Industrial Revenue Bonds
An Alternative Capital Source for Onshore Manufacturing Developments
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June 12, 2026
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The Trump administration’s policies are encouraging the onshoring of manufacturing and other industrial facilities by both U.S. and foreign investors and developers, including some deemed relevant for national security. Investors behind these large-scale industrial and commercial projects are expecting sizable amounts of upfront cash to fund their equity investments in these new developments. However, they often discover that incentives from the federal government are few, hard to identify and insufficient compared to the larger and more favorable capital incentives available at the state and local levels.
The predominant type of incentives for new development are state and local tax incentives. In general, these incentive programs seek to eliminate, defer, and/or abate income taxes, sales and use taxes, ad valorem property taxes and payroll withholding taxes. However, those programs only benefit a development project over time, as taxes would become due.
One form of financing, which incorporates state and local tax incentives while enabling companies to move ahead with large developments, is industrial revenue bonds (“IRBs”). IRBs are a relatively inexpensive, potentially tax-advantaged alternative for manufacturing, industrial and commercial projects.
IRBs at a Glance
An IRB is a form of public-private financing with a loan held by a bond purchaser to a company; the loan repayments and proceeds flow through a government conduit, such as a municipality or state entity.
The “revenue” part of the name reflects that the bonds are backed by the income generated from the completed facility.
In essence, the IRB operates like a loan issued by a local or state public entity to a private company. An important distinction, however, is that the government entity arranging the bond financing commonly takes title to the project via a sale-leaseback. This is done to maximize tax incentives. Through this arrangement, the company/investor leases the facility from the government entity that holds the title, constructs and equips the facility, and then purchases it at the end of the lease term at a favorable and potentially nominal price.
IRBs were established in 1936 by the state of Mississippi to attract industry to rural areas through tax-exempt financing.1 Despite this longevity, however, we find that many investors are not aware of this public-private financing option which is part of the private activity bond market — a market that is growing.
According to the CDFA Annual Volume Cap Report, total private activity bond issuances — driven heavily by massive multi-million-dollar exempt facilities and housing — shattered records, hitting $31.1 billion in 2022 and $33.4 billion in 2023 by volume.2
Factors To Consider and Benefits of Industrial Revenue Bonds
Tax advantages are the foremost benefits of IRBs. Because the government entity holds the title, companies enjoy material property tax and certain sales tax exemptions. Additionally, if an IRB is deemed a tax-exempt private activity bond under federal income tax laws, the bondholders are exempt from federal income taxation on the interest received.
IRBs have their own stringent requirements to qualify for tax-exempt status, associated with capital expenditures at the project site, the maximum issue limit of bonds, how the proceeds are to be spent, and more. Other factors regarding IRBs are:
- The borrower typically has the option to self-fund the bonds, or they can be funded by public investors.
- While IRBs commonly allow for favorable interest rates, the repayment terms may end up being highly favorable to the borrower. For example, IRBs may have significant term lengths, relaxed loan-to-value standards or favorable purchase options.
- Depending on the jurisdiction, IRBs may also be coupled with forgivable loans and/or cash grants (i.e., free capital). The loan terms that a state or local body is willing to extend are inevitably based on the expected economic impact of a project.
- Given the hyperlocal differences across jurisdictions in terms of how an IRB is structured, companies should hire local legal counsel, which creates efficiency and helps maximize the opportunity. Additionally, companies should consider hiring economic incentive advisors given the magnitude of the potential benefits.
- The maximum amount of tax-exempt bonds, typically capped at $10 million, is a threshold too low for many organizations. However, jurisdictions may choose to provide taxable bonds at much higher levels.
Types of Projects Financed Through IRBs
The heavy industrial sector (manufacturing, assembly and processing plants) is prominent among IRB-funded projects. Jurisdictions may also include the following as qualified projects: housing; waste treatment plants; warehouses and distribution/logistics centers; office buildings; commercial port terminals, transportation and transfer facilities; telecommunications and data centers; and research and development centers.
As the interest in more onshore development of large-scale industrial facilities continues to rise, companies and their investors will be seeking capital to get shovels in the ground and move projects forward. Industrial revenue bonds are a valuable public-private financing source and a crucial incentive for both jurisdictions seeking to bring more industry to their areas and for investors to expand their footprint across the U.S. Given the size and scale of the financing opportunity and potential economic incentives, companies should approach IRBs as they would other large-scale capital markets transactions.
Footnotes:
1: James T. Bennett and Thomas J. DiLorenzo, “The Political Economy of Corporate Welfare: Industrial Revenue Bonds,” Cato Journal (1982); Cato Institute.
2: “CDFA Annual Volume Cap Report: An Analysis of 2021-2023 Private Activity Bond & Volume Cap Trends,” Council of Development Finance Agencies (2025).
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Published
June 12, 2026
Key Contacts
Senior Managing Director, Co-Leader of U.S. Tax Advisory