This summary information is available as a Microsoft Word doc format of    Municipal-Finance-Bond-Tax-Opportunities-ARRTA-ARR  or PDF document pdf format of    Municipal-Finance-Bond-Tax-Opportunities.pdf  .

Common Questions and Answers

Who can issue these bonds?

State or political subdivision, large local educational agencies (LLEA) or other entity empowered to issue bonds for this purpose

What can they be used for?

100% of proceeds are to be used for construction, rehabilitation or repair of a public school facility or for acquisition of land on which such facility will be constructed with a portion of QSCB proceeds

How are they subsidized by the feds?

QSCBs are taxable, with tax credit payable by US Treasury to investor. Maximum maturity and credit rate are determined by US Treasury on date of sale

What are the benefits?

0% interest cost SEE EXAMPLE ON FOLLOWING PAGE

Are there special reporting requirements?

Same information requirements as tax-exempt state or local government bonds

How long will these bonds be available?

2009 allocation is good through 1/1/2010

Is there a cap?

Yes. FY09 and FY10 national cap is $11 billion; $144.8 million allocated to Mass; $37.6 million to Boston (LEA); $17.9 to Springfield (LEA). Balance and unused (LEA) amounts to be reallocated by state

Where can I find more information?

Section 1521 of ARRTA; Interim guidance issued 4/3/2009. US Treasury website http://www.irs.gov/newsroom/article/0,,id=206044,00.html

What else should I know?

Check back with mass.gov/recovery for updates

Example: Traditional Tax-exempt bonds compared with qualified school construction bonds (QSCBs)

Assumptions:

  • Tax-exempt borrowing rate is 5%
  • Equivalent taxable rate is 7.69% (assumes 35% tax rate)
Municipal BondTax Credit Bond
Yield to Purchaser
Coupon paid by Issuer5.00%0.00%
Tax Credit paid by Fed Gov't 0.00% 7.69%
Tax Liability 0.00% -2.69%
Net Yield to Investor 5.00% 5.00%
Budget Impact Comparison
Principal$1,000,000$1,000,000
Term2015
Debt ServiceLevel PrincipalInterest w/Sinking Fund* @2.5% Interest
Total Payments over Term$1,512,500$830,357
% Savings45%
Avg. Annual Pmt. over Term$75,625$55,357
Present Value Cost$1,000,000$579,320
% Savings42%

*assumption for analysis purposes only; use of sinking fund may require a statuarory exemption

Information provided by the Executive Office for Administration and Finance