Federal Bond Programs

As part of the American Recovery & Reinvestment Act of 2009, two tax credit bonds are now available for school construction and repairs: the NEW Qualified School Construction Bond and the REVISED Qualified Zone Academy Bond. Both types of bonds are zero-interest, tax credit bond programs that allow the bondholder to receive a return on investment as a credit against its federal tax liability. Both programs are funded by the federal government and administered by the California Department of Education. CSBA proudly works with McLiney and Company to help LEAs throughout the entire process for both types of bonds. Read more about these programs to find out which one is right for you.

Qualified School Construction Bonds

The QSCB is a new category of tax credit bonds for the construction, rehabilitation or repair of public school facilities or for the acquisition of land on which a public school facility will be constructed.

How much is available in QSCB allocations?

The nationwide QSCB allocation is $22 billion, with $11 billion allocated for 2009 and another $11 billion allocated for 2010. The amount allocated to the state of California is approximately $1.36 billion for 2009 and anticipated to be approximately the same for 2010. Of the $1.36 million, forty percent, or $581,966,000, was allocated directly to eleven large urban districts with the largest number of school-aged children living below the poverty line. Another $73,525,000 is allotted to California State Treasurer, California School finance Authority to assist charter schools in obtaining QSCBs. The remaining $700 million will be allocated to LEAs in accordance with the parameters of the program.

How to apply for a QSCB allocation

The application is available at the CDE Web site and the deadline to apply is August 25, 2009. There is no minimum to apply and the maximum is $25 million per LEA per authorization cycle. If the program is oversubscribed, a lottery will be conducted by CDE on August 28, 2009. If the program is undersubscribed, applications will be approved on a first come first serve basis and the CDE will continue to accept and allocate applications through October 1, 2009. If there are still monies available at that time, a second round authorization cycle will be considered in which all LEAs will be eligible to apply, including the eleven large districts and LEAs who were awarded allocations during the first round.

Rules of the program

There are several important rules of the program to be aware of, including, but not limited to:
Fifteen days after bond issuance a copy of IRS Form 8038 must be submitted to CDE
Within six months of issuance, the LEA needs to have entered into contract(s) for use of proceeds equal to 10 percent
100 percent of the issuance proceeds will be used for qualifying purposes within three years of date of issuance
Qualified purposes are: construction of public school facilities, rehabilitation or repair of existing facilities, acquisition of land on which public school facilities will be constructed with proceeds of issuance, and/or for equipment related to the project constructed or rehabilitated with proceeds of issuance
Compliance with Davis Bacon Act prevailing wage requirements
Submit a completion report to CDE

Qualified Zone Academy Bonds

The QZAB program was first created by Section 226 of the Taxpayer Relief Act of 1997. Its most recent reauthorization was made by the ARRA in which the program was both expanded and modified. Like the QSCB, QZABs are tax credit bonds; however, they are more restrictive in their uses and have eligibility criteria. See below for a QSCB-QZAB comparison chart.

How much is available in QZAB allocations?

Previously, QZAB allocations have typically been $400 million nationwide. The ARRA increased that allocation to $1.4 billion nationwide. The allocation to the state of California increased from $44,364,000 in 2008 to $155,275,000 in 2009. The 2010 allocation is expected to be approximate to the 2009 allocation.

How to apply for a QZAB allocation

The application is available on the CDE Web site and applications will be accepted on a continual basis and will be authorized on a first come first serve basis. Currently, there are still monies available from the 2007 and 2008 authorizations. Any unallocated monies from 2007 will expire on December 31, 2009. There is no minimum to apply; however, CDE recommends a minimum of $1 million. The maximum per academy is $5 million with a district cap of $30 million.

Rules of the program

There are several important rules of the program to be aware of, including, but not limited to:

Fifteen days after bond issuance a copy of IRS Form 8038 must be submitted to CDE
100 percent of the issuance proceeds will be used for qualifying purposes within three years of date of issuance
Qualifying purposes are: renovating and repairing existing buildings, investing in equipment and up-to-date technology, developing curricula, and training quality teachers. QZABs may NOT be used for new construction.
Must create a zone academy
Zone academy must meet eligibility criteria: be located in an Empowerment Zone OR have at least 35 percent of the students eligible for free and reduced lunch program
Must create a public/private partnership
Must locate a 10 percent matching grant
Effective October 2008, QZABs can now be purchased by any individual or private business instead of limited to banks and insurance companies.
Comply with Davis-Bacon Act prevailing wage rules
Submit a completion report to CDE

Total assistance

Since 2000 the CSBA Finance Corporation has proudly worked with the investment banking firm of McLiney and Company, the nation’s leading provider of QZAB financing. With the creation of the QSCB by the ARRA, CSBA is pleased to expand the work we do with McLiney and Company to include QSCBs. No matter what type of bond you choose, McLiney and Company will handle all of the work necessary to meet all federal and state requirements from start to finish. Your schools receive all of the benefits with virtually no work. In short, we offer 100 percent turn-key programs on a contingency basis. If we are unsuccessful for any reason, there is no charge for anything.