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Home My WebLink AboutR32- Economic Development Agency CITY OF SAN BERNARDINO ECONOMIC DEVELOPMENT AGENCYORIGINAL FROM: Emil A.Marzullo SUBJECT: Designating the City of San Bernardino as a Interim Executive Director Recovery Zone under the American Recovery and Reinvestment Act of 2009 DATE: September 15,2009 Synopsis of Previous Commission/Council/Committee Action(s): On August 20,2009,Redevelopment Committee Members Johnson, Baxter and Brinker unanimously voted to recommend that the Mayor and Common Council consider this action for approval. ----- ----------- ------------------------------------------------------------------------------------------------------------- Recommended Motion(s): (_Mayor and Common Council) Resolution of the Mayor and Common Council of the City of San Bernardino designating the City of San Bernardino as a Recovery Zone for purposes of Sections 1400U-1, 140OU-2 and 140OU-3 of the Internal Revenue Code of 1986 ContactPerson(s): Brian Turnbull Phone: (909)663-1044 Project Area(s): All Ward(s): All Supporting Data Attached: 0 Staff Report 0 Resolution(s)❑ Agreement(s)/Contract(s) ❑ Map(s)❑ Letter(s) Funding Requirements: Amount: $ -0- Source: N/A Budget Authority: N/A Signature: Fiscal Revie `O Emil A.Marzullo,Interim xecutive Director s DeJes erim Administrative Services Director ------7--'-- -- ------------------ ------------------------- -- Com mission/Council Notes: ------------- ----------------------------------------------------------- --—---- ---. ... P\Agenda\Comm Dev Commission\CDC 2009\09-21-09 Recovery Zone Bond SR.doc COMMISSION MEETING AGENDA Meeting Date: 09/21/2009 Agenda Item Number: 321 ECONOMIC DEVELOPMENT AGENCY STAFF REPORT DESIGNATING THE CITY OF SAN BERNARDINO AS A RECOVERY ZONE UNDER THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 BACKGROUND: On February 17, 2009, Congress passed the American Recovery and Reinvestment Act of 2009 (the "Act") which provides for the issuance of Recovery Zone Economic Development Bonds ("RZEDBs") and Recovery Zone Facility Bonds ("RZFBs") by states, counties and large municipalities between 2009 to January 1, 2011. Based upon review of the Act, the City of San Bernardino (the "City") is eligible to issue bonds under the Act if it declares itself a"recovery zone" within the meaning of the Act. Internal Revenue Code of 1986, as amended (the "Code"), defines a "recovery zone" as (1) any area designated as having significant poverty, unemployment, rate of home foreclosures or general distress, (2) any area designated as economically distressed by reason of the closure or realignment of military installation pursuant to the Defense Base Closure and Realignment Act of 1990 and 3 an area for P g ( ) Y which a designation as an empowerment zone or renewal community is in effect. The Code and IRS Notice 2009-50 require, in part, that issuers "designate" eligible recovery zones based on certain specified criteria. For this purpose, any State, county or large municipality that receives a volume cap allocation for Recovery Zone Bonds may make these designations of recovery zones in any reasonable manner as it shall determine in good faith in its discretion. For purposes of the Code, the term "large municipality" means a municipality with a population of more than 100,000. Recovery Zone Economic Development Bonds 0 RZEDBs is defined as any Build America Bond issued before January 1, 2011, if (1) 100% of the available project proceeds of such issue are to be used for one or more qualified economic development purposes, and (2)the issuer designates such bond as counting against the issuer's volume limitation for such bond. A Build America Bond, which is also authorized under the Act, may be issued by cities, agencies and counties for public improvement projects with a taxable rate of interest. The issuer is then subsidized by the federal government in an amount equal to 35% of the interest cost on the Build America Bonds either by a tax credit to bondholders or payment to the issuer from the federal government for each year that debt service is payable. Build America Bonds can only be issued for the traditional public purposes for which tax exempt bonds could be issued such as for the construction of infrastructure and other public improvements. RZEDBs are a special type of Build America Bond. RZEDBs are comparable to the "direct pay to the issuer" Build America Bonds in that they