A unique window of opportunity has opened for states and districts to finance school construction and renovation. Through the Qualified School Construction Bond (QSCB) program, created by the American Recovery and Reinvestment Act (ARRA), the federal government will provide tax credits, in lieu of interest paid by the state or district, to bondholders.
A study from the Congressional Budget Office and the Joint Committee on Taxation has found that although such tax-credit bonds are “a relatively insignificant source of financing” when compared to the $1.7 trillion in so-called tax-benefit debt issued by states and localities between 1991 and 2007, they offer a more efficient use of such funding and are projected to grow.
The states and districts that issue the bonds will be responsible only for paying back the principal, making it possible for them to purchase land, build new buildings and/or renovate existing buildings at a savings of up to 50 percent.
For each of 2009 and 2010, $11 billion has been allocated to states and certain large local education agencies based on their share of Title I Basic Grant funds. They will have until the end of each successive year—2010 and 2011—to use their allocations. States may either directly issue the bonds on behalf of schools, or suballocate this authority to localities and districts. The tax credit bondholders receive, set by the U.S. Treasury Department, will approximate the amount of interest typically paid on such debt.