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Consent   1.M.
Regular City Council Meeting
Meeting Date:
09/14/2009
TITLE
Resolution designating a recovery zone and reserving bonding authority
PRESENTED BY:
Bruce McCandless
Department:
City Hall Administration
Presentation:

PROBLEM/ISSUE STATEMENT

In February 2009, Congress approved the American Recovery and Reinvestment Act (ARRA) to stimulate the US economy. One of the act's sections authorizes states and local governments to create recovery zones and to issue municipal bonds with favorable interest rate provisions. Billings is the only city in Montana to be authorized to participate directly in the project, which otherwise is being managed through counties.  The City may issue up to $17.9 million of recovery zone economic development bonds and up to $26.8 million in recovery zone facility bonds for eligible projects that will be financed by December 2010.  The Montana Dept. of Administration notified the City that it must create its recovery zone and reserve the bonding authority by resolution no later than October 1, 2009, if it wishes to participate in the program. The Council is being asked to consider adopting a resolution that designates the entire city as a recovery zone and reserves the allocated bonding authority.

ALTERNATIVES ANALYZED

The City Council may:
  • Adopt the attached resolution that designates the entire city as a recovery zone and reserve the allocated bonding authority;
  • Amend the attached resolution and designate a different recovery zone boundary and/or reserve less than the full allocation of bonding authority;
  • Disapprove the attached resolution. If the Council takes no further action, the bonding authority will revert to the state for reallocation to other, eligible local governments; or
  • Adopt a resolution that allocates all or a portion of the City's bonding authority to Yellowstone County.

FINANCIAL IMPACT

The City of Billing is authorized to issue up to $17.9 million of recovery zone economic development bonds and up to $26.8 million of recovery zone facility bonds. There are no costs and no benefits if the City does not use the bonding authority. The recovery zone economic development bonds may be used for almost any public capital project or infrastructure within the recovery zone or for job training and educational programs. The recovery zone facility bonds may be used to construct or improve buildings within the recovery zone for business use. Both types of bonds receive a 45% interest reimbursement from the U.S. Treasury, making the issuer's net cost much less than traditional municipal bonds.

RECOMMENDATION

Staff recommends that the City Council approve the resolution naming the entire city as a recovery zone and reserving recovery zone bonding authority.

INTRODUCTION

In February 2009, Congress approved the American Recovery and Reinvestment Act (ARRA) to stimulate the US economy. One of the act's sections authorizes states and local governments to create recovery zones and to issue municipal bonds with favorable interest rate provisions. Billings is the only city in Montana to be authorized to participate directly in the project, which otherwise is being managed through counties. The City may issue up to $17.9 million of recovery zone economic development bonds and up to $26.8 million in recovery zone facility bonds for eligible projects that will be financed by December 2010. The Montana Dept. of Administration notified the City that it must create its recovery zone and reserve the bonding authority by resolution no later than October 1, 2009, if it wishes to participate in the program. The Council is being asked to consider adopting a resolution that designates the entire city as a recovery zone and reserves the allocated bonding authority.

SUMMARY

One of the ARRA's purposes is to relieve the fiscal distress that many states are experiencing.  Section 1401 of the Act creates a new economic recovery program for states and certain localities that offers substantial savings on bond issues.  The Congress allocated $10 billion for the recovery zone economic development bonds and $15 billion for recovery zone facility bonds.  The two programs encourage cities and counties to issue bonds for use within locally designated recovery zones, increasing investment and theoretically, employment, within the distressed zones.  The funding is allocated based on job losses between December 2007 and December 2008.  Montana is allocated $90 million of bonding authority.  The US Treasury and IRS determined the local government allocations.  Counties that recorded job losses in 2008 and the City of Billings received an allocation.

Recovery zone economic development bonds can be issued for practically any governmental capital expense.  Local projects that might be financed with the bonds include a new library or library relocation and improvements to the Gainan's building, the inner belt loop and the airport parking structure.  The library project would be a general obligation bond, which requires voter approval.  That vote could occur as early as spring, 2010.  After receiving the 45% interest rate reimbursement, a GO bond would have an effective interest rate of less than 3.5%.  The inner belt loop and the airport parking structure would be revenue bonds because they would have a dedicated funding source (arterial fee and customer service fee).  Those revenue bonds would probably be issued with an effective rate of 4%. 

The Recovery Zone facility bonds may be used to finance the construction, reconstruction or purchase of nearly any owner occupied business property (excluding residential investment property) within the recovery zone.  The staff is unaware of any potential applicants for the financing at this time, but designating the entire city as a recovery zone and reserving the bonding authority provides time to identify and develop such a project.           

The Montana Dept. of Administration (DoA) is administering the federally authorized bonding authority.  It requires counties and the City of Billings that intend to use the bonding authority to designate a recovery zone and retain the bonding authority by October 1, 2009.  If that resolution is not delivered to the DoA by October 1 or if the county/city waives the authority, the DoA will reallocate the authority through a competitive process.  Counties and the City of Billings may also transfer the authority to another eligible entity.  For example, Yellowstone County's allocation is $6.65 million for economic development and almost $10 million for facility bonds.  That allocation could be transfered to the City of Billings to increase its authority or the City's allocation could be transfered to Yellowstone County.  Since the City has several high cost projects that will potentially require financing within a year, staff recommends that the Council reserve the authority for the City's use and to designate the entire city as a recovery zone in order to provide maximum flexibility for the bonding authority.  The federal legislation defines a recovery zone as "any area designated by the issuer as having significant poverty, unemployment, rate of home foreclosures or general distress" and unless the Council chooses to identify an area within the city that is particularly distressed, it would be appropriate to designate the entire city as a recovery zone.  The City must also provide the DoA with quarterly status reports that show progress toward a bond issue before the deadline of December 31, 2010.   

Attachments