FAQ

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• What are QSCBs?
  
  
• What is the legislative authority?
  
  
• What are the uses and restrictions?
  
  
• Do you have any information about the need to comply with the Davis-Bacon Act when using these new bonds? Where specifically does it state that the Davis Bacon Act applies? Davis Bacon Act applies to both QSCB and QZAB?
  
  
• What is the State Department of Education’s role in the allocation that is specifically for the large 100 LEAs receiving direct allocation? Does the Department have to keep track of how much of the allocations that these four districts utilize?
  
  
• Am I correct that the QSCB’s must be issued (sold) on or before December 31, 2009?
  
  
• If the state law states that no allocations for QSCBs can be authorized until after July 1, 2009 due to the state requirement that program authority be in statute first. Is this an issue?
  
  
• Are charter schools eligible to apply directly for the QSCB program, or must they go through the district / LEA?
  
  
• The top 100 allocations were made at the district level. Is the intent that states also make their allocations at the district level?
  
  
• For the purposes of issuance / eligibility would the “local government” be defined as the school board?
  
  
• Are there QSCB reporting requirements for the states?
  
  
• What role do the states play in the 100 LEAs receiving direct allocation?
  
  
• A definition of allowable equipment purchases is needed. What is allowable here? Not allowable?
  
  
• The legislation does not state that these are interest fee bonds. Are they?
  
  
• Can districts purchase land for future needs?
  
  
• Are states required to allocate to all districts, or can allocation be on an as requested basis?
  
  
• What happens to unused allocations to the top 100? Does it revert to the state or the feds for reallocation?
  
  
• What are the state’s roles regarding the Indian Tribal Government Volume Cap?
  
  
• Page 9, top of page. Is this language intended to give the top 100 the authority to receive an additional allocation from the state?
  
  
• Page 14. Will there be carryforward with the state allocations, or will this program work like QZAB and the authority revert 1/1/2010?
  
  
• If carryforward to later years is allowable, what will be required of the states to do so?
  
  
• Are issuance costs allowable, as 100% of the proceeds are to be spent on projects?

The Qualified School Construction Bond program provides $11 billion face value in tax-free bonds in both fiscal years 2009 and 2010 to help fund school construction, rehabilitation, repair, and land acquisition. It is estimated that the federally-funded bonds will save schools nearly $10 billion in taxes over the next 10 years. The legislation requires that 40 percent of the bond face value be distributed to the 100 local education agencies (LEAs) with the most students living in poverty and the remaining 60 percent to other LEAs based on the distribution of Title I Part A Basic Education Grants.

2. What is the legislative authority?

Qualified School Construction Bonds (QSCB) are authorized by the federal government through the American Recovery and Reinvestment Act (ARRA) of 2009. The bonds provide federal tax credits for bond holders in lieu of interest in order to significantly reduce an issuer’s cost of borrowing for public school construction projects.

The ARRA provides for an allocation to each state, along with separate allocations for large school districts. Guidance provided by the Internal Revenue Service indicates that the allocation for Ohio is $267,112,000 in calendar year 2009 and is anticipated to approximate the same amount in calendar year 2010. Additional allocations totaling $151,671,000 in CY 2009 were made directly to Ohio’s five largest urban districts, which may choose to re-allocate any unused balance to the State of Ohio.
The State's role is to provide bond issuance authorizations for public school projects, based on the assurance they meet federal criteria for the programs.

3. What are the uses and restrictions?

• Use of Proceeds. 100% of available project proceeds must be used for the construction, rehabilitation, or repair of a public school facility, or for the acquisition of land on which such a facility is to be constructed with part of the proceeds of such issue.
  
• Tax Credit. Credit to investor of 100% of Tax Credit Rate.
  
• Maturity Limit. Maximum maturity and Tax Credit Rate are set by the IRS as of the date that there is a binding, written contract for the sale of the bonds (as of May 2009, the maximum maturity was set at 15 years).
  
• Arbitrage Rules. The entity issuing the bonds must enter into contract to spend at least 10% of the proceed within six months of issuance, and must spend 100% of proceeds within 3 years or redeem the bonds.
  
• Projects funded with the bonds must comply with all ARRA provisions including the Davis-Bacon Fair Labor Act governing federal prevailing wage requirements, whistle-blower protection.
  
• CY2009 tax credits may be obtained for bonds issued after February 17, 2009 and prior to January 1, 2010. The State can carry forward unused CY2009 allocations to CY2010.

4. Do you have any information about the need to comply with the Davis-Bacon Act when using these new bonds? Where specifically does it state that the Davis Bacon Act applies? Davis Bacon Act applies to both QSCB and QZAB?

Yes. See Section 1601 Division B of the American Recovery and Reinvestment Act of 2009.

5. What is the State Department of Education’s role in the allocation that is specifically for the large 100 LEAs receiving direct allocation? Does the Department have to keep track of how much of the allocations that these four districts utilize?

None at present. The LEAS receiving direct allocation may turn over the unused portion of the allocation to the State within one year. State can carry it forward and distribute to other LEAs.

6. Am I correct that the QSCB’s must be issued (sold) on or before December 31, 2009?

Yes, but the state can carry forward unused portion of the allocation.

7. If the state law states that no allocations for QSCBs can be authorized until after July 1, 2009 due to the state requirement that program authority be in statute first. Is this an issue?

No, it is upto each state.

8. Are charter schools eligible to apply directly for the QSCB program, or must they go through the district / LEA?

It is a state decision, depending on how the state defines an “eligible issuer.”

9. The top 100 allocations were made at the district level. Is the intent that states also make their allocations at the district level?

Again, it is a state decision, depending on how the state defines an “eligible issuer.”

10. For the purposes of issuance / eligibility would the “local government” be defined as the school board?

Again, it is a state decision, depending on how the state defines an “eligible issuer.”

11. Are there QSCB reporting requirements for the states?

No. The issuer has to file Form 8038

12. What role do the states play in the 100 LEAs receiving direct allocation?

None, except to re-allocate the unused portion of the allocations turned over to the state by the LEA.

13. A definition of allowable equipment purchases is needed. What is allowable here? Not allowable?

See notice 2009-35 definition

14. The legislation does not state that these are interest fee bonds. Are they?

They are tax credit bonds, the same as the QZAB.

15. Can districts purchase land for future needs?

Has to buy land and build with the same bond proceeds within 3 years.

16. Are states required to allocate to all districts, or can allocation be on an as requested basis?

It is upto the states.

17. What happens to unused allocations to the top 100? Does it revert to the state or the feds for reallocation?

State gets it and state can reallocate.

18. What are the state’s roles regarding the Indian Tribal Government Volume Cap?

None.

19. Page 9, top of page. Is this language intended to give the top 100 the authority to receive an additional allocation from the state?

It is up to the state.

20. Page 14. Will there be carryforward with the state allocations, or will this program work like QZAB and the authority revert 1/1/2010?

State allocations can be carried forward indefinitely.

21. If carryforward to later years is allowable, what will be required of the states to do so?

Keep records.

22. Are issuance costs allowable, as 100% of the proceeds are to be spent on projects?

Just like the QZAB, up to 2% can be spent on issue costs.