Economic Recovery Stimulated by Tax-Exempt Bonds
by Dean Spina, Attorney
In February of this year, President Obama signed into law the American Recovery and Reinvestment Tax Act of 2009. This Act creates a new category of bonds intended to stimulate economic recovery in specific zones of our country by achieving tax-exempt interest under the Internal Revenue Code. One type of bond is called Recovery Zone Facility Bonds (“Recovery Zone Bonds”). On June 12, 2009, IRS guidance on these bonds was released.
The benefit of Recovery Zone Bonds is the range of possible projects that can be financed. They could be used for a warehouse, office building, hotel, retail center, or manufacturing facility. Prohibited uses include residential rental property, gambling facilities and country clubs.
These bonds may be purchased by banks, and they must be issued prior to January 1, 2011.
Recovery Zone Bonds may be issued to finance depreciable property for use in the active conduct of a qualified business. The property must be acquired after the designation of the Recovery Zone (explained below). Land cannot be financed with the bond proceeds.
Iowa’s share of these bonds amounts to $135 million. This amount was further allocated to 64 counties and the cities of Des Moines and Cedar Rapids. No allocation was made to 35 Iowa counties. Cedar Rapids’ portion is $2,958,000 and Linn County will receive $1,920,000. We have created a map for your convenience listing allocations by county and city. Please refer to this link for more information about additional allocations nationally. (The Recovery Zone Facility Bond amounts are listed in the last column.)
How was this distribution produced? It is based on statistical data reflecting changes in employment from December 2007 to December 2008. These bonds are not allocated on the basis of damage from the 2008 disasters.
The counties and cities to receive Recovery Zone Bonds must designate the recovery zone based on significant poverty, unemployment, rate of home foreclosure or general distress. The designation is to be made in a reasonable manner determined in good faith in the issuer’s discretion.
If you have questions about Recovery Zone Bonds, please contact Dean Spina at (319) 861-8725.