Maine is hopeful that its economy is stabilizing and that unemployment figures will bottom out later this year. The state is also optimistic that by expanding Recovery Act financing to businesses, counties and municipalities, those entities will borrow money, invest in capital improvements, hire more employees and stimulate the economy.

“We are trying to stimulate growth by making financing available at lower rates and more attractive to businesses,” said Christopher Roney, general counsel for the Finance Authority of Maine. Guidelines for these financing tools have been crafted by the federal government under the American Recovery and Reinvestment Act of 2009. For the borrower, there are associated application fees of $5,000 each, as well as bond issuance fees.

The Recovery bonds are part of a number of bonding mechanisms created through ARRA, and the public is encouraged to track how the federal government is allocating federal funding at its Recovery.gov Web site.

Last year, ARRA made $25 billion available for two new types of Recovery Zone Bonds, one allowing state and local governments to obtain lower borrowing costs through a new direct federal payment subsidy to finance economic development projects, the other with tax-exempt bonding for private businesses to finance depreciable capital projects.

Maine received $225 million in available bonding for both types of bonds, with Knox County receiving $2.8 million; Waldo County, $3.5 million; and Lincoln County, $468,000.

FAME is to process Recovery Zone bonding for private companies while the Maine Municipal Bond Bank will process bonds for municipalities for economic development projects.

With current borrowing rates hovering around 6 percent, an alternative 3 or 4 percent interest rate on a tax-exempt bond can be more appealing, especially when the costs of capital improvements are large, said Roney. The tax-exempt rates are determined by the market at the time of bond sale for public projects and by credit enhancement providers— companies that help compensate a lender if a borrower defaults — for businesses.

Municipalities or businesses that are considering expansion, perhaps with building a new processing facility or office building, may currently be deterred from borrowing by a tight lending environment.

“Say I want to buy a huge new printing press,” said Roney. “I could go to XYZ bank and ask for $3 million with a 6 percent interest rate. But I could also finance it through a tax-exempt bond at 3 to 4 percent.”

The caveats are that the financing will not be extended to “sin businesses,” said Roney, such as massage parlors, racetracks and gambling halls, and, in FAME’s words, “any store the principal business of which is the sale of alcoholic beverages for consumption off-premises.” Additionally, the financing does not extend to rental or residential real estate, golf courses, health clubs, country clubs, or hot tub facilities; nor is the financing to be used for refinancing existing debt.

According to the Knox-Waldo Regional Economic Development Council, potential eligible municipal projects include infrastructure, facilities construction, or job training and education programs. Municipalities gain from lower interest rates, “plus, 45 percent of the total interest is paid to the issuer [the municipality] as a cash subsidy, up front,” said Alan Hinsey of KWRED.

Businesses should consider this financing, he said, because the bond funds are tax-exempt for lending institutions; therefore, borrowing rates will be better.

According to the stimulus act, Recovery Zone Bonds “are tax-exempt private activity bonds used to finance business development activities in areas of significant economic distress.”

To access the financing, applications must be made to FAME, which collects a nonrefundable $5,000 fee for its processing and review. The process includes holding public hearings on the bond application, and making findings. The deadline for the applications is September; the deadline for the bonding issuance is Dec. 31. FAME stipulates that borrowers should anticipate a 90-day processing period. Issuance fees will be 2 percent of the amount issued.

In March, FAME issued notice of the expanded financing packages, which local economic planning organizations, such as KWRED, are endorsing. Known as Recovery Zone Facility Bonds, the financing was created by ARRA and provides businesses that are making capital investments with tax-exempt bonding.

“They are ideally suited to borrowers that can arrange their own credit enhancement,” according to FAME.

FAME already offers a tax-exempt bond program. With ARRA, the eligibility categories have been broadened to include manufacturers and boutique businesses, said Roney.

This particular ARRA funding stimulus was enacted in Maine following legislation — Public Law 2009, Chapter 517, An Act to Facilitate Recovery Zone Facility Bonds, Recovery Zone Economic Development Bonds and Qualified Energy Conservation Bonds — signed March 17.

“To be eligible to access this tax-exempt financing opportunity, projects must be ‘shovel ready’ and creditworthy, with commitments in place from underwriters, banks or others to buy the bonds once issued,” said FAME Chief Executive Officer Elizabeth Bordowitz on the state agency’s Web site.

Counties, FAME and the Maine Municipal Bond Bank will oversee the bonds’ issuance; FAME is to help with private economic development projects, while the Bond Bank will help with public projects.

For more information, contact:

  • FAME (for private projects) at 800-228-3734 or the Maine Municipal Bond Bank (for public projects) at 800-821-1113
  • Knox County, Andrew Hart, county administrator, 594-0420, ahart@knoxcountymaine.gov
  • Alan Hinsey, KWRED, 691-3227, alan@achproductions.com

Underwriters that have indicated interest in bond financing include:

First Southwest Securities, Lincoln, R.I.

Bank of America Securities, San Francisco

Stern Brothers, St. Louis

George K. Baum & Co., Denver

Zions First National Bank, Boston

Commerce Capital Markets Philadelphia

Key Bank Capital Markets, Cleveland

Oleet & Co., Burlington, Vt.

Wells Fargo Securities, New York

Key Bank, Portland