McLiney And Company presents

QZABs: Qualified Zone Academy Bonds

The U.S. Department of Education's plan for rebuilding America's schools

Program Summary

QZABs allow certain qualified schools to borrow money at extremely attractive terms. That is because the purchaser of the QZAB will receive a Federal Tax Credit that will subsidize much, if not all, of the school districts interest cost. The proceeds from the sale of the issue can only go towards qualified projects in connection with the establishment of a partnership with the private sector. All fifty states and U.S. possessions have individual allocations of QZABs based on poverty levels in those areas.

Which schools qualify?

Public schools located in empowerment zones or enterprise communities and public schools with 35% or more of their student body on the free and/or reduced lunch program.

How can the funds be used?

The proceeds of the issue can be used for renovations, remodeling and equipment (including technology). Money from a QZAB issue cannot be used for new construction.

What do schools have to do to participate?

The schools must get an allocation from the state in order to issue QZAB. And they must establish a partnership with the public sector valued at 10% of the issue size.

Why is a public-private partnership needed?

The intent of public/private partnership is to enhance the curriculum, increase graduation, improve employment opportunities, and better prepare students for the workplace or college.

What are the basics associated with a QZAB?

  1. All state and local laws applicable to issuing tax-exempt bonds also apply to QZABs.
  2. The maximum length of the issue and the tax credit is determined by the Secretary of the Treasury and can be found here:
  3. A supplemental interest rate may be necessary to get this issue placed based on the credit of the issuer.
  4. At least 98% of the bond's proceeds must be used for qualified purposes.
  5. A qualified lender as defined by the law must purchase the bonds.

Who is a qualified lender, and how is he compensated?

Qualified lenders can be insurance companies, some banks or other corporations actively engaged in lending practices (each qualifying entity is determined by the Internal Revenue Code governing each). The lender receives a tax credit in lieu of interest payment by the school. The IRS determines the amount of this tax credit.

The above summary is not to be considered a complete examination of QZABs or as an opinion on QZAB law. It represents a summary prepared by McLiney And Company.

No reprints, changes or alteration may be made of this summary without McLiney And Company's approval.