The Qualified Zone Academy Bond (QZAB) Program helps eligible public schools raise funds to rehabilitate and repair facilities, purchase equipment, develop course materials, and train teachers and other school personnel. QZAB proceeds may not be used for new construction or land acquisition. QZABs were capped at $400 million annually from 1998 to 2008; the Recovery Act increased the cap to $1.4 billion annually for 2009 and 2010. In 2011 QZABs were again capped at $400 million for 2011 through 2016.
The federal government allocates the authority to issue QZABs to states based on their proportion of the United States population living below the poverty line, and the Internal Revenue Service publishes state allocations for each year. Individual states determine what portion of their allocations, if any, may be used by charter schools.
To be eligible for the QZAB Program, a public school must be located in an Empowerment Zone or Enterprise Community or have a student body in which at least 35% of students are eligible for the federal free and reduced-price lunch program. In addition, the school must develop a partnership with a business or other private entity that makes a contribution to the school worth at least 10% of the principal amount borrowed. Schools are also required to have a comprehensive education plan approved by their local school district and in which students are subject to the same standards and assessments as other students in the district.
Like Qualified School Construction Bonds (QSCBs), QZABs are tax-credit or direct-payment bonds for which the federal government provides a tax credit or a cash subsidy payment from the Treasury Department in lieu of interest payable, thus lowering borrowing costs. The maximum maturity and the rate of the federal tax credit is set daily by the Treasury Department, but is fixed for the life of the bonds at issuance. QZABs are generally structured as bullet term bonds, with a single principal payment at maturity; however, sinking funds are allowable, subject to certain restrictions.
Last Updated: April 2017