WASHINGTON — Virginia has established a set of deadlines for when its counties and large municipalities must determine how much of their recovery zone bond allocations they can use, as well as a framework for recovering and redistributing unused bond authority.
Gov. Tim Kaine issued an executive order earlier this month that established Wayne Turnage, his chief of staff, as reallocation director of the recovery zone bond program to ensure bond allocation does not linger unused in certain areas and instead is reallocated to areas with ready-to-go projects.
Virginia received a total of $104.396 million of recovery zone economic development bonds and $146.6 million of recovery zone facility bonds, but the Treasury Department sub-allocated that authority to every county and large municipality in the state. Those allocations expire at the end of 2010.
“The goal is to make sure if we turn capacity back, we don’t have projects waiting that could have used that capacity,” Virginia Finance Secretary Richard Brown said Friday. “This reallocation mechanism will allow those localities that are not going to use, or could run into trouble with the issuance of these things, to have those allocations reallocated to other areas and projects that can use them.”
Under the order, every county and large municipality has to file a notice of intent with Turnage by Nov. 2, identifying how much of its bond authority it plans to issue.
Any unreserved allocation will be reclaimed by the state, and failure to file a notice with the state will be considered a waiver of a locality’s entire allocation.
By Dec. 15, every locality must file a project verification report to prove plans are underway. Localities can submit documentation showing approval for a recovery zone project, a bond counsel’s opinion, or a commitment letter from a purchaser or underwriter of the bonds as proof.
Any reserved allocations must be issued by March 15, and localities must provide the reporting form for the bonds they filed with the Internal Revenue Service to the commonwealth within 30 days of issuance.
The order also charges Turnage with developing a system where recovered allocations are reallocated to maximize job creation and infrastructure development.
The RZB program permits states, counties, and large municipalities to issue two new types of bonds to finance economic development projects: $10 billion of recovery zone economic development bonds and $15 billion of recovery zone facility bonds.
Recovery zone economic development bonds are like the direct-pay Build America Bond program, which permits municipal issuers to sell taxable debt and receive a cash payment from the federal government equal to 35% of their interest costs.
RZEDBs differ in that they provide issuers with payments equal to 45% of interest costs and must be used to finance “qualified economic development purposes” within designated “recovery zones.”
Recovery zone facility bonds, or RZFBs, function similarly to exempt facility private-activity bonds, but must be used to finance “recovery zone property” in recovery zones, which are areas that experienced high increases in unemployment in 2008.