After telling state and local officials that there was nothing they could do to adjust a much-maligned formula used to allocate $25 billion of recovery zone bonds, Treasury Department officials are now referring the governments to legislation pending in the Senate that would allocate another $25 billion of the bonds using new criteria.
Michael Mundaca, the Treasury’s assistant secretary for tax policy, told Tucson Mayor Robert Walkup about the legislation in a two-page letter dated April 20.
“The Treasury Department has no discretion to alter the statutory bond-allocation formula for this bond program,” Mundaca wrote. “Any modification of the criteria ... would require a statutory change. In this regard, we call your attention to a pending bill in Congress, HR 4849, entitled, the 'Small Business and Infrastructure Jobs Tax Act of 2010.’ ”
The bill would allocate an additional $25 billion of recovery zone bonds to areas facing economic hardship.
In an effort to address areas underserved the first time, each locality would receive an allocation equal to at least its share of national unemployment as of December 2009.
The legislation also would extend the recovery zone bond programs another year, through 2011.
The $15 billion of recovery zone economic development bonds and $10 billion of recovery zone exempt facility bonds authorized by the American Recovery and Reinvestment Act were first allocated to areas hard hit by the recession in June.
Walkup complained in a Feb. 24 letter that Tucson and surrounding Pima County did not receive any allocation, despite experiencing increased home foreclosure rates, significant poverty and general distress. Tucson was overlooked because the Treasury’s allocation method, as dictated in ARRA, focused on net job losses rather than the overall unemployment rate.
Walkup’s complaint echoed one aired in June by seven congressional Democrats who said that despite facing a number of tough economic issues, their districts were not allocated any recovery zone bonds when they experienced increases in both employment and unemployment, possibly because of a rapid increase in population.
Those spikes led to low net unemployment, which rendered them ineligible for allocations. Treasury officials told those federal lawmakers they could not modify the allocation method, and Congress would need to change the law to do so.
Recovery zone economic development bonds are effectively super-Build America Bonds that allow issuers to receive direct payments from the federal government equal to 45% of their interest costs. Recovery zone exempt facility bonds are private-activity debt.
