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Jobs Bill Extends BAB-style Direct Payments to QSCBs, CREBs, QZABs, and QECBs

Publisher: Day Pitney Alert
March 18, 2010
Day Pitney Author(s) Judith A. Blank

On March 18, 2010, President Obama signed the Hiring Incentives to Restore Employment Act ("HIRE Act"), more commonly referred to as the "Jobs Bill."  Among other things, the HIRE Act permits issuers of Qualified School Construction Bonds (QSCBs), Clean Renewable Energy Bonds (CREBs), Qualified Zone Academy Bonds (QZABs), and Qualified Energy Conservation Bonds (QECBs) to elect to issue these taxable bonds as direct payment bonds.  Previously, issuers' only option was to issue these bonds as traditional tax credit bonds for which bondholders receive a tax credit in lieu of all or a portion of bond interest. Now, the HIRE Act allows issuers to elect to issue these bonds as direct payment bonds for which the issuers receive Build America Bond-style direct payments to offset their bond interest cost. 

The HIRE Act provides that issuers of QSCBs and QZABs who elect to receive the direct payment will receive payments equal to the lesser of the actual interest rate of the bonds on each interest payment date or the tax credit rate set daily by the Treasury for municipal tax credit bonds.  Issuers of CREBs and QECBs who elect to receive the direct payment will receive payments equal to 70% of interest costs.

Note that the direct payments are "refundable credits," meaning they are subject to reduction for tax or other liabilities of the issuer to any federal agency, including employment tax liabilities.

If you have any questions about this new legislation or would like to learn more about these or other municipal financing vehicles, please contact one of the attorneys listed on the right.