A Look at ARRA (American Recovery and Reinvestment Act) Bonds

The American Recovery and Reinvestment Act (ARRA) has given citizens the opportunity to fund America's recovery through the purchase of bonds. The largest program is the so-called "Build America Bonds" (BAB). These bonds will help fund projects in various states and local municipalities to develop infrastructure. The bonds are issued on the local level, and the bond issuers receive a federal subsidy or a tax incentive. There are a number of different programs to choose from outside of the BAB program.

Recovery Zone Bonds

There are two types of recovery zone bonds: Recovery Zone Economic Development Bonds (RZEDB) and Recovery Zone Facility Bonds (RZFB). The RZEDBs are similar to the BAB program. The federal government gives municipalities issuing the bonds 45 percent of the interest payable to investors through a subsidy. These bonds fund economic development projects qualified in the state.  RZFBs are not subsidized. Instead, lower interest rates are available to states and municipalities issuing the bonds. These bonds fund recovery zone property developments.

Qualified Zone Academy Bonds (QZAB)

QZABs can be issued through schools wanting to renovate. Bond holders receive tax credits that should be close to interest rates on state bonds. This means, even though no interest is paid out to bond holders, they will receive incentives by deducting the bonds from their taxes in a given year. The federal government essentially pays the bond holders through these tax breaks so the schools do not have to pay interest on the bonds.

Qualified School Construction Bonds (QSCB)

These bonds fund public school construction, rehab and repair. Similar to the QZAB program, this program offers tax credits to bond holders. The schools themselves do not incur a large expense by issuing the debts. This program is subsidized by the federal government so local communities can provide more school facilities. The schools and investors profit at the expense of the federal government.

Clean Renewable Energy Bonds (CREB)

CREBs were available before ARRA went into effect. The ARRA bond program, though, increased the volume of bonds available substantially. Nationally, there is now a volume cap of $2.4 billion on these bonds. The IRS allocates bonds from this volume cap to companies such as public power providers, government bodies and electric companies. These bonds are sold by the federal government to investors then later allocated to individual projects in each state. States qualify for a total allocation on an annual basis then disseminate the funds accordingly.

Qualified Energy Conservation Bonds (QECB)

QECBs are similar to CREBs. They have also been expanded by ARRA to $3.2 billion nationwide. President Obama has shown a strong incentive for states willing to focus on natural resource preservation and development of clean, renewable energy. These bonds are used for qualified conservation purposes. For example, projects to build wind turbines can be subsidized through these bonds. In California, popular programs have involved providing the installment of solar panels to lower income families who would not typically be able to make the investment. The solar panels are offered at a substantially reduced cost thanks to debts incurred through the bond program.

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