Atlantic Canada's Urban Growth Agenda - Greater Halifax Partnership

5.3.2 Example: municipal bonds in Canada - Ontario Opportunity Bonds
The Ontario Opportunity Bond program was recently initiated by the provincial government in Ontario as a
mechanism to provide an ongoing infrastructure funding mechanism to Ontario municipalities.
Ontario Opportunity Bonds are investments for which Ontario residents are exempt from Ontario personal and
corporate income tax on the interest income on the bonds. The federal government has decided not to participate in
the Ontario Opportunity Bonds program. The Bonds are issued by the Ontario Municipal Economic Infrastructure
Financing Authority (OMEIFA) to help raise financing for municipal infrastructure projects.
The government’s key objective for Ontario Opportunity Bonds and OMEIFA is to promote healthy and prosperous
communities by providing municipalities with more flexibility to invest in much needed capital infrastructure such as
water and sewer treatment, roads and bridges, and public transportation.
Ontario Opportunity Bonds are not guaranteed by the Province. The proceeds of Ontario Opportunity Bonds will be
used by OMEIFA to make loans to Ontario municipalities who collectively have had an exemplary record of repaying
their debt obligations. In addition, the Province has provided a $1-billion capital contribution, which will act as
additional support against any potential loan defaults. There have been no municipal defaults since the 1930s.
5.3.3 Municipal bonds for economic development (the U.S. example)
Municipal bonds are widely used in the United States to fund infrastructure development. Unlike the Ontario
Opportunity Bonds, these are also exempt from federal income tax (and local income tax in communities that levy
such a tax). However, municipal bonds are also used in the U.S. to directly encourage economic development.
Municipalities can issue Private Activity Bonds (PABs), also known as Industrial Development Bonds or Industrial
Project Revenue Bonds under which the proceeds of the bond issue are paid to a private company for a specific
project. Because the interest on the PABs is exempt from income taxation, the cost of borrowing money for the
private enterprise is lower. There are limits to how many such bonds can be issued in each state (to receive the
income tax exemption).
Michigan has been an active user of PABs to fund large economic development projects. That state’s Industrial
Development Revenue Bond (IDRB) program provides funds for the acquisition of land, the construction of facilities
and the purchase of equipment. Tax exempt IDRB financing makes the cost of borrowing approximately 80-90% of
prime rate and the funds are limited to the purchase of land, buildings, new equipment, engineering costs and
infrastructure.
…Atlantic Canadian Context 33