An issuer of qualified energy conservation bonds (QECBs) issued after March 18, 2010 can elect to receive a direct-payment subsidy from the federal government equal to the lesser of (i) 100 percent of the interest (at a taxable rate) paid by the issuer on each interest payment date or (ii) 70 percent of the "qualified tax credit bond rate" announced by the US Department of the Treasury (Treasury) in lieu of the otherwise available tax credit to bondholders. The direct-payment option is expected to result in the issuance of more QECBs in much the same way as the direct-payment option for Build America Bonds (BABs) has resulted in a significant issuance of BABs.
The qualified tax credit bond rate and maximum maturity of QECBs are determined by the Treasury and are published online by the Bureau of the Public Debt. For a particular QECB issue, those are determined as of the first day on which there is a binding, written contract for the sale of the QECBs. For example, if a QECB issue had been sold on April 27, 2010, the maximum maturity would have been 17 years and the qualified tax credit bond rate would have been 5.70 percent (70 percent of which would have been 3.99 percent).
QECBs can be issued to finance a "qualified energy purpose." A qualified energy purpose includes, among other things, capital expenditures incurred for purposes of (i) reducing energy consumption in publicly owned buildings by at least 20 percent, (ii) implementing green community programs, and (iii) wind facilities, closed-loop and open-loop biomass facilities, geothermal facilities, solar energy facilities and qualified hydropower facilities. For a more detailed description of the types of projects financeable by QECBs see our February 2009 Public Finance Alert.
An issuer must have QECB issuance authority in order to issue QECBs. The Treasury has allocated the national QECB issuance authority to the states. Each state is required to suballocate a portion of its QECB issuance authority to large local governments (municipalities or counties with a population of at least 100,000). A large local government can waive all or a portion of its suballocation of QECB issuance authority. Such waived authority then reverts to the state. The state can then either issue QECBs or reallocate the waived issuance authority.
In 2009 Ohio received an allocation of $119,160,000 of QECB issuance authority. The Ohio Air Quality Development Authority, pursuant to Section 3706.04(R) of the Ohio Revised Code, is charged with allocating that amount and reallocating any portion thereof waived by a county or municipality.