Recovery Zone Facility Bonds

Published by: Admin Department
Date Posted: 9/9/2009

Recovery Zone Facility Bonds are a new type of exempt facility bonds created in the American Recovery and Reinvestment Act of 2009 (ARRA – aka the Stimulus).  

These bonds dramatically broaden financing opportunities for corporate, for-profit borrowers with capital infrastructure projects. Whereas manufacturing concerns are the only type of for-profit business that qualifies for traditional tax-exempt financing under the Federal Tax Code, the new Recovery Zone Facility Bonds may be used by manufacturers, distributors, service providers and retail businesses.  Please click here for an application packet.

 Recovery Zones:

  •  Areas in our country having significant poverty, unemployment, rate of home foreclosures or general distress.
  •  Lake County met the qualifications for designation as a Recovery Zone, based on the county’s declining employment during 2008.
  • Illinois’ total allocation is $1,000,457,000 and of that amount Lake County’s share is $59,581,000.
  • The Lake County Board approved Resolution 09-1797 on August 11, 2009 authorizing this designation and enabling the County to issue Recovery Zone Facility Bonds. 
  • The Lake County Board also charged Lake County Partners to work with the County to market and assist with the use of these bonds.  

Here are the primary provisions of Recovery Zone Facility Bonds:

  • Qualified businesses include most for-profit businesses, including manufacturing, distribution, service providers, and retail. 
  • In Section 1400U-3 of the Internal Revenue Code, a qualified business is defined 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 principle business of which is the sale of alcoholic beverages for consumption off premises.”        
  • The Recovery Zone Facility Bonds have the same benefits to the qualifying business as traditional Industrial Revenue Bonds. Investors purchase these bonds as tax-exempt investments. The bonds support a loan to the qualifying business that typically has an interest rate well below market rates, because of the tax savings allowed to the bond purchasers.
  • Qualified property is any depreciable property which a qualified business purchases, constructs, or renovates after a “Recovery Zone” is designated (the date President Obama signed the ARRA bill into law, February 17, 2009).
  • Substantially all of the use of the property must be in the Recovery Zone, and must be actively used by qualified business. 95% of the proceeds of the bonds must be used for Recovery Zone property.
  • The original use of the property must commence with the taxpayer, with an exception for a purchase / rehab project. Acquisition of existing property is allowed, provided that the substantial rehabilitation and sale-leaseback rules under the enterprise zone bond rules are met: 
  • The amount of the renovations are at least equal to the adjusted basis of the facility, and the renovations must be completed within a 24-month period beginning at a date after February 17, 2009.
  • The Sale-Leaseback rule allows a property constructed under a sale-leaseback arrangement to be treated as placed in service after commencement of the leaseback period.
  •  Recovery Zone Facility Bonds must be issued before January 1, 2011.  

For additional information and discussion on this topic please contact: Frank Brisbois, Interim President, Lake County Partners: 847-247-0137 ext. 225 or [email protected]