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The American Recovery and Reinvestment Act of 2009 (ARRA) provides new financing options to promote economic development throughout the United States.
New financing opportunities under ARRA include changes to small issue industrial development bonds that expand the types of projects that can take advantage of tax-exempt private activity bonds. Under this legislation, facilities that create intangible property can qualify for tax-exempt bond financing, as can activities that are ancillary to the manufacturing process. In most instances, Alternative Minimum Taxes will not apply to the tax-exempt income generated from these bonds issued in 2009 and 2010.
ARRA provides a new category of bonds called Build America Bonds that allows state and local governments to issue bonds for which the federal government subsidizes the interest payments in 2009 and 2010. This subsidy, which is equal to 35 percent of the interest payable, can be made as a credit subsidy to the issuer and monetized, or it can be issued as a credit to bondholders equal to 35 percent of the interest receivable. The goal of these bonds is to allow state and local governments to borrow money at a rate equal to approximately 74 percent of comparable taxable bond rates.
Additionally, ARRA creates two new classes of Build America Bonds: Recovery Zone Economic Development Bonds and Recovery Zone Facility Bonds. The issuers of these bonds can designate "recovery zones" based on significant poverty, unemployment, foreclosures, general distress or military installation closures.
Recovery Zone Economic Development Bonds are a sub-category of taxable Build America Bonds that provides a 45 percent interest subsidy and can be used for capital expenditures, public infrastructure, job training and education programs.
Recovery Zone Facility Bonds are tax-exempt private activity bonds that can be issued to assist businesses in distressed areas. Generally, all types of businesses qualify except residential rental property, golf courses, gaming facilities, massage parlors and other specifically excluded activities.
The U.S. Department of the Treasury has allocated the Recovery Zone Bonds to individual counties within Mississippi based on local unemployment rates. The allocations are: Economic Development Bonds and Facilities Bonds. MDA is encouraging counties that will not be able to use their allocation to turn that allocation over to the state for use on economic development projects in counties that could use it. Please contact MDA if you have any questions about these allocations.
Finally, ARRA increases the annual allocation of New Markets Tax Credits by $1.5 billion for 2008 and 2009. The 2008 increase will be allocated to Community Development Entities that submitted an application for credits for calendar year 2008, and either did not receive an initial allocation or did not receive the full amount requested.
