Democrats Claim Recovery Zone Allocations Bypass Their Districts

Seven Democratic members of Congress have complained to the Treasury Department that the way it determined allocations for $25 billion of recovery zone bonds is "unacceptable," since it left out their districts which experienced "huge" increases in unemployment last year.

Although the recovery zone bond program is intended to target areas hit hard by unemployment as determined by 2008 numbers, the allocations to states are actually calculated based on decreases in employment rather than increases in unemployment. The Treasury released its allocations for the bonds on June 12.

The lawmakers' districts, for a variety of reasons, actually experienced increases in their total labor forces during 2008, resulting in increases in employment, at the same time they experienced increases in unemployment, they said in a two-page letter.

As a result, even though the lawmakers' districts "have some of the country's highest unemployment rates, highest foreclosure rates, and steepest declines in home values," they did not receive a significant share of the allocations, the June 19 letter stated.

"Efforts by Congress and the administration to turn the economy around will not be successful until the hardest-hit areas such as the ones we represent receive the economic assistance they need," the lawmakers said. "Our districts can't afford to be overlooked."

However, it is not clear what recourse the Treasury might have on this issue, as the American Recovery and Reinvestment Act authorizing the program states that allocations should be based on "employment decline" in 2008.

The program permits states, counties, and large municipalities to issue two new types of bonds to finance economic development projects - $10 billion of recovery zone economic development bonds and $15 billion of recovery zone facility bonds.

Recovery zone economic development bonds, or RZEDBs, are like the direct-pay Build America Bonds. The latter program permits municipal issuers to sell taxable debt and receive a cash payment from the federal government equal to 35% of their interest costs.

RZEDBs differ in that they provide issuers with payments equal to 45% of interest costs and must be used to finance "qualified economic development purposes" within designated recovery zones. Recovery zone facility bonds, or RZFBs, function similarly to exempt facility private-activity bonds, but must be used to finance "recovery zone property" in recovery zones.

The letter was signed by three California members of Congress - Reps. Dennis Cardoza, Jim Costa, and Bob Filner, representing part of the Central Valley and the southern border area - two from Arizona's border area - Reps. Gabrielle Giffords and Raul Grijalva- and two from Nevada who represent parts of Las Vegas - Reps. Shelley Berkley and Dina Titus.

Meanwhile, the Treasury responded to a question from Rep. Pete Hoekstra, R-Mich., about whether a manufacturer in his western Michigan district can relocate operations from abroad to the United States and under the recovery zone bond program.

The Treasury told Hoekstra in a July 15 letter that RZFBs are available for use by private businesses, including manufacturing, to finance qualified capital projects that will yield active businesses. However, the bonds generally are "only available for use for public or governmental projects rather than projects for private business use," the letter stated.

"One limited exception would allow a state or local government to subsidize costs of a private manufacturing project with this second type of bond if the ... issuer did not receive any significant payments from the private business for use of the project."

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