The National Education Technology Funding Corporation, "Eddie Tech™"

Eddie Tech™ seeks to be the preferred vehicle by which public school districts access capital to issue two forms of federally subsidized bonds:  Qualified School Construction Bonds (QSCBs) and Qualified Zone Academy Bonds (QZABs).  As a non-profit organization, Eddie Tech seeks to maximize the benefits offered by QSCBs and QZABs to school districts for financing the construction and repair of public schools, as well as the development and modernization of the technology infrastructure in the schools.

Pooling QSCBs and QZABs into nationwide offerings through the School Investment Pooled-Securities (SIPS™) Program is intended to confer the following benefits:

• Lower financing costs and simpler "pre-packaged" issuance mechanics for local school districts;
• Improved access to investors, especially for smaller or lesser-rated school districts, which will benefit from inclusion in a diversified pool;
• More efficient pricing on bonds, due to better diversification, broader distribution, and enhanced liquidity;
• Strategic alliances with school-finance authorities and municipal-bond industry professionals to ensure efficient origination, structuring, and placement of bonds; and
• Effective marketing to both issuers and investors, using the education community’s support of Eddie Tech.

By packaging QSCBs and QZABs into pooled securities in its SIPS Program, Eddie Tech makes them more attractive to investors, thereby broadening the array of potential buyers.  Eddie Tech's SIPS Program is designed to reduce financing costs for school districts by achieving economies of scale through volume and simplify the process by which school districts can issue and investors can invest in these new financing tools.

If Eddie Tech's SIPS Program can reduce borrowing costs by 20 basis points as gross savings over a 17-year term, the savings for a school district can be substantial.  Those savings grow with the bond deal.

• For a $5 million bond deal, annual savings of $10,000 or $170,000 over the term.
• For a $10 million bond deal, annual savings of $20,000 or $340,000 over the term.
• For a $20 million bond deal, annual savings of $40,000 or $680,000 over the term.
• For a $30 million bond deal, annual savings of $60,000 or more than $1,000,000 over the term.

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Taxable rate school bonds are a relatively new type of financial instrument.  Although QZABs were first authorized by Congress for issuance in 1998, annual volume cap had been limited to $400 million per year nationwide.  Most issues were privately placed with local commercial banks.   As a result, there is not yet a broadly established market for these bonds. 

Congress expanded the QZAB program and initiated the QSCB program in early 2009 by authorizing over $12 billion per year for 2009 and 2010.  Concurrently, Congress authorized another form of taxable rate bonds -- Build America Bonds -- but with a much lower federal subsidy.  Because many larger institutional investors such as pension funds and life insurance companies are not traditional investors in school bonds, school districts may face increased costs and greater difficulty in placing these bonds on favorable terms.  Further, most major investors in the corporate bond market seek issue sizes of $100 million or greater.  For all but the very largest school districts (New York, Los Angeles, Chicago, Miami, etc.) the average size of local QSCBs and QZABs has been under $10 million, hindering efficient pricing.  Many issuing districts have had to make supplemental interest payments of .5-2% to attract investors, eroding the intended benefits of the QSCBs and QZABs.

Eddie Tech's Congressionally recognized and non-profit status should enable it to assist school districts across the country.  In addition, Eddie Tech has forged strategic alliances with several key public-education stakeholder groups -- the American Assocation of School Administrators, the National School Boards Association, the National Education Association, and the Association of School Business Officers -- to help school districts access QSCBs and QZABs bond financing expeditiously and cost-effectively.

By structuring public offerings of the pooled QSCBs and QZABs, Eddie Tech should help ensure that school districts receive fair and transparent market pricing, remove uncertainty that has resulted in disparate pricing for seemingly similar issuances, and place some focus of federal oversight of QSCBs and QZABs on Eddie Tech and away from school districts.