Recovery Zone Facility Bonds are a new type of tax-exempt private activity bond created by the American Recovery and Reinvestment Act, passed by Congress in February 2009. They may be used to finance certain kinds of business development activities in areas of significant economic distress.
Q. Who is eligible to issue Recovery Zone Facility Bonds (RZ-FBs), and what can they be used for?
A. Under this program, counties and large municipalities (greater than 100,000 in population) are eligible for allocations of tax-exempt private activity bond issuing authority called “Recovery Zone Facility Bonds” to finance certain kinds of facilities in Recovery Zones. Because Exempt Facility Bonds are considered private activities (i.e. they benefit businesses or individuals), they are not tax-exempt unless they are issued under the traditional state Bond Cap Allocation Program, or under this RZ-FB program.
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, the county or municipality may designate areas within their jurisdiction as Recovery Zones.
RZ-FBs may be used by taxpayers engaged in certain types of businesses to finance the purchase of depreciable business property within a Recovery Zone, provided the taxpayer acquires the property after the area has received the Recovery Zone designation. Some kinds of property specifically do not qualify under this program, including land, rental property, and property used for certain kinds of activities such as golf courses, country clubs, and several others listed in federal tax regulations.
Important Note: This program allocates the authority to issue tax-exempt bonds to bond investors in order to finance Recovery Zone facilities; it is not a direct funding program that allocates public dollars.
Q. How much bond issuing authority is available?
A. $15 billion in bond issuing authority is available nationwide; Washington state's portion totals $90 million. 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 jurisdiction during the period from December 2007 and December 2008 (see Recovery Zone Formula Allocations).
Q. Where, how and when do I apply for an allocation of RZ-FB authority?
A. Commerce is actively working on developing a process for counties and municipalities to access their RZ-FB issuing authority, and for reallocating any unused RZ-FB authority to projects in other areas of the state. Counties and large municipalities may create their own processes for projects within their jurisdictions. Businesses with potential projects located in jurisdictions with allocations should work through the local jurisdiction to have a bond issued; businesses with projects in other areas of the state should contact Commerce for instructions on how to apply for a reallocation. Bonds must be issued prior to January 1, 2011.
Q. What is the Department of Commerce’s role in distributing 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.
Q. I still have questions, who do I contact to get more information?