American Recovery and Reinvestment Act (ARRA) of 2009 Bonding Authority
ARRA of 2009 was signed into law on February 17, 2009 and created several new types of
bonding programs and expanded several existing programs.
Build America Bonds
ARRA created a new form of bonds known as BABs. BABs are taxable bonds and, through
Federal subsidies or tax credits, are intended to reduce municipal borrowing costs.
The Act created two types of BABs. The first type provides a Federal subsidy to investors equal to 35% of the interest
payable by the issuer ("Tax Credit BABs"). The second type provides a direct Federal subsidy that will be
paid to state and local governments in an amount equal to 35% of the interest ("Direct Payment BABs").
Both types must be issued before January 1, 2011.
Tax Credit BABs provide a 35% interest subsidy (net of the tax credit) to investors
that results in a Federal subsidy to the issuer equal to approximately 25% of the total
return to the investor (interest and the tax credit). Tax Credit BABs may be issued to
finance any governmental purpose for which tax-exempt government bonds (excluding private
activity bonds) could be issued including current refundings and one advance refunding.
The bonds must comply with all requirements applicable to the issuance of tax-exempt
Direct Payment BABs offer a larger Federal subsidy than Tax Credit BABs; however,
they are subject to more restrictions. In general, Direct Payment BABs may be issued to
finance capital expenditures for any governmental purpose for which tax-exempt government
bonds may be issued, excluding private activity bonds and excluding refunding bonds.
Costs of issuance paid from Direct Payment BAB proceeds are limited to 2%. In order
to receive a Federal subsidy, issuers will be required to submit a payment request
form no earlier than 90 days and no later than 45 days before each interest payment
date. Issuers will receive the requested payment within 45 days of the date the form is
filed with the Internal Revenue Service. In the future, the payment procedures may be
changed to an electronic platform.
See also IRS Notice 2009-26
Recovery Zone Economic Development Bonds (RZEDB)
RZEDBs are similar to Build America Bonds in that interest on the bonds is taxable but
the federal government provides issuers with a payment equal to 45% of the total
interest payable to investors. Texas was allocated the minimum of $90,000,000 in RZEDB
authority across 16 large municipalities and 52 counties. RZEDBs can be used to finance
certain “qualified economic development purposes.” Bond authority expires at the end
of 2010. See IRS Notice 2009-50
for allocations and more detailed guidance.
Recovery Zone Facility Bonds (RZFB)
RZFBs are tax-exempt private activity bonds that do not have any direct subsidy but
instead offer lower interest rates typically associated with tax-exempt bonds. Texas
was allocated the minimum of $135,000,000 in RZFB authority across the same 16 large
municipalities and 52 counties as RZEDBs. RZFBs may be used to finance certain
“recovery zone property.” Bond authority expires at the end of 2010.
See IRS Notice 2009-50
for allocations and more detailed guidance.
Qualified Zone Academy Bonds (QZAB)
QZABs are bonds that school districts can use to save money on school renovation
projects. The program is designed to provide tax credits to bond holders that are
approximately equal to the interest that states and communities would ordinarily
pay the holders of taxable bonds. ARRA increased the amount of QZAB volume cap
nationwide resulting in Texas having $132,788,000 in volume cap available for 2009.
Bond authority expires at the end of 2010. See IRS
Notice 2009-30 for further details.
Qualified School Construction Bonds (QSCB)
QSCBs are a new category of tax credit bonds to be used for public school
construction, rehabilitation, and repair. The tax credit is intended provide for
substantially interest-free borrowing by issuers. Texas is allocated $538.6 million
for 2009. Bond authority expires at the end of 2010. See
IRS Notice 2009-35 for further details.
Qualified Energy Conservation Bonds (QECB)
ARRA increased the QECB volume cap by $2.4 billion to a total of $3.2 billion.
QECBs can be used for qualified conservation purposes and Texas was allocated
$252,378,000. See IRS Notice 2009-29 for further details.
Clean Renewable Energy Bonds (CREB)
ARRA increased the CREB volume cap by $1.6 billion for a total national volume
cap of $2.4 billion. Allocations of volume cap are given by the IRS to public power
providers, cooperative electronic companies, or governmental bodies.
See IRS Notice 2009-33 for further details.