To qualify, the Act requires, among many other restrictions, that the project be (a) used by a person who suffered a loss in trade or business attributable to the Midwest Disaster or (b) designated by the Governor as replacing a trade or business with respect to which another person suffered such a loss.  Unfortunately, these qualifiers have created more questions than answers among tax-exempt bond professionals.  Among the many unanswered questions are, what precisely constitutes "loss" and whether a replacement business must be of the same type, scope and size as the one being replaced.  Could a car dealer who suffered hail damage to his inventory in the Midwest Disaster, now build a manufacturing plant with proceeds of Midwest Disaster Area Bonds?  While such an example sounds extreme, the answer was unclear under the Act.

 To help answer these questions, the IRS recently issued guidance in December, 2009.  In the new guidance the IRS effectively punts determinations regarding "loss" and "replacement" to the States' Governors.  The IRS provides the Governors wide latitude to make such determinations "in any reasonable manner as the Governor shall determine in good faith in such Governor's discretion."  As a result, tax-exempt bond professionals have now turned to the Governors' offices to see how each State will interpret the Act and make volume-cap allocation decisions.

The good news for potential borrowers is found in the breadth of the Governors' discretion to make such determinations.  At the very least it now seems clear that the IRS will not second guess allocations made by the States provided they are reasonable and made in good faith.  Moreover, the January 1, 2013 deadline coupled with continuing high unemployment in the respective States should provide the Governors incentives to put this bond volume to work sooner rather than later.

As a practical matter, health care providers and other borrowers may be able to finance private use projects (which would otherwise not qualify for tax-exempt financing) with tax-exempt, Midwest Disaster Area Bonds and thereby lower their cost of capital.  A typical fact set might involve a hospital campus which suffered damage in the Midwest Disaster.  New, non-qualifying projects now being considered by the hospital (for example, a medical office building or joint venture facility) may potentially be considered for tax-exempt Midwest Disaster Area Bonds.  While it remains to be seen how the various Governors will use their new-found discretion, qualifying borrowers should consider Midwest Disaster Area Bonds when reviewing their financing options.

State Volume Allocations:

Wisconsin	$3,830,112,000
Indiana	$3,098,222,000
Illinois	$1,515,271,000
Iowa	$2,615,995,000
Missouri	$1,414,492,000
Nebraska	$1,136,088,000

Designated Counties:

Wisconsin	Adams, Calumet, Columbia, Crawford, Dane, Dodge, Fond du Lac, Grant, Green, Green Lake, Iowa, Jefferson, Juneau, Kenosha, La Crosse, Manitowoc, Marquette, Milwaukee, Monroe, Ozaukee, Racine, Richland, Rock, Sauk, Sheboygan, Vernon, Walworth, Washington, Waukesha, and Winnebago.
Indiana	Adams, Bartholomew, Brown, Clay, Daviess, Dearborn, Decatur, Gibson, Grant, Greene, Hamilton, Hancock, Hendricks, Henry, Huntington, Jackson, Jefferson, Jennings, Johnson, Knox, Lawrence, Madison, Marion, Monroe, Morgan, Owen, Parke, Pike, Posey, Putnam, Randolph, Ripley, Rush, Shelby, Sullivan, Tippecanoe, Vermillion, Vigo, Washington, and Wayne.
Illinois	Adams, Calhoun, Clark, Coles, Crawford, Cumberland, Douglas, Edgar, Hancock, Henderson, Jasper, Jersey, Lake, Lawrence, Mercer, Rock Island, Whiteside, and Winnebago.
Iowa	Adair, Adams, Allamakee, Appanoose, Audubon, Benton, Black Hawk, Boone, Bremer, Buchanan, Butler, Cass, Cedar, Cerro Gordo, Chickasaw, Clarke, Clayton, Clinton, Crawford, Dallas, Davis, Decatur, Delaware, Des Moines, Dubuque, Fayette, Floyd, Franklin, Fremont, Greene, Grundy, Guthrie, Hamilton, Hancock, Hardin, Harrison, Henry, Howard, Humboldt, Iowa, Jackson, Jasper, Johnson, Jones, Keokuk, Kossuth, Lee, Linn, Louisa, Lucas, Madison, Mahaska, Marion, Marshall, Mills, Mitchell, Monona, Monroe, Montgomery, Muscatine, Page, Polk, Pottawattamie, Poweshiek, Ringgold, Scott, Story, Tama, Union, Van Buren, Wapello, Warren, Washington, Webster, Winnebago, Winneshiek, Worth, and Wright.
Missouri	Adair, Andrew, Barry, Callaway, Cass, Chariton, Clark, Gentry, Greene, Harrison, Holt, Jasper, Johnson, Lewis, Lincoln, Linn, Livingston, Macon, Marion, Monroe, Newton, Nodaway, Pike, Putnam, Ralls, St. Charles, Stone, Taney, Vernon, and Webster.
Nebraska	Buffalo, Butler, Colfax, Custer, Dawson, Douglas, Gage, Hamilton, Holt, Jefferson, Kearney, Lancaster, Platte, Richardson, Sarpy, and Saunders.

Should you have any questions, please contact Jerimi J. Ullom at (317) 977-1488 or jullom@hallrender.com, or Patrick D. Walsh at (414) 721-0450 or pwalsh@hallrender.com.