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. 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 Bond | Tax Credit Bond | |
|---|---|---|
| Yield to Purchaser | ||
| Coupon paid by Issuer | 5.00% | 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 |
| Term | 20 | 15 |
| Debt Service | Level Principal | Interest w/Sinking Fund* @2.5% Interest |
| Total Payments over Term | $1,512,500 | $830,357 |
| % Savings | 45% | |
| Avg. Annual Pmt. over Term | $75,625 | $55,357 |
| Present Value Cost | $1,000,000 | $579,320 |
| % Savings | 42% | |
*assumption for analysis purposes only; use of sinking fund may require a statuarory exemption
Information provided by the Executive Office for Administration and Finance