are taxable governmental bonds except that they provide for a deeper Federal subsidy through the refundable tax credit paid to a State or local governmental issuer in an amount equal to 45% (rather than 35%) of the total coupon interest payable by the issuer to investors. The difference between Build America Bonds and RZEDBs which warrants a higher subsidy for RZEDBs is that RZEDBs have different program requirements regarding eligible uses of proceeds. These program -------------—--—----------- - - ------------------------------------------------------ P\ Sendu\Comm Dev Commimion\CDC 2nMN-21A Recovery Zone Bond SR d COMMISSION MEETING AGENDA Meeting Date: 09/21/2009 Agenda Item Number: 3 Z i Economic Development Agency Staff Report Recovery Zone Bonds Page 2 requirements mandate that a certain amount of the bond proceeds be used for one or more qualified economic development purposes within recovery zones. A qualified economic development purpose means expenditures for purposes of promoting development or other economic activity in a recovery zone, including capital expenditures paid or incurred with respect to property located in such zone, expenditures for public infrastructure and construction of public facilities and expenditures for job training and educational programs. Recovery Zone Facility Bonds By creating the RZFBs, the Act has created a new type of tax-exempt qualified private activity bond. A RZFB is a bond issued before January 1, 2011, if: (1) 95% or more of the net proceeds of the issue are used for recovery zone property, and (2)the issuer designates such bonds as counting against the issuer's volume limitation for such bonds. Recovery zone property means any property to which can generally be financed with tax exempt bonds if (1)the property was constructed, reconstructed, renovated or acquired by the taxpayer by purchase after the date on which the designation of the recovery zone took effect, (2) the original use of which in the recovery zone commences with the taxpayer, and (3) substantially all of the use of which is in the recovery zone and is in the active conduct of a qualified business of the taxpayer in such zone. A qualified business is any trade or business with the exception of(1) rental to others of real property within the recovery zone and (2) a trade or business consisting of any facility described in Code Section 144(c)(6)(B). The national volume cap is $10 billion for RZEDBs and $15 billion for RZFBs. California received $806,225,000 for RZEDBs and $1,209,338,000 for RZFBs. Of that amount, the City receives $7,068,000 for RZEDBs and $10,602,000 for RZFBs. The volume cap allocations are based on Local Area Unemployment Statistics ("LAUS") data for December 2007 and December 2008. There are special rules for substantial renovations and sale-leasebacks. The volume cap rules of Code Section 146 and the acquisition of existing property limitations of Code Section 147(d) do not apply. CURRENT ISSUE: The City has experienced significant poverty, unemployment, a high rate of home foreclosures, the impact of the national recession and financial crisis and the current fiscal crisis experienced by the State of California and local communities. Furthermore, the City has been negatively affected by the closing of the former Norton Air Force Base. Based upon these criteria, the City is authorized under the Code to designate a "recovery zone" for the purpose of issuing RZEDBs and RZFBs. All of the City has been effected negatively by the economy and the above mentioned factors. Thus, Agency Staff recommends designation of the entire geographic region of the City as a "recovery zone" which will allow the issuance of bonds for various projects throughout the City. ----------------------------------------------------- - -- ------------------------------------------------------------------------- P\Agendu\Cornnn vCommusion\CDC2009\09-21- Reoowe Zone Bond SR.doc COMMISSION MEETING AGENDA Meeting Date: 09/221/2009 Agenda Item Number: u, Economic Development Agency Staff Report Recovery Zone Bonds Page 3 ENVIRONMENTAL IMPACT: The action of creating a "recovery zone" does not meet the definition of a "project' under Section 15378 of the California Environmental Quality Act(CEQA). FISCAL IMPACT: There is presently no adverse fiscal impact to the City by the creation of a "recovery zone." Upon the issuance of various series of bonds,the impact upon the City will be determined at that