In 2006, the Mississippi Development Authority (MDA) conducted a series of seminars in addition to advertising to get the word out about the advantages of the Gulf Opportunity Zone Act (GOZA). It obviously worked.
“To date, we have approved 152 projects totaling $6.2 billion,” said Bill Barry, executive director, Mississippi Business Finance Corporation. “We’ve actually closed to date 18 projects. We have been real pleased with the interest in it. I think at the end of the day, we’ll see that this was a very significant piece of legislation.”
The project total includes both types of major GOZA provisions: bonus depreciation and tax-exempt financing. Mississippi was allocated approximately $4.9 billion from the federal government for tax-exempt financing. Barry said that although more than that has been approved, not all applicants are expected to choose the tax-exempt bond option.
“We know that some projects won’t close for one reason or another,” Barry said. “They will go with conventional financing and take accelerated depreciation, or a straight financing deal with no incentives.”
Applications for the GOZA incentives are still being accepted. The tax-exempt financing component runs through end of 2010 while the accelerated depreciation feature sunsets in December 2008.
The projects that have been finalized thus far for tax-exempt bonds total approximately $759 million. After a project is approved, applicants have 120 days to issue the bonds.
Jay McCarthy, director of financial resources for MDA, said companies that are coming in and applying are pretty much ready to go.
“They are ready to issue bonds and go forward with financing,” McCarthy said.
For MDA, the GOZA incentives are a very welcome addition to its arsenal of tools to attract economic development to Mississippi. But while GO Zone is practically a household word in business circles, some aspects of it are not well understood.
One of those parts is the role played by the MDA.
“What we do is part of a process,” McCarthy said. “The MDA is at the tail end of the process at the allocation part of it. We work hand-in-hand with several agencies such as the Mississippi Business Finance Corporation, which is the statewide issuer of industrial revenue bonds. Some people get confused about what the tax-exempt financing is if they don’t deal in this world regularly. It is not a loan. It is a financing mechanism. It is an allocation from the Mississippi Business Finance Corporation and other sister agencies. You don’t come to the State of Mississippi and say, ‘I’d like x amount of dollars’, sign loan documents and you are through. The bonds are basically backed by a letter of credit or some other type of credit enhancement from a bank so the state is protected and the bondholders are protected.”
Tax-exempt bonds are attractive to businesses because they get a lower interest rate. Right now, the advantage averages about 1.5% to 2% over taxable bonds.
“The rates go up and down,” McCarthy said. “Depending on how much they go up and down, the spread will either grow or lessen. The spread right now is running 1.5% to 2%. When you are talking millions of dollars, that is a lot. You can imagine that it is an attractive instrument.”
Normally a company can have only $40 million in tax exempt bonds nationwide and only $10 million in one location. And the tax-exempt bonds are normally only for manufacturing. But the GOZA includes a wide range of types of business activity normally not covered such as distribution, retail and medical. GOZA for the most part also doesn’t have investment limits.
McCarthy said GOZA has been a good marketing tool for MDA, especially because of the larger variety of types of projects that can take advantage of the incentives. In addition to seminars across the state, MDA has also advertised in site recruitment magazines.
“Our marketing and recruiting people are out touting it when talking to businesses and at trade shows and other marketing functions they attend,” McCarthy said. “They are using this and selling this. It is a good marketing tool and a good financing tool.”
The process starts with the Mississippi Business Finance Corporation, and ends when the governor approves the bond. Types of companies that have used the GOZA incentives include a number of manufacturers, several medical office complexes and some hotels.
“So there is wide variety out there,” McCarthy said.
He sees the value of GOZA as two-fold. The first thing is that it has put a light on Mississippi.
“It has given us a chance to get out and sell Mississippi and what we have,” McCarthy said. “On top of that, it is just another set of incentives that we have that are unique to the GO Zone area that help us in our day-to-day recruitment and expansion of businesses.”
Contact MBJ contributing writer Becky Gillette at firstname.lastname@example.org.
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