Wednesday, March 31, 2010
IT’S NOT TOO LATE TO SEEK RECOVERY ZONE BOND ALLOCATIONS
It’s Not Too Late to Seek Recovery Zone Bond Allocations
What are Recovery Zone Bonds? Recovery Zone Economic Development Bonds (RZEDBs) and Recovery Zone Facility Bonds (RZFBs) can provide very favorable financing for cities or counties looking to rejuvenate or redevelop economically distressed areas. RZEDBs can finance any governmental project in a designated “Recovery Zone” that promotes economic development or activity. RZFBs can finance many private enterprises not normally eligible for tax-exempt financing (residential rental housing, golf clubs, racetracks, gambling facilities, and liquor stores are the only exclusions). Under current law, all RZEDBs and RZFBs must be issued before January 1, 2011.
State Allocation of Recovery Zone Bonds. The State of Alabama received $244,676,000 of RZEDB allocation and $367,014,000 of RZFB allocation, and these amounts were sub-allocated to the four largest cities and to all sixty-seven counties according to a federally mandated formula. Each city and county is responsible for designating its Recovery Zone(s) and identifying projects for its allocations.
On January 25, 2010, in an effort to ensure that all recovery zone bond allocation is used, the Finance Department for the State of Alabama established deadlines by which cities and counties must take certain actions or they will be deemed to have “waived” their allocation and returned it to the State. A copy of the Finance Department guidance is available at www.finance.alabama.gov.
How to Apply for Unused Allocations.
Allocations that revert to the State under the guidelines will be placed in a “pool” and made available to issuers who apply not later than May 14, 2010. Based on current information, public finance professionals expect the pool of available allocations to be substantial.
According to the guidelines, the State will award re-allocations by June 1, 2010, and successful applicants must close their bond issues by November 1, 2010. If any RZEDB or RZFB allocation remains unallocated by June 1, 2010, the State will repeat the application process monthly until all of it has been used.
Time is of the Essence. Cities, counties or private parties who wish to apply for an allocation of RZEDB or RZFB from the state pool should take immediate action to select a finance team, identify a project, and designate a Recovery Zone.
Our public finance group can help determine whether a “Recovery Zone” can be properly designated and whether potential projects qualify for either RZEDBs or RZFBs. For more information, please contact one of our public finance lawyers listed below. No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers.
*This Memorandum is for information purposes only and should not be construed as legal advice. This information is not intended to create, and receipt of it does not constitute a lawyer-client relationship. For more information or an explanation about the matters discussed in this Memorandum, please contact any of the following attorneys in our Public Finance Practice Group.
*IRS Circular 230 Disclosure – To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.