The American Recovery  & Reinvestment Act created a program to support economic development.  It is called the Recovery Zone Economic Development Bond (RZEDB). Due to the state’s decrease in employment compared to the national rate of decrease California received the largest allocation with $806.2 million in RZEDB.  The counties and large cities within California (with populations exceeding 100,000) were then given a suballocation.

RZEDBs are intended to promote job creation and economic recovery in areas referred to as recovery zones.

What is a Recovery Zone?

Recovery zones generally include areas designated by the local jurisdiction as having the following characteristics:

•    Significant poverty, unemployment, rate of home foreclosures or general distress.
•    Areas impacted by a military base closure or realignment
•    Empowerment Zone
•    Renewal Community

The federal government has given the cities and counties some latitude as a recovery zone can be designated in any reasonable manner using its good faith and discretion.

The Recovery Zone Economic Development Bond Program sunsets on December 31, 2010.

Recovery Zone Economic Development Bonds

Recovery Zone Economic Development Bonds allows counties and large municipalities to borrow at a lower cost by subsidizing the interest cost by an amount equal to 45% of the interest payable.  RZEDBs are used for promoting, development or other economic development activity.  This includes the construction of public infrastructure and public facilities.  RZEDBs may also be used to fund expenditures for job training and educational programs.  This program is designed for new projects or programs only.  Refundings are not allowed.

Interest paid to RZEDB bondholders is taxable.  However, the federal government will reimburse the county or city 45% of the interest paid on these bonds.  This results in significantly lower borrowing costs to the issuer.

How Can the California Enterprise Development Authority Help?

The RZEDB allocations received by many counties and cities (see attached list) are relatively small and may not warrant a financing that involves the public offering of bonds or certificates of participation and all that accompanies such a financing.  CEDA can assist counties and cities by facilitating a private placement financing that would provide the necessary funds for an important public project without all of work and substantial cost of a publicly offered issue.  A private placement structure can eliminate the need for an official statement, rating, underwriting and other aspects of a publicly offered issue and can potentially result in faster funding.

Mona Dmitrenko, Executive irector, California Enterprise Development Authority

Office: (916) 448-8252 ext.16  email: monad@caled.org