Quite the stimulus
Kent County and the city of Grand Rapids are eligible to issue $133 million in two types of federal bonds that emerged from the American Recovery and Reinvestment Act of 2009, better known as the economic stimulus program, which Congress passed in February.
The county has been allotted $36.5 million in Recovery Zone Economic Development bonds and $54.8 million in Recovery Zone Facility bonds for a total of $91.3 million. The city has been allocated $16.7 million in RZED bonds and $25 million in RZF bonds for a total of $41.7 million.
The RZED bonds can help finance public infrastructure and building projects. The RZF bonds can assist business owners with construction and renovation projects and property purchases. Industrial, commercial and retail businesses can qualify under the program through the city and the county.
“It is the county’s intent to act as a conduit in the allocation of this bonding authority to private interests. Bonds marketed under this program may be issued by the Michigan Strategic Fund,” said County Administrator and Controller Daryl Delabbio.
“The county, in this instance, would not place its limited full faith and credit pledge on these bonds and there would be no financial liability incurred by the county from participation in this program,” added Delabbio.
All businesses applying for the RZF bonds, though, would have to have their projects come before county commissioners. The Right Place has offered to review all applications made with the county. Businesses have to be creditworthy and, if approved, would be responsible for finding bond buyers.
The rules are the same for business owners that would apply to the city.
The county is considering applying for the RZED bonds to finance its jail renovation, which is expected to cost up to $30 million.
County Fiscal Services Director Robert White told the Finance Committee last week that the RZED bonds require “prevailing wages” be paid on any public project financed through the federal securities. Otherwise, he said, the bonds are similar to other debt issuances.
The interest earned from the RZED bonds is taxable to holders, though. Taxable bonds usually mean a municipality has to offer a higher rate to entice buyers in order to make up for the tax payment. But the federal government will reimburse a municipality 45 percent of the interest it pays from these bonds, which should lower the actual cost of the RZED bond to that of a standard tax-exempt security.
White said the county plans to go to the bond market for the jail project in December or January.
The RZF bonds are tax exempt and can be used by businesses to finance developments that traditionally don’t qualify for tax-free securities — like hotels, factories and distribution centers. Apartment houses, casinos and golf courses are a few of the projects the bonds won’t finance.
Both bonds are available here because the county and city have been hurt economically from the ongoing recession. Both have high unemployment figures and home-foreclosure problems.
Unemployment across the county reached 12.5 percent in June, up from 7.1 percent the previous June. The June jobless rate in Grand Rapids was 17 percent, higher than the 15.4 percent recorded for the state that month. The unemployment numbers don’t include those who have given up looking for work. Including those individuals would push all the rates higher.
“Certainly, when you look at the state and local unemployment rates, those are significant,” said White.
As for home foreclosures, RealtyTrac reported that 10,408 had been filed in the county from January 2008 through June 2009. The California-based firm said 4,178 filings had been made just over the first six months of this year in Grand Rapids and Wyoming.
But before the county and city can qualify for their bond allotments, both commissions have to declare their respective areas as Recovery Zones.
County commissioners are set to do that on Thursday, following last week’s declaration by the Finance Committee. Economic Development Director Kara Wood said city officials will discuss the matter at Tuesday’s meeting of the Economic Development Project Team.
The stimulus program has earmarked $10 billion for RZED bonds and $15 billion for RZF bonds nationwide. Michigan has been allotted $773 million in RZED bonds and almost $1.16 billion in RZF bonds.
Besides Grand Rapids, the cities of Ann Arbor, Detroit, Flint, Lansing, Sterling Heights and Warren are the only others in Michigan that have been given bond allotments. The bond program remains in effect through 2010.