i. recovery zone bonds issued in connection · 5. examples of use of recovery zone facility bonds:...

I. Recovery Zone Bonds Issued In ConnectionWith Tax Increment Financing - Overview

I. Recovery Zone Bonds Issued In ConnectionWith Tax Increment Financing - Overview

Recovery Zone Bonds – The Basics

Which County or Large Municipality is eligible toestablish a Recovery Zone?

Who has Established a Recovery Zone?

How much Recovery Zone allocation is available?

I. Recovery Zone Bonds Issued in ConnectionWith Tax Increment Financing Overview(Cont'd)

I. Recovery Zone Bonds Issued in ConnectionWith Tax Increment Financing Overview(Cont'd)

Steps to Issuing a Recovery Zone Bond.

How should a County or Large Municipalityutilize its allocation?

How can Recovery Zone Bonds be utilized inconnection with Tax Increment Financing?

A. Recovery Zone Economic Development Bonds, a Type ofBuild America Bonds – For Traditional GovernmentalBonds including TIF Bonds

1. The Stimulus Act creates a new category of tax creditbonds called Recovery Zone Economic DevelopmentBonds, which are a type of Build America Bonds.

2. Economic Development capital projects and publicinfrastructure and facilities qualify. Issuers get TaxCredit of 45 percent of interest on the Bonds.

II. Recovery Zone Bonds - The BasicsII. Recovery Zone Bonds - The Basics

4. Each County or large Municipality (over 100,000) gets its ownallocation.

5. Recovery Zone Economic Development Bonds must be issuedprior to January 1, 2011.

6. $10 billion nationwide allocation. IRS issued notice withallocations to each state based on decreases of "individualsemployed" in 2008.

7. Suballocations to counties and large municipalities (populationover 100,000) within a state made on the basis of relative"individuals employed" loss in 2008. This allocation method isused for both Recovery Zone Economic Development Bondsand Recovery Zone Facility Bonds.

II. Recovery Zone Bonds - The Basics (Cont'd)II. Recovery Zone Bonds - The Basics (Cont'd)

8. Most bonds (other than private activity bonds) qualify asRZEDB’s so long as the bonds would qualify as tax-exempt but for application of these new rules.

a. Traditional Governmental Bonds

b. Tax Increment Financing Bonds.

9. If not getting Recovery Zone Economic DevelopmentBond allocation, can still do Build America Bonds("BAB's").


a. A new type of tax credit bond called Build AmericaBonds. Build America Bonds are taxable bonds but givebondholders a federal tax credit equal to 35 percent oftaxable interest. State and local governments may elect toissue Build America Bonds in lieu of tax-exemptgovernmental bonds (this provision does not apply toprivate activity bonds).

b. Issuers of certain Build America Bonds (Direct Payment)may also elect to receive a rebate from the IRS of 35percent of the interest paid on the bonds in lieu of thecredit being provided to bondholders. These must financenew Capital Expenditures.


II. Recovery Zone Bonds - The BasicsII. Recovery Zone Bonds - The Basics

B. Recovery Zone Facility Bonds - Tax-Exempt forPrivately Used or Owned Facilities.

1. The Stimulus Act creates a new category of tax-exempt private activity bonds called Recovery ZoneFacility Bonds, which are created for use in areasdesignated by counties and large municipalities asrecovery zones. The same Recovery Zone created forRecover Zone Economic Development Bonds.

2. Most any project qualifies.

3. Benefit is low tax-exempt interest.


4. Recovery Zone Facility Bonds must be issued prior toJanuary 1, 2011.

5. Examples of use of Recovery Zone Facility Bonds:

a. Warehouses

b. Office Complexes

c. Hotels

d. Most commercial projects.

6. Utilize in connection with traditional TIF bonds thatwould previously be done taxable.


Similar to Pre-1986 Law for IDB’s

Most typical IRB Limitations do not apply

Tax-Exempt Rates lower than conventional financing

Need recovery zone allocation for Recovery Zone Bondsand designation from County or Large Municipality (over100,000).