time. RECOMMENDATION: That the Mayor and Common Council adopt the attached Resolution. Emil A. arzu utive Director ---------- ------------------------------------------------------------------------------------------------- PI\AgeodwConenDevCommission\CDC2009\09-21-09Raov Zone BondSRdoc COMMISSION MEETING AGENDA Meeting Date: 09/21/2009 Agenda Item Number: _g3 le- 1 RESOLUTION NO. COP 2 3 RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO DESIGNATING THE CITY OF SAN BERNARDINO 4 AS A RECOVERY ZONE FOR PURPOSES OF SECTIONS 1400U-1, 140OU-2 5 AND 140OU-3 OF THE INTERNAL REVENUE CODE OF 1986 6 WHEREAS, the City of San Bernardino, California (the "City") is a municipal corporation 7 and charter city, duly organized and existing pursuant to the provisions of the constitution of the 8 State of California; and 9 WHEREAS, Congress passed the American Recovery and Reinvestment Act of 2009 (the 10 "Act') which amends the Internal Revenue Code of 1986, as amended (the "Code") to authorize a 11 city to designate a "recovery zone" for the purpose of issuing Recovery Zone Economic 12 Development Bonds under Section.140OU-2 of the Code, and Recovery Zone Facility Bonds under 13 Section 140OU-3 of the Code; and 14 WHEREAS, pursuant to Section 1400U-1(b) of the Code, the term "recovery zone" means 15 (i) any area designated by the City as having significant poverty, unemployment, rate of home 16 foreclosures, or general distress, (ii) any area designated by the City as economically distressed by 17 reason of the closure or realignment of a military installation pursuant to the Defense Base Closure 18 and Realignment Act of 1990, and (iii) any area for which a designation as an empowerment zone or 19 a renewal community is in effect; and 20 WHEREAS, the City desires to designate the geographical area of the City a "recovery 21 zone" and at this time. 22 NOW, THEREFORE, IT IS HEREBY RESOLVED, DETERMINED AND ORDERED 23 BY THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO, AS 24 FOLLOWS: 23 Section 1. The Recitals contained hereinabove are true and correct and are incorporated 26 herein by this reference. 27 Section 2. The Mayor and Common Council of the City of San Bernardino ("Council') 28 hereby finds and determines that significant unemployment, poverty, rate of home foreclosures and l-al-D� P V SendukRewluioneUlewlufiomL0 NN.2I 09 Raovnry Zone MCC Kew&C 1 R3a I general distress exist throughout the City as a consequence of the recent housing market collapse, the 2 impact of the national recession and financial crisis and the current fiscal crisis experienced by the 3 State of California and local communities. 4 Section 3. For purposes of Sections 1400U-1, 140OU-2 and 140OU-3 of the Code, the 5 Council hereby designates the entire geographic region of the City as a recovery zone. The recovery 6 zone shall be identified as the "City of San Bernardino Recovery Zone." 7 Section 4. The Council, the City Clerk and any and all other officers of the City are 8 hereby authorized and directed, on behalf of the City, to do any and all things and to take any and all 9 actions, including execution and delivery of assignments, certificates, requisitions, agreements, 10 notices, consents, instruments of conveyance, warrants, and other documents which any of such 11 officers may deem necessary or advisable in connection with this Resolution and the consummation 12 of the transactions described herein. 13 Section 5. This Resolution shall take effect upon its adoption and execution in the manner 14 as required by the City Charter. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 P:V gendasVtesoWtp tuVtewlutuut2WM0931-09 P..v Zone MCC Reso.doc 2 1 RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO DESIGNATING THE CITY OF SAN BERNARDINO 2 AS A RECOVERY ZONE FOR PURPOSES OF SECTIONS 1400U-1, 140OU-2 3 AND 140OU-3 OF THE INTERNAL REVENUE CODE OF 1986 4 I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the Mayor and 5 Common Council of the City of San Bernardino at a meeting thereof, 6 held on the day of 2009, by the following vote to wit: 7 Council Members: Ayes Nays Abstain Absent 8 ESTRADA 9 BAXTER — 10 BRINKER 11 SHORETT — 12 KELLEY — 13 JOHNSON — 14 MC CAMMACK — 15 16 Rachel G. Clark, City Cierk 17 18 The foregoing Resolution is hereby approved this day of 2009. 19 20 21 Patrick J. Morris, Mayor City of San Bernardino 22 23 Approved as to Form: 24 2 By. 5 ames F. Penman, City Attorney 26 27 28 P Ra ve Zone MCC RUO.EOC