On May 26, 2009 the City Council unanimously approved a request to designate the City of Peoria as a Recovery Zone, which enables government and the private sector to use low cost bonds for a variety of improvements and projects.
Action Requested: RECOMMENDATION FROM THE ECONOMIC DEVELOPMENT STAFF AND THE INTERIM CITY MANGER REQUESTING THAT THE CITY COUNCIL ADOPT THE ATTACHED CITY OF PEORIA RECOVERY ZONE MAP DESIGNATING THE CITY OF PEORIA A RECOVERY ZONE FOR PURPOSES OF UTILIZING RECOVERY ZONE BOND FINANCING AND TO AUTHORIZE THE LEGAL DEPARTMENT TO DRAFT AN ORDINANCE.
Background: The American Recovery and Reinvestment Act of 2009 (ARRA) made a number of changes to the tax code that pertain to tax-exempt revenue bonds. Taken as a whole, the changes in the stimulus bill mark the most significant revisions to the municipal bond market since the 1986 Tax Reform Act.
A potential immediate opportunity for the City of Peoria and its businesses relates to the creation of two new categories of bonds. The two new categories are, (1) taxable tax-credit governmental bonds issued as Recovery Zone Economic Development Bonds (“RZEDBs”), and (2) private-activity bonds issued as Recovery Zone Facility Bonds (“RZFBs”). The RZEDBs are similar to the Build America Bonds in that the issuer can receive a direct pay credit from the Treasury Department equal to 45% of the interest payable, instead of the 35% permitted for a
Build America Bond.
The proceeds of these two new categories of bonds are to be invested in “Recovery Zones”. In order for the City of Peoria to take advantage of these new opportunities, the City needs to designate an area within the City as its Recovery Zone. Staff is recommending that the entire City of Peoria be designated as a “Recovery Zone”. A copy the map is attached.
According to the ARRA, the recovery zone must:
1. have significant poverty, unemployment, general distress, or rate of home foreclosures;
2. be any area for which a designation as an empowerment zone or renewal community is in effect; or
3. an area designated by the issuer as economically distressed by reason of the closure or realignment of a military installation pursuant to the Defense Base Closure and Realignment Act of 1990.
The proposed City of Peoria Recovery Zone is based on: (See Attachments)
1. Unemployment Rate
2. Poverty Rate
3. Home Foreclosures
4. Neighborhood Stabilization Target Areas Map
Eligible expenditures:
New money capital expenditures for property in a recovery zone
Public infrastructure (wherever located) that promote economic activity in a recovery zone
Expenditures for job training and educational programs
The City of Peoria issues bonds for a variety of projects throughout the year. The City issues G.O. or revenue bonds for its own governmental purposes. The issuance of RZEDBs could provide the City with a more economical alternative for financing its own governmental bonds. The City also provides revenue bond financing for housing, manufacturing and industrial companies which may be either tax-exempt or taxable. The creation of RZFBs broadens our ability to issue tax-exempt revenue bonds for projects that previously would have been done on a taxable basis. For example, if a company were proposing to build a mixed-use commercial building within the Peoria Recovery Zone, we would now be able to issue tax-exempt revenue bonds at a lower interest rate for the project.
The use of Recovery Zone Bonds is just one piece of our economic recovery efforts. As Economic Development Staff develops potential users for the bonds, we will bring forth the requests to the City Council just as we currently do for other forms of revenue bond financing.
RECOMMENDATION: It is staff’s recommendation that the attached City of Peoria Recovery Zone Map designating the City of Peoria a Recovery Zone be approved.
Financial Impact: Broadens the City’s ability to issue tax-exempt revenue bonds for projects that previously would have been done on a taxable basis. Provides lower cost borrowing for private sector development.
NEIGHBORHOOD CONCERNS: None
Impact if Approved: The City would now be able to issue tax-exempt revenue bonds at lower interest rates for projects. Private borrowers would be able to access lower interest bonds.
Impact if Denied: The City would not be able to issue tax-exempt revenue bonds at lower interest rates for projects.
RELATIONSHIP TO THE COMPREHENSIVE PLAN: The establishment of the City of Peoria Recovery Zone is consistent with the Comprehensive Plan.
VISION: WE HAVE A HEALTHY, THRIVING ECONOMY.
GOAL: A. Provide an economic environment that supports existing and new businesses.