$15 billion nationwide allocation. IRS issued notice withallocations to each state based on decreases of"individuals employed" in 2008.


Suballocations to counties and large municipalities(population over 100,000) within a state was also made onthe basis of relative "individuals employed" loss in 2008.This allocation method isused for both Recovery Zone Economic DevelopmentBonds and Recovery Zone Facility Bonds.

RZFB’s cannot finance land, residential rental or existingfacilities (unless substantial renovation done).

III. Which County or Large Municipality isEligible to Establish a Recovery Zone?


Recovery Zones are defined as areas designatedby counties and large municipalities as having oneor more of the following:

1. Significant poverty

2. Significant unemployment

3. Significant home-foreclosure rates

4. Significant general distress



5. Any area for which a designation as an empowermentzone or renewal community is in effect

6. Economically distressed areas by reason of militaryclosure or realignment.

Same definition of Recovery Zone for RecoveryZone Facility Bonds and Recovery ZoneEconomic Development Bonds.

IV. Who Has Established a Recovery Zone?IV. Who Has Established a Recovery Zone?

A. DuPage

B. McHenry

C. Rock Island

D. Kankakee

E. Stephenson

F. Lake

G. Lake

H. Will

I. Kane

J. DeKalb

K. Whiteside

L. LaSalle

M. Many others in progress

A. IllinoisAllocationsfor CertainLargeMunicipalitiesandCounties

V. How Much Recovery Zone Allocation isAvailable?

V. How Much Recovery Zone Allocation isAvailable?

V. How Much Recovery Zone Allocation isAvailable? (Cont'd)

V. How Much Recovery Zone Allocation isAvailable? (Cont'd)

B. Need more than your County's allocation?

o Each County or Large Municipality may waive itsvolume to the State

o Each County may suballocate its volume to any issuerin the county

o State may reallocate volume to any issuer at itsdiscretion.

VI. Steps to Issuing a Recovery Zone BondVI. Steps to Issuing a Recovery Zone Bond

1. County or Large Municipality declares all or a Portion ofCounty or Large Municipality as "Recovery Zone."

2. County or Large Municipality selects Projects to financebased on established criteria such as:

o Job Creation

o Credit

o Project

VI. Steps to Issuing a Recovery Zone BondVI. Steps to Issuing a Recovery Zone Bond

3. County or Large Municipality selects Issuer of the Bonds:

o County or Large Municipality

o Other Units of Local Government.

o Illinois Finance Authority or other Authority

4. Issuer adopts Inducement Resolution or Notice of Intentto Issue (important for Bonds to be issued to reimbursecosts).

VI. Steps to Issuing a Recovery Zone Bond (Cont'd)VI. Steps to Issuing a Recovery Zone Bond (Cont'd)

5. Issuer works with Underwriter and Bond Counselon standard bond planning questions such assatisfying state law requirements anddocumentation and security in connection with theBonds.

6. Closing of Recovery Zone Bonds

VI. Steps to Issuing a Recovery Zone Bond (Cont'd)VI. Steps to Issuing a Recovery Zone Bond (Cont'd)

7. For Recovery Zone Economic DevelopmentBonds, Issuer files Form 8038-CP withconsultation of Bond Counsel to enable Issuer toreceive refund from Federal Government. IRShas mentioned that they hope to be able tofacilitate future payments electronically similar toSLGS program but under current rules a newForm 8038-CP must be filed for each payment tobe received.

County has the option of using its allocation ofRecovery Zone Economic Development Bonds authorityto finance the County's own governmental projects, orCounty may allocate its authority to municipalities orother issuers of the County to finance a variety of projectsto promote economic development.

Counties and Large Municipalities may vary on use

o Retain benefit for itself

o Designate benefit to another unit of Local Government

o Make decision later as current bond needs areunknown.

