Pub. 6 2016 Issue 3

Development Bonds (RZEDs) must be deployed in a recovery zone delineated by high poverty, unemployment, or gen- eral distress. Although ARRA status is not a guarantee of CRA income compli- ance (as the income tests aren’t perfect analogs), focusing on ARRA issuances narrows the universe and increases the hit rate when attempting to identify CRA eligible securities. Purpose: In addition to restrictions focusing ARRA development on low income individuals or distressed communities, ARRA bonds are also usually limited to qualified community development purposes. RZEDs, for example, must “…promote job creation and economic recovery” through “…expenditures for public infrastructure and construction of public facilities .” 15 Moreover, as recipients of direct federal subsidies, ARRA bond issuers are potentially subject to increased IRS scrutiny over the use of proceeds. More rigid spend- ing requirements and increased federal oversights often lead to more specificity of purpose in the bond’s offering docu- ments. Tax Increment Financing (TIF) Bonds: Income: Tax increment financing provides a mechanism through which local governments can leverage future tax revenue growth to drive infrastruc- ture development in a targeted area. TIF project sites are usually selected because of blight, urban decay, and the lack of private sector investment. Unsurprisingly, TIF districts are almost always located in low-to- moderate income census tracts. Even when a district isn’t located directly in a low-to-moderate income tract, the FDIC’s guidance provides some flex- ibility for a TIF to qualify as long as it benefits or stabilizes an adjacent quali- fied area: 16 “One example [of a community development activity] is financing a supermarket…in a small strip mall located at the edge of a middle-income area, if the mall stabilizes the adjacent low-income community by providing needed shopping services that are not otherwise available in the low-income community.” Purpose: Funds raised through the issuance of TIF debt are generally used to promote economic development by spurring pri- vate and public interest in an otherwise blighted area. Bond proceeds help fund infrastructure development, finance removal of decrepit buildings, and allow for the construction of new commercial spaces – all qualified community devel- opment purposes. Tax Exempt Municipal Securi- ties (TEMS): Income: Given their comfort with traditional MBS securities, financial institutions often claim CRA credit on mu- nicipal debt issued by public housing CRA w Continued from page 15 16 www.azbankers.org