A new "Direct Pay" provision added by the Hiring Incentives to Restore Employment Act (the "Jobs Act," (
see this link for text)), signed by the President on March 18, gives issuers of Qualified Zone Academy Bonds (QZABs) and Qualified School Construction Bonds (QSCBs) the option to issue bonds paying taxable interest and receive an interest subsidy from the U.S. Treasury, rather than issue bonds with tax credits for the bondholder. The U.S. Treasury and Education Departments have also announced the 2010 allocations of the Qualified School Construction Bonds (QSCBs) $11 billion volume cap among the states and large local educational agencies.
As originally adopted, QSCBs and QZABs are "qualified tax credit bonds," which allow the holders of the bonds to claim a federal tax credit equal to a specified credit rate determined by the Secretary of the Treasury. This rate is the credit rate that will permit the qualified tax credit bond to be issued without discount or payment of interest to the issuer. Under the Jobs Act, issuers of QSCBs and QZABs may instead elect to receive credit payments equal to the interest payable on the bonds, up to the credit rate that would be applicable if sold as qualified tax credit bonds. This credit rate is set daily by the U.S. Treasury. The new election is similar to that permitted issuers of Build America Bonds (Direct Payment), but with nearly a 100% interest subsidy.
Of the $6.6 billion allocated to the states, the states in which Peck Shaffer has offices were allocated the following amounts:
Colorado: $95,686,000
Georgia: $234,431,000
Illinois: $251,167,000
Kentucky: $138,870,000
Ohio: $293,763,000.
Of the $4.4 billion allocated to "large local educational agencies," the following agencies in each of the states mentioned above were allocated the following amounts:
Denver County School District No. 1: $29,262,000
Atlanta City School District: $34,526,000
Clayton County School District: $15,166,000
De Kalb County School District: $29,940,000
Fulton County School District: $17,917,000
Gwinnett County School District: $19,640,000
Richmond County School District: $15,979,000
City of Chicago School District No. 299: $257,127,000
Jefferson County (Kentucky) School District: $30,352,000
Cincinnati City School District: $25,922,000
Cleveland Municipal School District: $51,058,000
Columbus City School District: $39,266,000
Toledo City School District: $20,962,000
A listing with all state and agency recipients of QSCB allocations for 2010 is available from the
U.S. Treasury Department.
The Peck Shaffer tax department has prepared a
detailed memorandum (available for download at the following Web site:
http://www.peckshaffer.com/news.php?NewsID=94) discussing the key features of QSCBs.
The QZAB national allocations of $1.4 billion for 2010 were made earlier this year,
IRS Notice 2010-22. The national allocations of $400 million for 2008 and $1.4 billion for 2009 were made last fall,
IRS Notice 2009-30.
Peck Shaffer regularly advises bond issuers, underwriters, banks, placement agents and other market participants throughout the United States in connection with education-related financings. Peck Shaffer’s transactional and tax and financial analysis attorneys served as bond counsel to the Board of Education of the Loveland City School District (Ohio) in connection with the first Qualified School Construction Bonds issue in the State of Ohio. More information regarding this bond issue and the counsel provided by Peck Shaffer to the school district is available at the following Web site:
http://www.peckshaffer.com/news.php?NewsID=103.
If you have questions about Qualified School Construction Bonds or Qualified Zone Academy bonds, or if you have questions about other tax credit bonds or tax-exempt bonds, please contact the Peck Shaffer Tax and Financial Analysis group.
To ensure compliance with requirements of the Internal Revenue Service under 31 CFR Part 10, Section 10.35, we inform you that, unless specifically indicated otherwise, any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (a) avoiding tax-related penalties under the Code or (b) promoting, marketing or recommending to another party any tax-related matter addressed herein.
