Legislation pending in Congress would allow state and local governments to use tax-exempt private-activity bonds to finance building or refurbishing grocery stores and other fresh produce businesses in 20 cities with "food deserts."

A food desert is defined, in the farm bill enacted last year, as an area "with limited access to affordable and nutritious food, particularly such an area composed of predominantly lower-income neighborhoods and communities." The farm bill also called for research into incentives for retail food market development, including supermarkets, small grocery stores, and farmers' markets in relation to the food desert phenomenon.

The "Food Desert Oasis Act of 2009," introduced in late June by Rep. Bobby Rush, D-Ill., would expand the exempt facility category of private-activity bonds to include state and local bonds issued to fund wholesale or retail businesses that are tax-paying entities and derive at least 25% of their gross revenues from selling fresh fruits and vegetables.

The bill, which is pending in two House committees, would require the bonds to be issued by Dec. 31, 2015.

The legislation identifies 20 cities as having "food desert zones." States or political subdivisions that contain such zones would be allowed to issue up to $20 million of the newly created PABs for each zone, for a national total of $400 million.

Currently, the tax code allows exempt facility bonds to be issued to finance projects ranging from airports and docks to sewage and water facilities, as well as qualified residential rental projects. About $2.7 billion of exempt facility bonds were issued in 2008, according to an a survey by the Council of Development Finance Agencies.

Under the pending legislation, at least 95% of food desert bond proceeds would have to be used to buy, construct, reconstruct, or renovate nonresidential real estate within 20 zones that have limited access to fresh produce.

The bill would establish such food desert zones within the cities of Atlanta, Baltimore, Birmingham, Chicago, Cincinnati, Cleveland, Detroit, Houston, Indianapolis, Kansas City, Mo., Los Angeles, Memphis, Milwaukee, Nashville, New Orleans, Philadelphia, Richmond, San Antonio, and St. Louis, as well as the District of Columbia.

"I support ... the movement for food access in America's food deserts," Rush said earlier this year.

In addition to providing federal incentives for the construction of food stores, Rush's bill would require the Treasury secretary to give Congress annual reports on the food desert bonds. It also would increase the tax credit that qualified businesses can claim for qualified rehabilitation expenditures.

So far, states have taken the lead in implementing programs to provide tax incentives or funding for food vendors in underserved areas.

Pennsylvania launched a program called the Fresh Food Financing Initiative in 2004 that uses a public-private partnership model to fund such projects. The commonwealth partnered with nonprofits and provided $30 million of commonwealth funds to support the initiative, which has funded more than 50 projects that are expected to provide more than 1.2 million square feet of retail food space across Pennsylvania, according to Gov. Edward G. Rendell.

Illinois and Louisiana recently created similar programs. Illinois will offer tax credits and exemptions for new and existing stores in order to mitigate food shortages in certain "food desert" areas. Louisiana established a financing program that will provide grants and loans to retailers to increase access to "fresh fruits and vegetables and other affordable healthy food in underserved communities."

New Jersey and New York are also currently considering similar funding programs, according to the U.S. Department of Agriculture.

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