QSCBs + QZABs

Congress has created and/or expanded new types of federally subsidized taxable borrowing to stimulate construction activity and assist issuers in reducing interest expense.

Qualified School Construction Bonds (QSCBs)

Qualified School Construction Bonds (QSCBs) were introduced in the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) and have a national limit of $11 billion in each of 2009 and 2010.  As originally authorized, they offered investors an annual federal tax credit covering most, if not all, of the annual return required by investors.  Legislation passed in March 2010 allows QSCBs to be issued as direct-payment bonds so issuers can receive direct cash interest payments from the Treasury up to the credit rates that would apply if the bonds had been sold as tax-credit bonds.  This much deeper federal subsidy conserves local tax dollars for other purposes.  The bonds are allocated: 

  • 40 percent ($4.4 billion per year) to the 100 largest local education agencies (LEAs) based on the number of children living below the poverty level; and 
  • 60 percent ($6.6 billion per year) to states and territories based on the state’s share of Title 1 Basic Grants, which the States then sub-allocate to school districts or issue themselves.  Each state’s share of the 60 percent is reduced by the LEA allocations. 

Bond proceeds must be used for constructing, rehabilitating or repairing a public school facility, or acquiring land for a public school.  Proceeds must be spent within three years, un-issued allocations may be carried forward by the State to any following year, and Davis-Bacon rules requiring the payment of prevailing wages apply.

Qualified Zone Academy Bonds (QZABs)

Qualified Zone Academy Bonds (QZABs) were introduced in the Taxpayer Relief Act of 1997 (P.L. 105-34) and had a limit of $400 million from 1998 through 2008.  This limit was expanded by Congress to $1.4 billion for 2009 and 2010.  The bonds are allocated to states and territories based on their portion of the U.S. population living below the poverty line.  Each state then sub-allocates issuance volume to selected school districts based on state-specified allocation criteria.  QZABs generally have the same features as QSCBs (and, now can also be issued as direct-payment bonds) with the following exceptions:

  • Qualified Zone” schools must be located in an Empowerment Zone, Enterprise Community, or at a school where at least 35 percent of the students are eligible for free or reduced-lunch costs;
  • Bond proceeds are limited to school modernization, equipment, or developing curriculum/training; and
  • School districts must partner with private entities that contribute property or services with a value of 10 percent of the bond proceeds. 

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