Maryland County to Tap Nearby RZFB Capacity

WASHINGTON — Washington County has been the only local government in Maryland to issue all of its allocated recovery zone facility bonds, and now it wants to squeeze the leftover RZFB juice from its neighbors too, just before the program expires at the end of the year.

RZFBs, which are tax-exempt and similar to private-activity bonds, generally allow states and localities to borrow at lower costs to promote job creation and economic recovery in economic recovery zones, particularly those affected by significant declines in employment. The program, created by the American Recovery and Reinvestment Act in February 2009, will expire on Dec. 31 unless it is extended by Congress.

Overall, RZFBs have been far less popular than recovery zone economic development Bonds, which are taxable, direct-pay bonds that provide issuers with subsidy payments equal to 45% of their interest costs from the federal government.

About $1.33 billion of RZFBs have been issued nationwide, compared to $4.13 billion of RZEDBs nationwide, $56.3 million of which were issued in Maryland. according to Thomson Reuters data, which does not track private placements.

So far, Washington County has closed two RZFB deals in which the bonds were privately placed: $5.2 million for an eye care center and $6.5 million for a hanger complex for a defense contractor company. These deals have left the county with about $2.3 million of the $13.96 million of RZFBs that were allocated to it.

But the county has one project remaining ­— a $7.5 million women’s health center. To complete that financing, the county will tap allocations from two neighbors, Frederick and Allegany counties.

These two counties, having no projects of their own for RZFBs, were cajoled by a sense of “team spirit” to transfer their allocations to the state so that Washington County could get its women’s center built, said Gregory Cole, executive director of the Maryland Industrial Development Financing Authority.

“If you don’t have a project, and somebody else does, in the best interest of the state, shouldn’t you put it into the department where it can be utilized?” Cole said.

The two counties transferred their allocations to the state, which must now issue the RZFBs on behalf of the Washington County project. MIDFA, which serves as the state’s private-activity bond issuer and was given the RZFB program, will issue the RZFBs during the next few days and the bonds will be privately placed with Susquehanna Bank. Though small in dollar size, Washington’s three RZFB deals will stimulate the local economy, according to the county. The projects could create almost 250 jobs, it estimates.

Washington has been successful with the RZFB program because its projects appealed to investors, Cole said. Other counties had projects “they loved,” but bankers did not see the projects as “financeable,” he said.

Cole suggested the RZFB program was not as successful as it could have been because of the way it was structured. By allocating the RZFBs directly to counties and large cities, the private-activity bond process “was bypassed,” he said. The Treasury was “ignoring the basic fact that most counties don’t do their own bond issuances” because they access the market so infrequently, Cole said. This “created a sense of confusion” among local governments, which could not tell the difference between realistic projects and those investors would ignore.

Washington County weeded out some unrealistic projects before settling on these three. Timothy R. Troxell, the executive director of the Hagerstown-Washington County Economic Development Commission, said a committee from the county helped pick the successful projects. Troxell also helped pitch the projects to investors.

“Washington County was very proactive,” Cole said. “Tim worked at it very hard [and] saw an opportunity to make sure [the RZFBs] got utilized.”

As for the rest of Maryland, the state’s $313 million for RZFBs might be squandered unless the program is extended. Cole said there are up to $119 million of  RZFBs in the pipeline, but it’s not clear whether they will be done in time.

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