Key Policy Letters Signed by the Education Secretary or Deputy Secretary
April 24, 2002
Archived Information

Honorable Edward R. Richardson
Superintendent of Education
State Department of Education
Gordon Persons Office Building
50 North Ripley Street
Montgomery, Alabama 36130

Dear Superintendent Richardson:

I am pleased to inform you about the extension of Qualified Zone Academy Bonds (QZABs) through 2003 and to remind you that the 1999 and 2000 allocations for QZABs will expire at the end of this year. QZABs are an important tool states and local educational agencies (LEAs) can use to provide additional resources for improving school facilities and instruction.

As you know, 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, there is no requirement for state educational agencies to apply to the Federal Government to use QZABs.

Congress adopted President Bush's proposal to extend the QZAB authority through 2003 as part of the Job Creation and Worker Assistance Act of 2002 (Public Law 107-147). This legislation continues the QZAB program at its prior bond allocation level of $400 million a year.

As the following chart shows, QZABs are currently available. However, unused funds from the 1999 and 2000 allocations are set to expire at the end of this year, and to make use of these allocations, bonds must be issued by December 31, 2002. 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 1998 QZAB allocation has already expired.

Amount Calendar year
first available
Bonds must be issued by December 31 of the year
$400 million 1999 2002
$400 million 2000 2002
$400 million 2001 2003
$400 million 2002 2004
$400 million 2003 2005

For your information, I have enclosed a table showing the state allocations of QZABs for the years 1999-2002. 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 has published these allocations in Rev. Proc. 2002-25. The state allocations for 2003 will be announced in December of this year.

If you have questions, please contact either Bruce Davie of the U.S. Treasury Department (202- 622-2976 or or Jim Houser of the U.S. Department of Education (202-401-0307 or I understand 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.



Rod Paige


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Last Modified: 09/15/2004