Congress passes extension of the Qualified Zone Academy Bond program
In its final days last month, the 109th Congress passed legislation that includes an extension of the Qualified Zone Academy Bond (QZAB) program for 2006 and 2007. President Bush signed the bill, the Tax Relief and Health Care Act of 2006, on Dec. 20. Under the QZAB program, which had expired in 2005, the federal government provides bondholders with a federal tax credit, in lieu of cash interest payments on the bonds. This generally leaves the school district responsible only for repaying the principal, resulting in up to 50% savings on the economic cost of the bond. QZABs can be used for renovation and repair projects, but not for new construction. Significantly, where state law permits, schools also may use QZAB proceeds to invest in equipment and technology, develop challenging curriculum, and train quality teachers. To be eligible for QZAB financing, a public school must either be located in a federally designated Empowerment Zone or Enterprise Community or reasonably expect to serve a student population of at least 35% free or reduced-price lunch eligibility. The act authorizes issuance of up to $400 million in each of the two years. It also adds new rules akin to those that apply to tax-exempt bonds generally, including a requirement that the bond issuer enter into a binding commitment within six months of the bond issue to expend 10% of the proceeds, reporting requirements, and other provisions to prevent arbitrage, the practice of investing the proceeds of tax-exempt bonds in higher-yielding taxable securities.
A 2000 guide to the program by the U.S. Department of Education (ED) is available below. An October 2006 report by Building Educational Success Together (BEST), a collaborative of organizations working to improve urban school facilities, analyzed a decade of school facilities funding and found that despite record spending on school construction, low-income and minority students have seen far less investment in their school facilities than their more affluent, white peers and still are forced to learn in substandard conditions. A 2004 report by the Rural School and Community Trust on state school facilities policies noted that "60% of rural schools have at least one major building feature in need of replacement or extensive repair because their school facilities are frequently ignored, neglected, or under-funded." Links to both reports are below.
[ED QZAB resource]
[BEST "Growth and Disparity" report]
[Rural Trust report on state facilities policies]