Acting ahead of guidance from the U.S. Treasury, New York City yesterday announced it had designated areas that could use recovery zone facility bonds, a new tax-exempt bond program created by the federal stimulus package.
The New York City Industrial Development Agency and the New York City Capital Resource Corp. would issue the bonds, which the city expects to total approximately $200 million. The federal government has not yet set the total allocation of recovery zone bonds for either the city or the state.
Recovery zone facility bonds are a new category of private-activity bonds that are not subject to existing private-activity bond caps.
A Treasury official this week said that guidance would come in the near future for the bonds that can be used by commercial enterprises for the acquisition, construction and renovation of property within certain areas. The program expires at the end of 2010.
The IDA and CRC boards gave preliminary approval on Tuesday to amend their uniform tax-exempt policy to accommodate the program and that the board approved the designated zones.
The recovery zones comprise areas already designated for subsidy programs including as New York State Empire Zones, federal Empowerment Zones, highly distressed areas as defined by state statute, and distressed areas eligible for the federal new markets tax-credit program. Maps of the designated zones show a patchwork of swaths throughout the city, including large sections of the Bronx as well as Times Square in Manhattan. The statute defined the zone broadly to include areas with significant poverty, unemployment, foreclosures or general distress, as well as areas previously designated as empowerment zones.
"We can't say for sure at this time whether guidance will require any changes in the designations, but it's not likely that the Treasury or IRS will change the criteria in any material way from the statute," said Jeremy Spector a partner at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC. "I suppose it would be a good test case for the rest of the country."
The stated intent of the federal law appeared to "allow issuers broad discretion in the hopes that these bonds will provide funds to stimulate economic activities in these depressed areas," he said.
David Lombino, spokesman for the New York City Economic Development Corp., said that the city was not concerned about the eligibility of the zones. "The Treasury said designation of recovery zones was in discretion of the issuer," he said in an e-mail.
The issuers will begin accepting applications for projects in the zones seeking bond funding immediately and Lombino said bonds could be issued by the end of the summer. Businesses wishing to access the program must have their underwriters or placement agent, as well as investors, in place when they submit their final application to the conduit issuers, according to program guidelines in the resolution to approve the zones. The issuers' guidelines specify that projects should be between $20 million and $100 million, though projects of less than $20 million could be considered.
"Anyone who has a project that is stalled due to current economic challenges should apply for this program," EDC president Seth Pinsky said in a press release. "We intend to use this program to attract applications for a diverse array of projects."
One of the criteria for the types projects to be considered for financing through this program is that it contribution to the diversification of the city's economy. Mayor Michael Bloomberg and Gov. David Paterson have both recently pushed the diversification of the city and state economies due to the fiscal troubles caused in part by a heavy reliance on the financial sector, which saw record losses last year.