Recovery Zone Facility Bonds (RZFBs) are a new type of exempt facility bonds which may be used to finance certain recovery zone property (RZ Property), including commercial and distribution property, for use within recovery zones (RZs).
- RZFBs were created by the American Recovery and Reinvestment Act of 2009 (ARRA) as Section 1400U-3 of the Internal Revenue Code of 1986.
- ARRA imposed a national bond volume cap of $15 billion, which is allocated among the states and counties and large municipalities (defined as having a population of more than 100,000) based on relative declines in employment in 2008.
- Ohio’s total allocation is $633,955,000. Of that amount, Akron, Cincinnati, Cleveland, Columbus, Dayton and Toledo get more than $100 million.
In order to qualify as an RZFB:
- 95% or more of the net proceeds are to be used for RZ Property;
- The bond must be issued before January 1, 2011; and
- The issuer designates such bond as an RZFB.
An RZ is:
- Any area designated by the issuer as having significant poverty, unemployment, rate of home foreclosures, or general distress
- Any area designed by the issuer as economically distressed by reason of the closure or realignment of a military installation; and
- Any area for which a designation as an empowerment zone or renewal community was in effect as of February 17, 2009.
RZ Property is any depreciable property if:
- Such property was constructed, reconstructed, renovated or acquired by purchase by the taxpayer after the date on which the designation of the RZ took effect;
- The original use of which in the RZ commences with the taxpayer; and
- Substantially all of the use of which is in the RZ and is in the active conduct of a qualified business by the taxpayer in the RZ.
- “Qualified business” is defined in the Code as “any trade or business except residential rental property, private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling or any store the principal business of which is the sale of alcoholic beverages for consumption off premises.
Existing rules related to volume cap and the prohibition on financing existing property do not apply to RZFBs. The information reporting requirements (8038) apply.
RZFBs may be issued by the state, political subdivisions, including Ohio port authorities, and entities empowered to issue bonds on behalf of any such entity, as well as eligible issuers in conduit financing issues.
- States, counties and large municipalities receiving RZFB volume cap may allocate such volume cap to ultimate beneficiaries in any reasonable manner as they shall determine in good faith in their discretion.
- A county or large municipality may waive any portion of a volume cap allocation, and the state is authorized to reallocate the waived volume cap in any reasonable manner as it shall determine in good faith in its discretion.
- The eligible issuer may issue RZFBs based on a volume cap allocation it receives itself or by a conduit borrower or “ultimate beneficiary” of the issue of the bonds so long as the RZ Property financed with the bonds is located within, or attributable to both the jurisdiction of the issuer of the bonds and the jurisdiction of the entity authorized to allocated the volume cap to the issuance of the bonds.