IRS Outlines Tribal Economic Development Bond Allocation
After months of anticipation, the IRS explained last week how tribes can take advantage of the new tax exempt Tribal Economic Development Bonds in its Notice 2009-51. Announcing a $2 billion volume cap, the IRS explained how it will allocate bond volume under IRC § 7871, and outlined the procedure and requirements for tribes to take advantage of the American Recovery and Reinvestment Act of 2009.
Most of the news is good. Traditionally, tribal governments have been hampered by the requirement that tax exempt bonds be used only to finance essential government functions. New § 7871(f) expands the scope of tax-exempt bond financed projects to most tribal economic development projects. Notably, the bonds may not be used to finance gaming facilities, or projects located outside of Indian reservations. The geographic requirement will prevent some tribes from being able to finance some off-reservation economic development, which will adversely impact those tribes with small land bases. That, however, might be the policy goal behind both the geographic requirement and the gaming exception.
Tribes need to have their applications in by August 15, 2009, to take advantage of the first $1-billion-tranche. The first allocation, of no more than $30 million per tribe, must be issued by December 31, 2010. In other words, those tribal governments wishing to take advantage of the Recovery Act should be filling out the bond applications now. Unless projects are relatively well-formed, it will be difficult to take advantage of the financing plan disclosure requirements.
Such financing plans must include:
• A reasonably detailed description of the plan of financing for the project, including all reasonably expected sources (e.g., a public offering through a named underwriter or a private placement to a named institution) and uses of financing, including financing from the Tribal Economic Development Bonds and from other sources;
• The status of all financing, including the name and addresses of all entities expected to provide any financing;
• The anticipated date of issuance of the Tribal Economic Development Bonds and any expected purchasers of the Tribal Economic Development Bonds;
• The sources of security and repayment for the Tribal Economic Development Bonds;
• The aggregate face amount of Tribal Economic Development Bonds expected to be issued for the project; and
• The issuer’s reasonably expected schedule for spending proceeds of the Tribal Economic Development Bonds.
Presumably, those tribes who have anticipated being able to take advantage of the first allocation will be positioned to provide the above information (and other required disclosures) ahead of the August 15 deadline. For those tribes who require more time, the deadline for the second allocation, which will include any amount of the first $1 billion in volume cap remaining, is January 1, 2010.
