COMMONWEALTH of VIRGINIA
Department of Education
December 18, 2015
TO: Division Superintendents
FROM: Steven R. Staples, Superintendent of Public Instruction
The federal Qualified Zone Academy Bond program, better known as QZABs, was authorized by Congress under the Taxpayer Relief Act of 1997. The Virginia Appropriation Act establishes further requirements for the operation of this program in Virginia. A number of school divisions in Virginia have availed themselves of this program since its inception. QZABs are tax credit bonds designed for the state or local issuer to pay zero or near zero interest. The proceeds of these bonds must be used for school renovation, the purchase of school equipment, development of course materials, and/or training of teachers within a qualified zone academy (i.e., any public school or academic program within a public school established by and operated under the supervision of a local education agency). QZAB proceeds cannot be used for new construction and 100 percent of proceeds must be spent within three years of the sale of the bonds.
States or local governments may issue QZABs. Virginia’s calendar year 2014 QZAB allocation from the federal government is $7.4 million. Because of their zero or near zero interest rate, QZABs are a low cost vehicle for school divisions to modernize schools. Purchasers of QZABs receive federal tax credits in lieu of the interest on the bonds. In recent years, the Virginia Public School Authority (VPSA) has assisted with issuing QZABs on behalf of localities, greatly facilitating the use of these bonds in Virginia. Please note that QZAB proceeds represent debt of the locality that must be repaid.
The following requirement must be met before a school division can receive a QZAB allocation:
In addition, there are requirements that must be met after a school division receives a QZAB allocation and before a QZAB can be issued:
Since 1998, the Virginia Secretary of Education has directly awarded QZAB allocations to school divisions based on a rank ordering of the student eligibility percentage for free lunch under the National School Lunch Program (usually 65 percent or greater). However, to facilitate and expedite the issuance of the calendar year 2014 Qualified Zone Academy Bonds among a larger pool of eligible school divisions meeting the 35 percent free lunch eligibility criteria, the Secretary of Education’s guidelines have been revised to an open application process effective with the calendar year 2014 allocation and encourages eligible school divisions that are interested in receiving a QZAB allocation to apply as follows:
The attached document “Virginia Guidelines for Calendar Year 2014 QZABs” provides additional information on the QZAB program. It is also important that a school division consult with its local bond counsel to ensure compliance with all applicable federal and state regulations regarding the issuance and use of such bonds. Should you have any questions about this program, please contact Christina Snellings in the Budget Office at (804) 225-2025.