Exempt Facility Bonds | California Infrastructure and Economic Development Bank (IBank) (2024)

FAQs

What is an exempt facility bond? ›

Tax-exempt financing for projects that are government-owned or consist of private improvements within publicly-owned facilities. Bond proceeds are used for defined qualified purposes by a non-governmental entity (the “conduit borrower”).

Municipal Bonds

Most bonds issued by government agencies are tax-exempt. This means bondholders do not have to pay federal income taxes and, in most cases, state income taxes on the interest they earn. In addition to the tax-exempt status, investors benefit from the taxing authority of the government agencies.

Issuer The issuer may be: a state, • a local government, or • an entity that can issue bonds on behalf of a state or local government.

Bonds cannot be purchased directly from the State. Brokers submit investors' orders for bonds in specific amounts and maturity dates based on approximate interest rates and prices. Once the bond sale is completed, usually the day after the retail order period, interest rates and prices are finalized.

Both general obligation bonds and revenue bonds are tax-exempt and low-risk, with issuers very likely to pay back their debts.

This tax-exempt status makes municipal bond funds an attractive and sought-after option for high-income investors seeking to optimize their after-tax returns while also providing safety of principal. "Municipal bonds are generally a high-quality asset class with a very low historical default rate," Will says.

The main difference between a taxable municipal bond and a tax-exempt muni is that taxable munis pay interest income that's subject to federal and state income taxes, whereas tax-exempt munis pay interest income that's generally exempt from federal and state income taxes.

Income from bonds issued by state, city, and local governments (municipal bonds, or munis) is generally free from federal taxes. * You will, however, have to report this income when filing your taxes.

Tax-free refers to certain types of goods and/or financial products, such as municipal bonds, that are not taxed. Series I bond is an interest-bearing U.S. government savings bond that earns a combined fixed interest and variable inflation rate (adjusted semiannually).

Description of Bank Qualified Bonds

Banks, like other investors, purchase municipal bonds in order to obtain the benefit of earning interest that is exempt from Federal income taxation. Historically, commercial banks were the major purchasers of tax-exempt bonds.

What is the difference between a Treasury bond and a municipal bond? ›

The principal difference between municipal bonds and Treasury bonds, aside from the credit considerations, is that municipal bonds are tax-exempt, that is interest is exempt from federal income taxation.

Municipal bonds, like all bonds, pose interest rate risk. The longer the term of the bond, the greater the risk. If interest rates rise during the term of your bond, you're losing out on a better rate. This will also cause the bond you are holding to decline in value.

As you can see by this chart from Lord Abbett, California's muni bonds offer huge yields for those in high-tax states. And for those investors in California, they are a no brainer allowing them to bypass state and local taxes as well.

You'll likely buy municipal bonds from a bond dealer, broker or bank like Ally Invest. If you want to avoid investing directly in the bond market, you can also invest in bonds through mutual funds or ETFs (exchange-traded funds).

Because the interest income on state and local debt is excluded from federal income taxation, the interest rate on this “tax-exempt” debt is lower than the interest rate on taxable debt.

Private activity bonds are issued to attract businesses and labor to a region in order to derive a public benefit, which would qualify the bond for tax-exempt status. These bonds pay taxable interest unless specifically exempted by the federal government.