Qualified Zone Academy Bonds, Qualified School Construction Bonds, and Build America Bonds

Transcription

1 Qualified Zone Academy Bonds, Qualified School Construction Bonds, and Build America Bonds American Recovery and Reinvestment Act Coordination Meeting: Puget Sound Regional Council, Friday, August 14, 2009 Jim McNeill, Bond Attorney

2 Foster Pepper is one of the largest municipal finance law firms in the Pacific Northwest, with offices in Seattle and Spokane. We have served as bond counsel to Washington school districts for over half a century in connection with financing capital projects, and currently represent over 100 Washington school districts. Bond counsel are independent law firms with a nationally recognized expertise in bond law, employed by the issuer to render a legal opinion that bonds are valid and that interest on the bonds is tax-exempt. 1

3 American Recovery and Reinvestment Act of 2009 American Recovery and Reinvestment Act of 2009 (ARRA) approved several stimulus programs designed to rejuvenate the public sector during the economic recession. Many of these programs apply directly to public school districts: Extended Qualified Zone Academy Bond (QZABs) Program for 2 more years (2009 & 2010). QZAB program was originally established in Created Qualified School Construction Bonds (QSCBs) and Build America Bonds (BABs). Presentation will provide an overview of QZABs, QSCBs and BABs. 2

4 Qualified Zone Academy Bond (QZAB): Overview Taxable, interest free bond issued by a school district. Principal is paid at maturity. Secretary of U.S. Department of Treasury sets maximum maturity (8/13/09 = 15 yrs). Investor that buys QZAB is allowed annual federal income tax credits in lieu of periodic interest payments. May be issued as non-voted limited general obligation (LGO) bond or voted unlimited tax general obligation (UTGO) bonds. Principal amount of QZAB must not exceed applicable debt limits. 3

5 QZAB: Eligibility Requirements Proceeds may be used to rehabilitate or repair certain eligible public schools. May not be used to construct new public schools. Eligible public school (qualified zone academy) must be located either in an empowerment zone or an enterprise community, or have reasonable expectation that at least 35% of the students attending such school will be eligible for free or reduced cost lunches. Need commitment from private business to contribute to the public school certain equipment, property, services or cash with a value equal to at least 10% of the principal amount of the QZAB. Need approval from OSPI to issue a QZAB. 4

6 QZAB: State Limitation Amount Federal law provides a national QZAB limitation for each calendar year, which is allocated among the states (based on poverty population). Limitation allocated to each state is then allocated by state education agency (in Washington, OSPI) to eligible school districts. States may carry forward any unused QZAB limitation amount for two years following the unused limitation year to be used on a first-in, first-out basis. Currently, total Washington QZAB limitation amount that may be allocated by OSPI to school districts is $32,651,000 ($7,256,000 from 2008 and $25,395,000 from the 2009). 5

7 Qualified School Construction Bonds (QSCBs): Overview Taxable, interest free bond issued by a school district. Principal is paid at maturity. Secretary of U.S. Department of Treasury sets maximum maturity (8/13/09 = 15 yrs). Investor that buys QSCB is allowed annual federal income tax credits in lieu of periodic interest payments. May be issued as non-voted limited general obligation (LGO) bond or voted unlimited tax general obligation (UTGO) bonds. Principal amount of QSCB must not exceed applicable debt limits. 6

8 QSCB: Eligibility Requirements Proceeds of QSCBs used for same purposes as QZABs, except that QSCBs also may be used to construct new public schools and acquire land on which those new public schools will be constructed. Unlike QZABs, no requirement: Private business contributions; or Public school be located either in an empowerment zone or an enterprise community, or have reasonable expectation that at least 35% of the students attending the public school will be eligible for free or reduced cost lunches. Need approval from OSPI to issue a QSCB. 7

9 QSCB: State Limitation Amount Federal law provides a national QSCB limitation for each calendar year, which is allocated among the states. Limitation allocated to each state is then allocated by the state education agency (in Washington, OSPI) to eligible school districts. States may carry forward any unused QSCB limitation amount to following calendar year and the amount of the QSCB limitation amount for such following calendar year will be increased by the amount of such unused limitation. Currently, the total Washington 2009 QSCB limitation amount that may be allocated by OSPI to school districts is $164,111,000. 8

10 Build America Bonds (BABs): Overview BABs are bonds issued by states or local governments (including school districts) in 2009 and 2010, where issuer elects to issue the bonds as taxable with a portion of the interest subsidized by the federal government. There are two types of BABs: Tax Credit BABs - bondholders receive a tax credit equal to 35% of the interest paid on the bonds. Direct Payment BABs - issuer receives periodic payments from the federal government in an amount equal to 35% of the interest paid to bondholders. To date, Direct Payment BABs are the BABs of choice (84 BABs issued April-June, and 100% Direct Payment BABs). 9

11 Direct Payment BABs: Eligibility Requirements Issuers must comply with all tax requirements applicable to the issuance of tax-exempt governmental bonds (e.g., private use, arbitrage rebate and hedge bond analysis). Bonds are issued before January 1, Issuer makes two irrevocable elections: (1) to treat the bond as a BAB; and (2) to receive the subsidy payment from the IRS. Proceeds must be issued to finance new money capital expenditures for which tax-exempt governmental bonds could be issued. 10

12 Direct Payment BABs: Procedural Framework Issuers submit Form 8038-CP to the IRS to request a payment of the credit. Issuers expect to receive the payment within 45 days of filing Form 8038-CP. Due date for filing Form 8038-CP is the 45th day before the applicable interest payment date (but not earlier than 90 days before such date). The IRS intends to publish refined procedures for 2010 and after. Likely, these direct payment procedures will be moved to an electronic platform. Unlike QZABs and QSCBs, there is no federal volume limitation. 11

13 Resources for More Information Office of Superintendent of Public Instruction Bond Counsel Underwriters Financial Advisors 12

14 Questions? The End. Thank you! Jim McNeill, Bond Attorney

15 Jim McNeill is a partner with the law firm of Foster Pepper PLLC and concentrates his practice on public finance, with a special emphasis on serving as bond counsel to Washington school districts. Jim has substantial experience advising Washington school districts on financing capital projects, including bonds and capital levies. He received his J.D. from Gonzaga University School of Law (1985) and his B.A. from Washington State University (1982). 14