 10%.

Allowing the use of IDBs for intangible products appears to be a sweeping change, but Dan Bronfman of Growth Capital Associates Inc., a Southern California financial adviser for industrial development bond borrowers, said he's not sure the extent to which that will play out.

"Are those businesses really businesses that own their buildings?" he asked. "Computer software developers, biotech, are those really businesses that buy and own buildings? I think they are primarily leasers."

He said the really significant changes to IDB law may lie more in the details. Those changes include the easing through 2010 of limits on the use of IDBs to finance office space - provided, according to the Orrick analysis, that such space is on the same site as the core production facility, functionally related, and subordinate to that facility.

That's a big help, Bronfman said.

"We are always sort of struggling to fit our manufacturing facilities into the box of what is financeable," he said. "Is raw material storage? The production control office, is that financeable? The rules were not intuitive to apply to an IDB facility before."

The well-known, temporary repeal of the alternative minimum tax for private-activity bonds will also be a big help, he said.

"The bonds were always a little bit of an odd orphan in the market," Bronfman said. "It really pulls IDBs and all these other bonds into the mainstream."

Most IDBs are sold with bank credit enhancement; they also benefit from a 2008 law change that permits federal home loan banks to offer standby credit enhancement for non-housing tax-exempt bonds.

"If we can get a good strong bank, or FHLB confirmation, the market to buy these things is still very strong," Bronfman said.

"The credit-enhanced part of the market has recovered quite nicely," he said. "There are a lot fewer deals out there that I'm working on, but the deals I'm working on are for much stronger borrowers; those are the borrowers who can take on a $5 million to $10 million expansion in this economy."

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