The American Recovery and Reinvestment Act of 2009 (the "Act") created several new types of bond issues and modified terms with respect to previously existing types of municipal bonds. Specifically, the Act established three new types of tax credit bonds and two new tax-exempt bonds, as well as expanding the availability to three existing types of tax credit bonds. All but one of these obligations is subject to some sort of volume limitation, referred to here as a "cap," with respect to the maximum principal amount of such bonds may be nationally. Below appears a summary that identifies the name of the affected bond issue type, whether it is a tax credit or tax-exempt bond, as well as whether it is newly created or previously existing, the method of allocation of the cap with respect to that particular type of bond, and the carry forward provisions, if any, relating to unused allocations1. A table is attached as a quick reference for the material.

Qualified School Construction Bonds. This a new bond issue created by the Act in Section 1521. It is a tax credit bond. The annual volume permitted is $11 billion for each of 2009 and 2010. Its provisions are contained in Section 54F of the Internal Revenue Code (the "Code").

The method of allocation of the cap is as follows: 60 percent of the annual national cap will be allocated by the Secretary of the Treasury among the states in proportion to the respective amounts each state is eligible to receive under section 1124 of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 6333) (the "ESEA") for the most recent fiscal year ending before the calendar year of allocation. The amount allocated to each state is to be allocated by that state to issuers within its jurisdiction. No method for the allocation downstream is specified.

40 percent of the annual national cap is to be allocated to certain "large local educational entities", which are defined to be either (i) one of the 100 local educational agencies with the largest numbers of children aged 5 through 17 from families living below the poverty level, as determined by the Secretary of the Treasury based upon Commerce Department statistics, or (ii) 1 of not more than 25 other local educational agencies that the Secretary of Education determines (based on the most recent data available satisfactory to the Secretary of the Treasury) are in particular need of assistance, based on a low level of resources for school construction, a high level of enrollment growth, or such other factors as the Secretary of the Treasury deems appropriate. Any state with a large local educational entity that receives an allocation will have its allocation, hence the cap available for other schools in that state, reduced.

Amounts not used in prior years may be carried forward to subsequent years, so issuances can occur after 2010 to the extent that they involve the use of cap previously allocated to unissued bonds.

Qualified Zone Academy Bonds. QZABs are an existing type of tax credit bond. Provisions relating to it may be found in Section 1522, which amended Section 54E of the Code to permit an increase in the annual volume to $1.4 billion in each of 2009 and 2010.

The method of allocation is unchanged from prior law. The cap for a calendar year is allocated by the Secretary of the Treasury among the states on the basis of their respective populations of individuals below the poverty line (as defined by the federal Office of Management and Budget). The limitation amount allocated to a state under the preceding sentence is then further allocated downstream by the state education agency to qualified zone academies within such State. Note the difference from qualified school construction bonds in which the allocation is made to each state but no state education agency is mentioned.

As with qualified school construction bonds, amounts not used may be carried forward to later years.

Recovery Zone Economic Development Bonds. A new type of tax credit bond was created by the Section 1401(a) of the Act and Section 1400U-2 of the Code. The definition of this type of bond is tied to the definition of the "Build America Bond," another new type tax credit bond. A recovery zone economic development bond is a Build America Bond that the issuer elects to designate as a recovery zone economic development bond (thus increasing the permitted credit to 45 percent from 35 percent) and with respect to which the issuer will observe restrictions on the use of bond proceeds related to economic development specified in Section 1400-2 of the Code.

The cap amount is $10 billion for each of 2009 and 2010. The Secretary of the Treasury is to allocate the cap among the states in the proportion that each state's "2008 State employment" decline bears to the aggregate of the 2008 State employment declines for all of the states. "2008 State employment decline" means the number of individuals employed in the state in 2007 over the number of individuals employed in the state in 2008. There is no reference to how many hours per week constitute employment or how to treat individuals who are self-employed. In all likelihood, the methodology and information from the Bureau of Labor Statistics, which is referred to in the conference report, will be used. Each state will be allocated a minimum of 0.9 percent of the total nationwide cap regardless of the result obtained by the decline in employment calculation.

Each state which receives an allocation of cap must reallocate the cap among the counties and "large municipalities" (defined as municipalities with a population of more than 100,000) in such State in the proportion to each such county's or municipality's 2008 employment decline bears to the aggregate of the 2008 employment declines for all the counties and municipalities in such State. The employment decline of any large municipality is treated as the employment decline of such municipality and not of the county in which the municipality is located. While the law provides that a county or municipality may waive any portion of an allocation that it receives, the law does not provide whether such amount "goes back in the hopper" and is reallocated or whether it disappears.

There does not appear to be any carry forward mechanism for these bonds. Further, by definition, the obligation must be issued before January 1, 2011, so there would be no opportunity to carry an unused amounts forward past December 31, 2010 because there will exist no authority to issue such bonds.

Recovery Zone Economic Development Facility Bonds. The Act created a new category of tax-exempt, exempt facility bond for use in recovery zones. The provisions can be found in Section 1401 of the Act and Section 1400U-3 of the Code. The annual volume limitation is $15 billion nationwide. These obligations are not subject to the volume cap otherwise applicable to certain private activity bonds.

The method of allocation of the cap to the states and downstream to issuers is the same as the method for recovery zone economic development bonds. The carry forward analysis is likewise the same.

Build America Bonds. The Act created the "Build America Bond" as a new tax credit bond that permits a holder to take a tax credit for interest received or, alternatively, for bonds issued before January 1, 2011, for the issuer to receive a subsidy from the federal government in the amount the credit would have generated. No volume cap limitation is prescribed in the Act or the Code for these bonds.

Tribal Economic Development Bonds. The Act created the new, tax-exempt category of tribal economic development bonds to permit tribal governments to issue tax-exempt bonds for certain economic development purposes. Certain facilities (e.g., casinos) may not be financed.

The annual limit is $2 billion dollars. The Secretary of the Treasury must allocate the cap among Native American tribal governments in the manner it determines after consultation with the Secretary of the Interior. The Act requires a study after one year to determine whether there should be any changes to the law. Consequently, there are currently no provisions for carry forward or expiration of the authority to issue such bonds.

New Clean Renewable Energy Bonds. The Act increased the national limitation by $1.6 billion via Section 1111 of the Act and Section 54C of the Code.

The Secretary of the Treasury is required to allocate the cap such that (i) not more than one-third goes to qualified projects of public power providers; (ii) not more than one-third to qualified projects of government bodies; and (iii) not more than one-third to cooperative electric companies. Allocations among public power providers are to be made by the Secretary of the Treasury based on the relative costs of the projects. Allocations among governmental bonds are at to be made by Treasury in such manner as the Secretary deems appropriate. Thus, there is no allocation on a state by state basis. This allocation method was not affected by the Act.

There are no express carry forward provisions in the Act or the Code for this type of obligation.

Qualified Energy Conservation Bonds. The Act increased the national limitation by $2.4 billion to $3.2 billion in Section 1112 of the Act and Section 54D of the Code.

The amount of the national cap is allocated among the states in proportion to their respective populations. In the case of any state in which there is a municipality of more than 100,000, each such large local government must be allocated a portion of the state's share in an amount that bears the same ratio as that municipality's population bears to the population of the state. This method was not changed by the Act.

There are no express carry forward provisions in the Act or the Code for this type of obligation.