JEDA's Impact on Bonds of Cities and Counties

Counties and cities that issue bonds for their own governmental purposes can access a lower tax-exempt rate if they agree to issue less than $10 million of bonds in that calendar year. This benefit is made available because the bank purchasing the bonds in this category can deduct certain charges it otherwise could not deduct. As a result, the bank is able to offer what is referred to as a bank-qualified rate, which is below the normal tax-exempt rate. However, Congress includes in the $10,000,000 calculation bonds issued by the city or county for 501(c)(3) organizations even though the city or county will have no ownership interest in the project being financed. As a result, almost all non-profit hospitals apply to JEDA to issue bonds for their projects rather than the county which has the authority under the Hospital Revenue Bond Act. Most hospital revenue bonds issues exceed $10 million and cannot use the bank-qualified rate. If they had no recourse to JEDA, these hospitals would have to seek the county's issuance of bonds for the healthcare project causing the county's bonds to exceed the bank qualified limit. The result would be an increased interest rate applicable to the county's own debt. Most states now have a state-wide issuing authority such as JEDA for this reason.