Key Policy Letters from the Education Secretary or Deputy Secretary
March 11, 2011
Archived Information

March 11, 2011

Dear Chief State School Officers:

I am pleased to inform you about the extension of Qualified Zone Academy Bonds (QZABs) through 2011, and to remind you that the 2009 allocations for QZABs will expire at the end of this calendar 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.

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. 

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.  To meet QZAB eligibility criteria, a public school (including a charter school) must be located in either an Empowerment Zone or an Enterprise Community (as designated by the Federal Government) or have at least 35 percent of its students eligible for free or reduced-price lunch under the National School Lunch Act.  The school must also have an education program designed in cooperation with business; receive a private contribution (which may be in-kind), the net present value of which is not less than 10 percent of the proceeds of the bond; and have an education plan that is approved by its LEA.  In addition, its students must be subject to the same standards and assessments as other students in the LEA.

As the following chart shows, previously authorized QZAB allocations are still available.  However, unused funds from the 2009 allocations will expire at the end of this calendar year and, to make use of these allocations, the bonds must be issued by December 31, 2011.  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.

QZABs Amount

Calendar year first available

Bonds must be issued by December 31 of the year

$1.4 billion



$1.4 billion



$400 million



The Internal Revenue Service posted the 2011 State allocations of QZABs bonding authority at:  A table with the 2011 State allocations is enclosed for your information. 

On December 17, 2010, the President signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Public Law 111-312).  This legislation continues the QZAB program at a bond allocation level of $400 million a year but repeals a cash subsidy alternative to tax credits that was created as part of the American Recovery and Reinvestment Act (ARRA) and applied to QZABs by the Hiring Incentives to Restore Employment Act (Public Law 111-147).  As a result, issuers will no longer have the option of receiving a cash subsidy on QZABs issued after December 31, 2010, using the 2011 allocation.  The repeal will not apply to QZABs issued after December 31, 2010, using any carry-forward of unused allocation from prior years.  Thus, an issuer may irrevocably elect to receive the cash subsidy under 26 USC Section 6431 for a QZAB it issues in 2011 pursuant to a carry-forward from 2009 or a QZAB it issues in 2012 pursuant to a carry-forward from 2010.

I would also like to remind you about the Qualified School Construction Bonds (QSCBs) authorized under ARRA.  The ARRA made available, to States and certain large LEAs, $11 billion for 2009 and $11 billion for 2010 in QSCB bonding authority for construction, rehabilitation, or repair of a public school facility, and for the acquisition of land on which the school facility is to be constructed with QSCB funds.  Public charter schools as well as traditional public schools may benefit from QSCBs.  States may directly issue the bonds on behalf of eligible schools or they may suballocate authority to issue the bonds within the State. 

QSCB allocations to a State or a large LEA that went unused in the previous calendar year may be carried forward to the next calendar year.  There is no limitation on the number of years to which unused allocations may be carried forward.

If you have questions about this information or these programs please contact Branch 5 of the Internal Revenue Service, Office of Associate Chief Counsel (Financial Institutions and Products)  (202-622-3980) or Jane Hess of the U.S. Department of Education (202-401-8292).  I am confident that these bonds can help your communities meet some of their facility needs.

  Arne Duncan


Table download files MS Word (67 KB)

Last Modified: 03/07/2014