Funding School Renovation: Qualified Zone Academy Bonds vs. Traditional Tax-Exempt Bonds

Publication Date: July 2001

Publisher: Library of Congress. Congressional Research Service

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Research Area: Education

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Abstract:

This report outlines the$1.6 billion Qualified Zone Academy Bond (QZAB) program and provides estimates of the implicit borrower subsidy and the estimated federal revenue loss arising from the tax credits it provides. QZABs are debt instruments that local education agencies sell to finance school renovation and modernization. The interest on these bonds is paid by the federal government through tax credits to the bondholder. The bond-holders are allowed to apply the credits to their federal corporate income tax or alternative minimum tax liability. The current QZAB program is more expensive to the federal government than traditional tax-exempt bonds. The Joint Committee on Taxation estimates the federal revenue loss to be $649 million through 2009, almost three times the cost of traditional tax-exempt debt. In addition to subsidy and revenue loss estimates, this report briefly reviews H.R. 1076 and Chapter 2 of S. 7, both of which include 1) a QZAB program expansion and 2) additional tax credit bond capacity for school construction. This report will be updated as legislative events merit.