Tuesday, September 8, 2009

Industrial Development Bonds

In recent years state and local governments have become much more active in aiding private corporations to meet their financial needs. One of the most controversial forms of government-aided, long-term business borrowing is the industrial development bond (IDB),developed originally in the southern states during the Great Depression of the 1930s and used today by local governments scattered throughout the nation. These bonds are issued by a local governmental borrowing authority in order to provide buildings, land, and\or equipment to a business firm. Because governmental units can borrow more cheaply than most private corporations the lower debt costs may be passed along to the firm as an added inducement to move to a new location, bringing new jobs to the local economy. The business firm normally guarantees bond interest and principal payments by renting the building, land, and\or equipment at a rental fee high enough to cover their cost.

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