Tax-Exempt Financing Available to Private Entities in 2010
Under the American Recovery and Reinvestment Act of 2009, private entities are authorized to finance capital expenditures at tax-exempt interest rates, if financed prior to January 1, 2011. This type of financing, normally reserved for governments and certain privately-owned facilities, provides a significant savings in the cost of financing a project. The location of capital projects financed must be in a designated "recovery zone." With much of the allocation unused and five months until it expires, many states are facilitating the redistribution of the unused allocation to additional areas and designation of recovery zones. Each state received at least $135 million in authorization and as much as $1.2 billion. A private entity can, with an allocation, finance capital expenditures with "recovery zone facility bonds" if:
- The property is constructed, reconstructed, renovated, or purchased by the private entity after the date of the designation of the recovery zone;
- The original use of the property in the recovery zone commences with the private entity;
- Substantially all of the use of the property is in the recovery zone and in the active conduct of the business of the private entity.
This type of financing may be used for any trade or business, except residential rental facilities, golf courses, country clubs, massage parlors, hot tub facilities, suntan facilities, racetracks or other gambling facilities, or liquor stores.
In Notice 2009-50, the Internal Revenue Service provides guidance for Recovery Zone Facility Bonds here. To determine the amount of allocation made to counties and large municipalities in each state, see the spreadsheet available here.