March 18, 2010

President Signs Jobs Bill; Direct Payment Bond Program Expanded

On March 18, 2010, President Obama signed a $17.6 billion jobs bill, commonly known as the Hiring Incentives to Restore Employment Act (“HIRE Act”).  The HIRE Act will, among other things, permit state and local governments to issue special direct payment bonds for various purposes, including school construction, energy conservation and renewable energy projects. 

Currently, state and local governments are authorized to issue special purpose tax credit bonds, including Qualified School Construction Bonds (“QSCBs”), Clean Renewable Energy Bonds (“CREBs”), Qualified Zone Academy Bonds (“QZABs”) and Qualified Energy Conservation Bonds (“QECBs”).  The HIRE Act will allow issuers of such bonds to receive a direct payment from the federal government rather than providing a tax credit in lieu of interest to investors.  Issuers of QSCBs and QZABs will get payments up to the credit rates that would apply if the bonds had been sold as tax-credit bonds.  Issuers of CREBs and QECBs will receive payments approximately equal to 70% of interest costs.

This new direct payment mechanism is similar to the successful direct payment structure of Build America Bonds.  Many in the municipal bond industry anticipate that these HIRE Act changes will jump-start the market for QSCBs, QZABs, CREBs and QECBs, which have to date not drawn much investor interest.

The complete text of the HIRE Act is available here.