Recovery Zone Bond Allocation and Guidelines Released

During his visit to Kalamazoo, Vice President Biden announced that Michigan will receive a $2 billion allocation for Recovery Zone Bonds intended to attract jobs and private investment. California and Michigan (respectively) received the highest allocations, with Michigan receiving the most per capita. This funding was further allocated to counties and seven major cities, with Oakland and Wayne Counties receiving the largest share. Local governmental units can release any unused allocations to the state for pooling and reallocation, with the intent that it would be used for the overall economic development benefit of Michigan. 

Since this announcement, the Michigan Department of Treasury has released further guidance and clarification on the use of these bonds, and will be holding a Webinar later this month to provide more information. They will be posting information to their Web site as materials are finalized. We will provide updates, and you can watch Michigan.gov/MMBA.

The Recovery Bond allocation was split between two types of bonds: Recovery Zone Economic Development Bonds (RZEDB) and Recovery Zone Facility Bonds (RZFB).  Michigan received authorization for approximately $773 million of RZEDB, out of a national allocation of $10 billion. We have also received approximately $1.16 billion of RZFB volume allocation from a national allocation of $15 billion. To see the entire list of allocations by county, visit http://www.treas.gov/press/releases/docs/rzballocation-local_AR-ZS.pdf.

RZEDBs are to be issued as taxable Build America Bonds, eligible for a 45% interest subsidy paid to the issuer. Economic development bonds are intended to allow state and local governments to finance projects such as infrastructure improvements and job-training programs.

RZFBs are private activity bonds issued on behalf of private companies. These bonds are similar to Private Activity Bonds, but have more flexibility. RZFBs allow tax-exempt financing for projects which historically would not qualify either due to type or size of project (large manufacturing plants, distribution centers, hotels, research parks, etc.). Tourism and redevelopment of Brownfields are two major areas that might be targeted for this financing.

It should be noted that this allocation authorizes the issuance of reduced interest rate bonds, it does not provide guarantees. Bonds must be marketable, meaning that an identified and secure source of repayment must be identified.