ELEMENTARY & SECONDARY EDUCATION
Key Policy Letters Signed by the Education Secretary or Deputy Secretary
July 6, 2005
Archived Information


July 6, 2005

Dear Chief State School Officers:

I am pleased to inform you about the extension of Qualified Zone Academy Bonds (QZABs) through 2005 and to remind you that the 2003 allocation for QZABs will expire at the end of this year. QZABs are an important tool that States and local educational agencies (LEAs) can use to provide additional resources for improving school facilities and instruction.

QZABs are bonds the Federal Government subsidizes by allowing bondholders to receive tax credits that are approximately equal to the interest that States and communities would pay holders of taxable bonds. As a result, issuers are generally responsible for repayment of just the principal. QZABs were first authorized under Section 226 of the Taxpayer's Relief Act of 1997 (Section 1397E of the Internal Revenue Code).

States and LEAs have considerable flexibility in the use of QZABs. They may be used for rehabilitating or repairing school facilities, purchasing equipment, developing curricula, and training school personnel, but not for new construction. QZABs can help schools save up to 50 percent of the cost of financing allowable activities. In addition, State educational agencies are not required to submit an application to the Federal Government before using QZABs.

Congress adopted President Bush's proposal to extend the QZAB authority through 2005 as part of the Working Families Tax Relief Act of 2004 (Public Law 108-311). This legislation continues the QZAB program at its prior annual bond allocation level of $400 million a year.

As the following chart shows, QZABs are currently available. However, unused funds from the 2003 allocations will expire at the end of this year and, to make use of these allocations, bonds must be issued by December 31, 2005. If a State does not issue the amount of QZABs allocated by the Federal Government between the calendar year the funds are first made available and the date by which they must be issued, the unused QZAB allocation expires and cannot be used. The 2002 QZAB allocation has already expired.

Amount

Calendar year
first available

Bonds must be issued by
December 31 of the year
$400 million 2003 2005
$400 million 2004 2006
$400 million 2005 2007

For your information, I have enclosed a table showing the State allocations of QZABs for the years 2003-2005. The allocations represent the maximum amount of QZABs that may be issued within a State beginning in a given calendar year. The Internal Revenue Service recently published the 2005 allocations in Rev. Proc. 2004-72.

If you have questions, please contact either Zoran Stoyanovic of the Internal Revenue Service (202-622-3980) or Ian Soper of the U.S. Department of Education (202-401-0907). I am confident that your school districts have needs that can be met by this simple-to-use program and thank you for working with them to ensure that no child is left behind.

  Sincerely,
 
/s/
  Margaret Spellings

Enclosure


 
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Last Modified: 07/18/2005