School Finance Option May be Extended

schoolkidsA couple of school finance tools may be extended through 2015 based on newly-introduced federal legislation.  Sen. John Rockefeller, D-W. Va., introduced S. 796 to extend the Qualified Zone Academy Bonds (QZABs) and Qualified School Construction Bonds (QSCBs).  These bonds are similar to the Build America Bonds having federal subsidy rates equal to 100 percent of the interest costs.

Qualified Zone Academy Bonds
School districts interested in the QZAB financing must first meet three eligibility criteria:

  1. Location and/or Lunch.  Public schools must be either located in an Empowerment Zone or an Enterprise Community. Communities in which at least 35 percent of the school’s students are eligible for free or reduced-price lunch under the National School Lunch Act are also eligible.
  2. Private Business Contribution.  QZABs can only be issued if the school district secures private entity partners willing to contribute cash or in-kind services or materials having an acceptable present fair market value of not less than 10 percent of the value of the bond.
  3. Education Plan for Use of Funds.  Only public schools that have an education plan that is approved by their school district are eligible.

Empowerment Zones and Enterprise Communities within the AE2S Nexus service area include: Fort Peck Assiniboine and Sioux Tribe Rural Round II Enterprise Community, Montana; Turtle Mountain Band of Chippewa Rural Renewal Community, North Dakota; Griggs-Steele Rural Round II Empowerment Zone, North Dakota; Minneapolis Urban Round II Empowerment Zone, Minnesota; and Oglala Sioux-Pine Ridge Rural Round II Empowerment Zone, South Dakota.

According to statistics gathered by Kids Count, there are many qualifying areas which meet the 35 percent free or reduced-price lunch threshold.  For example, 73 percent of the counties in South Dakota and 55 percent of the counties in North Dakota meet this criterion.  S. 796 calls for the elimination of the 10 percent private business contribution requirement in certain circumstances.

QZABs can be utilized for school renovations and repairs, the purchase of equipment and up-to-date technology, developing new curricula, and teacher training.  QZABs cannot be used for new construction.  The maximum term on a QZAB bond is 15 years.

QZAB Allocations by State

2009 Allocation
Expires 12/31/11
2010 Allocation
Expires on 12/31/12
2011 Allocation
Expires on 12/31/13
Minnesota $16,883,000 $16,722,000 $4,986,000
Montana $4,624,000 $4,540,000 $1,271,000
North Dakota $2,592,000 $4,413,000 $651,000
South Dakota $3,528,000 $3,355,000 $990,000

Qualified School Construction Bonds
QSCBs provide a federal tax credit for bond holders in lieu of interest to significantly reduce an issuer’s cost of borrowing for public school construction projects.  Bonds must be used for construction, rehabilitation, or repair of a public school facility, or for the acquisition of land on which a facility is to be constructed.  Nationally, the QSCBs were allocated $11 billion in 2010 and States are allowed to carry forward any unused portions of their allocation through the next calendar year.  The maximum terms on a QSCB is 15 years.

The federal bond allocations are distributed in the following manner:

  • Forty percent for large local educational agencies
  • Sixty percent provided to the States net of allocations for large local educational agencies
  • An additional $200 million allocated for Indian schools to be allocated by the Secretary of the Interior for the construction, rehabilitation, and repair of schools funded by the Bureau of Indian Affairs


Allocations to States

Minnesota $80,649,000
Montana $31,838,000
North Dakota $25,974,000
South Dakota $29,797,000

Allocations to Large Local Educational Agencies

Minneapolis, MN $19,787,000
St. Paul, MN $18,253,000