The Treasury Department has informed seven members of Congress that their districts' large increases in unemployment last year will not allow them to issue more Recovery Zone bonds because the stimulus law dictates that allocations of the bonds are to be based on decreases in employment.
In separate but identical letters sent to the lawmakers, Treasury Secretary Timothy Geithner told them that if they think the formula for the allocations is unfair because it does not take increases in unemployment into account, they need to turn to Congress for a statutory fix.
"Treasury ... has no discretion to alter the statutory bond-allocation formula for the Recovery Zone bond program," Geithner wrote in the letters, which were dated July 23 but not released until this week. "Thus, any consideration of refining or broadening of the targeting criteria for the [RZB] program would require a statutory change by Congress."
The seven Democrats had written to the Treasury in June to complain that even though their districts had some of the highest unemployment rates, foreclosure rates, and steepest declines in home values in the nation, they were not allocated any Recovery Zone bonds in guidance released June 12 by the Treasury. For a variety of reasons, their districts actually experienced increases in their total labor force during 2008, resulting in increases in employment as well as increases in unemployment.
"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."
Their 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.
But Geithner told them that the American Recovery and Reinvestment Act of 2009 that authorized the RZB program clearly states allocations are to be based on "employment decline[s]" in 2008, Geithner said.
The lawmakers' offices could not be reached as to whether they would be pursuing a statutory fix to the allocation formula.
The RZB 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.
For both types of bonds, each state is guaranteed to be allocated at least 0.9% of the bond authority with the remaining amount distributed to be based on decreases in employment.
Recovery zone economic development bonds, or RZEDBs, are like the direct-pay Build America Bonds program, which 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 from direct-pay BABs 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, are a type of exempt facility private-activity bond, but must be used to finance "recovery zone property" in recovery zones.
