Recovery Zone bonds
The IRS released today guidance and allocations pertaining to Recovery Zone bonds. There are two types of such bonds: Recovery Zone Economic Development Bonds (RZEDBs) and Recovery Zone Facility Bonds (RZFBs).
RZEDBs work like Build America Bonds – they are taxable but the issuer receives back from the federal government 45% of interest, paying effectively only 55% of the interest (for BABs, these percentages are 35%/65%. There is another BABs alternative where the bondholder gets the subsidy but for all issued BABs until now the issuers receive the subsidy). RZFBs are actually issued as tax-exempt bonds to develop property in areas defined as recovery zones.
Without this legislation, such bonds would be considered private activity bonds and could not be issued as tax-exempt. The goal of these bonds is to promote job creation and economic recovery.
The State got its allocations by county: $90 million of RZEDBs and $135 million of RZFBs. Please see the attached notice and a separate document which allocates the authority to municipalities and counties in each state. It may be possible for the State to be the issuing entity but more legal analysis would be required.
Guidance regarding the maximum face amount of recovery zone economic development bonds and recovery zone facility bonds that may be issued by each State and counties and large municipalities within each State before January 1, 2011 under §§ 1400U-2 and 1400U-3, respectively, of the Internal Revenue Code (“Code”), as provided in § 1400U-1 of the Code.
IRS Recovery Zone Allocation Schedule
These schedules allocate Recovery Zone Economic Development Bonds and Recovery Zone Facility Bonds among counties and large municipalities for each state.
Please let me know if you have any questions.
Benjamin Asher
June 12, 2009