WASHINGTON — Two Democrats from Michigan have introduced legislation that would allow a total of up to $1 billion of recovery zone economic development bonds to be issued over one year for projects in certain specified cities.
The cities would have to have an average economic unemployment rate of at least 150% of the national average and would have to have lost at least 20% of their population between 2000 and 2010, according to the Urban Recovery and Growth Act, introduced earlier this month by Reps. Hansen Clarke and John Conyers, Jr.
The bill would permit RZEDBs to be used for refundings of debt previously issued by these specified cities and outstanding as of the date of the enactment.
But neither of the congressmen sit on the House Ways and Means Committee and muni market participants said the bill may not have much of a chance for passage.
"I don't know what its prospects are. Frankly there's been a reluctance to expand tax-exempt financing in Congress, " said Thomas Vander Molen, a partner at Dorsey & Whitney LLP in Minneapolis.
"In fact they're going the other way," he said, referring to lawmakers considering capping the value of tax exemption and other tax expenditures as a way to raise tax revenues to offset the federal budget deficit.
RZEDBs were created by the American Recovery and Reinvestment Act in 2009.
The ARRA allowed up to $10 billion of them to be issued as taxable, tax credit bonds during 2009 and 2010.
Then in the Spring of 2010, the Hiring Incentives to Restore Employment Act was enacted and permitted them to be as direct-pay bonds, with issuers receiving subsidy payments equal to 45% of their interest costs from the Treasury Department. That subsidy rate would be the same for the RZEDBs issued under this bill.
The ARRA had allowed RZEDBs to be issued by state and local governments that had "recovery zones," areas designated as having significant poverty, unemployment, rate of home foreclosures, or general distress.