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Treasury Issues Notice of Applications for Tribal Economic Development Bonds

Indian Law Update Luis A. Ochoa, Michael J. Ostermeyer, Jeff Peelen

On June 23, 2009, the Treasury Department published Notice 2009-51 (the "Notice"), soliciting applications for Tribal Economic Development Bonds authorized under the American Recovery and Reinvestment Act (the "ARRA"). The Notice, found here, outlines eligibility requirements; application requirements, deadlines and forms; and the allocation method that the Internal Revenue Service ("IRS") will use.

Tribal Economic Development Bonds

The ARRA included a new Section 7871(f) to the Internal Revenue Code (the "Code"), which allows tribal governments greater flexibility to use tax-exempt bonds. Pursuant to Section 7871(f), the Treasury Department shall allocate a $2 billion national volume cap for Tribal Economic Development Bonds among tribal governments in such a manner as the Treasury Department, in consultation with the Secretary of the Interior, deems appropriate. Tribal governments will not be limited to financing activities only considered to be essential governmental functions. Rather, Tribal Economic Development Bonds can be used to finance any economic development project or other activities for which States or local governments can use tax-exempt bonds under Section 103 of the Code. The bonds also can be used to refund previously issued bonds. However, these Tribal Economic Development Bonds cannot be used to finance (1) any portion of a building in which gaming is conducted or housed, or any other property actually used in the conduct of such gaming, or (2) any facility located outside the Indian reservation.

The Notice establishes an interim safe harbor for determining if a bond-financed facility would be independent from a gaming facility. Such facilities would be considered separate if they had independent foundations, outer walls and roofs. A facility could be connected to a gambling facility by doorways or other connections as long as those connections did not affect the structural independence of either building.

Deadlines

Tribal Economic Development Bonds will be allocated in two rounds. An application for an allocation of the Tribal Economic Development Bond volume cap ("Application") must be filed with the IRS on or before August 15, 2009 to receive an allocation from the first $1 billion volume cap (the "First Allocation"). An Application must be filed after August 15, 2009, and on or before January 1, 2010 to receive an allocation from the remaining volume cap ("the Second Allocation").

Application Requirements

The Treasury's 29-page notice includes a sample application, attached to the Notice as Appendix A, that tribal governments will have to submit to the IRS to apply for the tax-exempt bonds. The five-page application must include a description and location of the project slated for bond financing as well as the expected timeframe for its development, a reasonably detailed financing plan and the amount of bonds requested. The tribal government also must certify in the application that none of the bond proceeds will be used to finance any portion of a building where gaming occurs.

Allocations

The First Allocation for $1 billion in volume cap will be allocated to qualified projects for which Applications have met the requirements of the Notice. If the total amount of volume cap requested in all the Applications received on or before August 15, 2009 does not exceed $1 billion, then each qualified project will be allocated the amount requested, and any remaining amount will be available for allocation as part of the Second Allocation. But if the total amount requested in all the Applications exceeds $1 billion, then each qualified project will be allocated the amount requested, reduced pro rata such that the total amount allocated does not exceed $1 billion.

The Second Allocation will allocate the second $1 billion, plus any portion of the first $1 billion not allocated as part of the First Allocation. If the total amount requested does not exceed the amount of volume cap available, each applicant will be allocated the amount requested, and any remaining may be available for allocation by the IRS as part of an allocation process to be announced at a future date. If the total amount requested exceeds the amount available, each applicant will be allocated the amount requested, reduced pro rata.

An applicant for any subsequent allocations other than the First Allocation must include a description of the project, or any related project, for which a prior allocation was made as well as the name of the applicant that received the allocation. If tribal governments are unable to issue their allocated bonds by December 31, 2010 for the First Allocation and December 31, 2011 for the Second Allocation, they will forfeit their allocations back to the IRS, which will then redistribute it to other tribes.

Allocation Limit

No tribal government will be awarded an allocation from the First Allocation for a total amount exceeding $30 million. For purposes of this limitation, a "tribal government" includes the tribal government as well as political subdivisions of, and other entities controlled by, the tribal government.

Consent to Disclosure

The IRS intends to publish the results of the allocation process. Under Section 6103 of the Code, consent is required, allowing the IRS to disclose identifying information with respect to applicants awarded an allocation. Each applicant must submit with its Application a declaration consenting to disclosure, by the IRS, of the name of the qualified issuer, the type and location of the project that is the subject of the Application and the amount of the Tribal Economic Development Bond volume cap allocation awarded to that applicant, if the applicant receives an allocation. This declaration must be in the form set forth in Appendix B of the Notice.

Miscellaneous

The Notice provides for other important information relating to the Tribal Economic Development Bonds. For example:

  • An Application can be submitted for a joint project.

  • A tribal government may designate a pool bond issuer or an "on behalf of issuer" to issue the Tribal Economic Development Bonds on its behalf.
  • An allocation can be forfeited if not issued by a certain date.
  • Information as to whether approval is needed for deviations in an Application.
  • Interim guidance.

Tribal governments should begin the application process for an allocation of Tribal Economic Development Bonds as soon as possible in order to meet the First Allocation deadline of August 15, 2009. The 29-page Treasury Notice is available at the top of this page.

Contact Us to Discuss This Opportunity Further

If you have any questions about Tribal Economic Development Bonds or the application process, please contact one of the following Q&B lawyers:

Luis A. Ochoa
Indian Law Practice Group
luis.ochoa@quarles.com
520-770-8702

Michael J. Ostermeyer
Real Estate Practice Group
michael.ostermeyer@quarles.com
414-277-5521

Jeff Peelen
Public Finance Practice Group
jeff.peelen@quarles.com
414-277-5773