VII. How Should a County or LargeMunicipality Utilize its Allocation?

VII. How Should a County or LargeMunicipality Utilize its Allocation?

In January of 2007, Developer and Village enter intoRedevelopment Agreement to create mixed residential andcommercial facility. Financing was scheduled to come fromfollowing sources:

1. Village to issue TIF Alternate Revenue Bonds of $3 million tofinance roads and sewer facility. Assume TIF AlternateRevenue Bonds to be issued with tax-exempt rate of 5%.

2. Village to issue Tax Increment Finance Revenue Bonds of $10million to be used to finance additional qualified TIF costs suchas land, infrastructure and rehabilitation costs, to be securedonly by TIF revenues, a generally applicable tax. Assume TaxIncrement Revenue Bonds to be issued at a tax-exempt rate of9%.

VIII. Example of Use of Recovery Zone DevelopmentBond and Recovery Zone Facility Bond

VIII. Example of Use of Recovery Zone DevelopmentBond and Recovery Zone Facility Bond

3. Developer to borrow money from bank to financeprivate costs of $15 million such as shopping center,hotel and other commercial uses with a conventionalloan to bank secured by mortgage and developerguaranty. Assume interest rate on such loan of 7%.

B. Credit Crunch – Project Stalls

C. Options available to Village and Developer underStimulus Act to help transaction.

VIII. Example of Use of Recovery Zone DevelopmentBond and Recovery Zone Facility Bond (Cont'd)0

VIII. Example of Use of Recovery Zone DevelopmentBond and Recovery Zone Facility Bond (Cont'd)0

1. Alternate Revenue Bonds and Tax Increment FinanceBond issued as Recovery Zone EconomicDevelopment Bonds.

• If project is located in a Recovery Zone and allocationreceived, alternate revenue bond and TIF revenue bondmay each be issued as Recovery Zone EconomicDevelopment Bonds.

• Assume taxable interest rate of 7% on the taxablealternate revenue bonds, the net rate after receiving45% refund is about 4%.

VIII. Example of Use of Recovery Zone DevelopmentBond and Recovery Zone Facility Bond (Cont'd)


• Assume taxable rate of 11% on the taxable TIF Bonds,the net rate after receiving the 45% tax refund is about6%.

• If no allocation received, can still do both issues asregular Build America Bonds with a net rate afterreceiving 35% tax credit of about 4.5% and 7%,respectively.



2. Recovery Zone Facility Bond issued in lieu ofconventional financing.

• If project is located in a Recovery Zone and allocationreceived, shopping center, hotel and other commercialfacilities may be financed as a tax-exempt privateactivity bond. No residential property may befinanced.

• Assume tax-exempt rate of 5% after letter of creditfees.



3. Recovery Zone Facility Bond may also be issued inconnection with Alternate Revenue Bond or TIFRevenue Bond and keep tax-exempt status even ifbond is a private activity bond. Issue RZFB’s for atypical TIF Note to finance capital projects that isprivate activity bond or on TIF Note deals where thedeveloper will not or cannot agree to the tax repsthroughout life of TIF Note.





4. These options are enhanced by other Stimulus Act andrecent changes in the law that can be utilized through2010 such as:

• More liberal bank qualified rules.

- $30,000,000 limits

- 2% de minimis

• Use of Federal Home Loan Banks to secure local bankparticipation on private activity bonds.

• No AMT.

5. Summary of Benefits of Stimulus Act

7%5%7%Private Financing /Recovery FacilityBond

7%6%9%Tax IncrementRevenue Bond

4.5%4%5%PublicInfrastructureBond

Net Interest Ratewithout RecoveryZone Allocation

Net Interest Ratewith Recovery

Zone Allocation

Net Interest RateBefore Stimulus

Act



IX. SummaryIX. Summary

Traditional Governmental Bonds that financeCapital Expenditures – New 45% or 35% Refundor Credit through Recovery Zone EconomicDevelopment Bonds or Build America Bonds

Private Activity Bond – Essentially ANY Businesscan now finance Capital Expenditures on a Tax-Exempt Basis if they get an Allocation andDesignation

Various Other Financing Opportunities Exist bycombining tools

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i. recovery zone bonds issued in connection · 5. examples of use of recovery zone facility bonds:...

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