California Debt and Investment Advisory Commission

Update
Qualified Zone Academy Bonds (QZAB)
Tax Credit Bond Program
(for Federal Fiscal Years 2009-2010)

The Qualified Zone Academy Bond (QZAB) tax credit bond program was amended in 2008 under the Emergency Economic Stabilization Act of 2008 (Stabilization Act) and was expanded through the American Recovery and Reinvestment Act (Recovery Act) in February 2009.

Under the Stabilization Act technical changes were made to the QZAB program. These changes, summarized below, are effective for QZABs issued after October 3, 2008.

  • All available proceeds of QZABs must be spent on qualified purposes within three years from the date of issue. Available proceeds are defined as sale proceeds minus issuance expenses (capped at 2% of proceeds) plus investment proceeds. Previously, 95 percent of proceeds were required to be spent on qualified purposes within five years from the date of issue.
  • The tax credit for QZABs may be claimed by any taxpayer. Previously, the QZAB tax credit could only be claimed by certain financial institutions.
  • QZABs are subject to relaxed arbitrage requirements that would permit single “bullet” maturities and the investment of sinking fund proceeds at a yield that, while restricted, could be substantially higher than the issuer’s interest rate on the QZAB.
  • Issuers of new QZABs must certify as to satisfaction of all applicable state and local conflict-of-interest requirements and any similar requirements imposed by IRS regulation.

Under the Recovery Act, allocations for the federal fiscal year (FY) 2009 were increased from $400 million annually to $1.4 billion and an allocation of an additional $1.4 billion was authorized for FY2010. The U.S. Treasury Department announced the allocation amounts and provided additional guidance resulting from the Recovery Act in Internal Revenue Services (IRS) Notice 2009-30.

The QZAB program is administered by the California Department of Education (CDE). For additional information on the QZAB program, please visit the CDE website.

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