The American Recovery and Reinvestment Tax Act of 2009 (the “Recovery Act”) created a new category of bonds called Recovery Zone Bonds (“RZBs”) to assist economic development in distressed areas throughout the United States. Recovery Zone Economic Development Bonds (“RZEDBs”) are one type of these newly created bonds and are used for financing public and governmental development projects in designated “recovery zones.”

Recovery Zone Designation

RZEDBs must be used in a “recovery zone.” A recovery zone is defined as any area designated by the issuer of the bonds as having significant poverty, unemployment, rate of home foreclosures, or general distress; any area affected by military realignment pursuant to the Defense Base Closure and Realignment Act of 1990; or any area designated as an “empowerment zone” or “renewal community.”

Characteristics of RZEDBs

The Recovery Act has authorized a total of $10 billion in RZEDBs which have been allocated nationally among major metropolitan areas and counties of each state based on unemployment statistics in 2008. RZEDBs are authorized to be used for governmental purposes in designated recovery zones. These purposes include promoting development or other economic activity including capital expenditures paid or incurred with respect to property located in the recovery zone, expenditures for public infrastructure, and construction of public facilities and expenditures for job training and educational programs.

RZEDBs are taxable bonds; however, the federal government will provide a subsidy by reimbursing the issuer for 45% of the interest payable to bondholders. This subsidy will provide significant savings in the true cost of interest paid on the bonds. RZEDBs must be issued no later than December 31, 2010.

Allocations Among States and Large Metropolitan Areas

The federal government allocated RZEDBs to the states on the basis of relative job loss in 2008, with greater volume going to states that lost proportionately more jobs as compared to the national figure. Each state was scheduled to receive at least 0.9% of the aggregate allocation for RZEDBs. The states then sub-allocated their amounts to their respective counties and “large” municipalities (defined as having a population greater than 100,000) based on each local unit’s decrease in employment as compared to that of the state.

The following is an example of allocations that have been made:

Recovery Zone Economic Development Bonds

Illinois - $666,972,000

Cook County - $131,209,000

Chicago - $133,180,000

Allocations among all 50 states and their respective counties and large municipalities can be found at:

Application Procedures for RZEDB Financing

The vast majority of states, counties and municipalities are still in the process of determining the application process. Interested parties should contact the applicable state, county and municipality regarding status of the application process and timing for application submission.

In addition to RZEDBs, the Recovery Act also authorized Recovery Zone Facility Bonds (“RZFBs), which must be used in the financing of private projects and are tax-exempt. Click here to learn more about RZFBs.