What are Qualified Zone Academy Bonds?
In 1997, Congress created a new financial instrument, the Qualified Zone Academy Bond (QZAB), to help schools raise funds to:
- Renovate and Repair buildings
- Invest in Equipment and Up to Date Technology
- Develop Challenging Curricula
- Train Quality Teachers
QZABs also encourage schools and businesses to cooperate in innovative ways that expand students' learning opportunities and help schools prepare students with the kinds of skills employers, and our nation, need to compete in the global economy.
Can schools still use Qualified Zone Academy Bonds? What are the recent changes?
States and school districts were first authorized to use QZABs under the Taxpayer Relief Act of 1997. These bonds have already been used to improve schools in such diverse locations as Pomona, CA; Little Axe, OK; Houston, TX and Norfolk, VA. Congress and the President extended the program through 2005 to support an additional $400 million of improvements in schools across the country in each year. The new bonds authorized for 2002 through 2005 must be issued after two years; thus bonds authorized for 2002 must be issued December 31, 2004.
How do Qualified Zone Academy Bonds work?
Schools usually fund large projects, like building renovation or construction, through debt mechanisms such as tax-exempt bonds or loans. School districts must then pay a substantial amount of interest on this debt. For schools serving low income students, QZABs reduce the burden of interest payments by giving financial institutions holding the bonds (or other debt mechanism) a tax credit in lieu of interest. The school district must still pay back the amount of money it initially borrowed, but does not have to pay any interest -- typically about half the cost of renovating a school. The credit rate for QZABs sold on a given day is set by the Treasury Department.
Who receives Qualified Zone Academy Bonds?
Each State is allotted an amount of money its schools may borrow using QZABs. (The allocation formula is based on state percentages of the national population of individuals with incomes below the poverty line.) States have the flexibility to choose their own processes to award bond authority to qualified schools. A qualified school is one that is located in an Empowerment Zone or Enterprise Community or has at least 35% of its students eligible for free or reduced price school lunch. The two alternative criteria allow both rural and urban schools serving poor children to benefit from QZABs.
In addition, a qualified school must develop a partnership with a business and private entities must make a contribution to the school worth at least 10% of the money borrowed using the QZAB. These contributions can take many forms:
- Goods, including equipment and technology
- Services, including help developing curriculum or using technology
- Internships or field trips that provide opportunities for students to learn outside a traditional classroom setting.
The business or other private entity does not simply make a donation to the school. The school and the businesses become partners who create a plan together for how their combined efforts can improve student education.