Recovery Zone Economic Development Bonds are a new type of bond created by the American Recovery and Reinvestment Act (ARRA) passed by Congress in February 2009. They may be used to finance government projects with economic development outcomes.
Q. Who is eligible to issue Recovery Zone Economic Development Bonds (RZ-EDBs), and what can they be used for?
A. Under this program, counties and large municipalities (greater than 100,000 in population) are eligible to receive allocations of authority to issue a new type of tax credit bond called a “Recovery Zone Economic Development Bond” to finance economic activities in a Recovery Zone. A Recovery Zone is defined as an area having significant poverty, unemployment, home foreclosures, or general distress; or an area that has already been federally designated as an Empowerment Zone or Renewal Community. In addition to the federally designated areas, a county or municipality may designate areas within their jurisdiction as Recovery Zones.
Economic development activities qualified under this program include:
- Capital expenditures paid or incurred for property in Recovery Zones.
- Expenditures for public infrastructure and construction of public facilities.
- Expenditures for job training and educational programs.
Private activities, defined as those in which a substantial portion of the bond or tax credit proceeds benefit a private business or individual, may not be financed with this program.
Important Note: This program allocates the authority to issue bonds and sell tax credits to bond and tax credit investors in order to finance economic development activities; it is not a direct funding program that allocates public dollars.
Q. How much bond issuing authority is available?
A. A total of $10 billion in bond issuing authority is available nationwide. It has been divided among the states, counties, and large cities (greater than 100,000 in population) based on the rate of employment declines in each state during the period from December 2007 and December 2008 (see Recovery Zone Formula Allocations).
Q. Where, how and when do I apply for RZ-EDB authority?
A. Commerce is in the process of developing procedures for distributing the formula allocations and reallocating any unused formula allocations. If you have a qualifying project, you will need to work through your city or county to have a bond issued to finance the project. Counties and large municipalities may create their own processes for projects within their jurisdictions. Bonds must be issued prior to January 1, 2011.
Q. What is the Department of Commerce’s role in making the allocations?
A. Commerce will make initial allocations of the bond issuing authority to counties and large municipalities by a formula based on employment declines in each jurisdiction, as required in the federal legislation. If a county or large municipality does not plan to use all of its allocation, under the federal rules, the allocation may be returned to the state to be reallocated to other jurisdictions. Commerce will track projects and monitor bond issuances to ensure that each jurisdiction and the state as a whole are able to make use of the state's total allocation and that we do not exceed the total allowable amount of bond issuing authority.
Q. Are there any other rules or obligations I need to know about?
A. Specific federal tax regulations apply to projects financed under this program. Bond issuers will need the advice of qualified bond counsel and tax counsel in order to ensure the project and the bond issuance are in compliance with all applicable federal bond and tax regulations.
Federal Davis-Bacon prevailing wage rules apply to projects financed with RZ-EDBs.
Q. I still have questions, who do I contact to get more information?