Home » NEWS » Banking & Finance » Qualified school construction bonds building Mississippi schools

Qualified school construction bonds building Mississippi schools

The American Recovery and Reinvestment Act (ARRA) of 2009 created a new financing opportunity for school districts called Qualified School Construction Bonds (QSCBs).  QSCBs are tax credit bonds.  Rather than receiving interest payments, bond holders receive tax credits from the federal government.  These tax credits are intended to equal the interest that the school district would normally pay on the bonds.  The result is that school districts can borrow money to fund eligible projects at 0 percent interest cost, and, if structured as described below, with the amount of total debt service being less than the principal amount.  Because interest payments typically represent about 50 percent of the cost of financing a project, school districts will receive a substantial benefit by taking advantage of this opportunity, available only for a limited time, to finance projects with QSCBs.

The ARRA provides a national bond limitation authorization of $11 billion for each of 2009 and 2010. The State of Mississippi has received an allocation of $132 million for 2009, and the Jackson Public School District has received a separate allocation of $15.2 million.  The Mississippi Department of Education has allocated the total 2009 amount to school districts through an application process on a first come, first served basis, with a maximum allocated to each school district of $3 million.  It is expected that the State of Mississippi will receive a similar allocation in 2010.

QSCBs may be issued to finance the construction, rehabilitation or repair of public school facilities or for the acquisition of land on which a public school facility is to be constructed. Only 2 percent of the proceeds may be used to pay the costs of issuing the QSCBs, including the costs of selling the bonds.  The remaining proceeds (plus investment earnings) must be used for qualified school construction purposes within three years of the issuance of the QSCBs.

The maximum maturity and the credit rate for the QSCBs are determined as of the date that there is a binding, written contract for the sale or exchange of the bond.  The U.S. Treasury Department sets the maximum maturity and the QSCB credit rate on a daily basis.

QSCBs can be structured to permit the school district to pay less in total debt service than the face amount of the QSCBs. This result can be accomplished by issuing the QSCBs with a single bullet maturity.  The school district would make annual deposits into a sinking fund that would earn interest and be used to pay QSCBs at maturity. The law permits the use of a sinking fund if: (i) the fund is funded at a rate not more rapid than equal annual installments; (ii) the fund is funded in a manner reasonably expected to result in an amount not greater than an amount necessary to repay the issue; and (iii), the yield on such fund is not greater than the permitted sinking fund yield as published by the U.S. Treasury Department.  The permitted sinking fund yield is determined by using a rate equal to 110 percent of the long-term adjusted federal rate, compounded semiannually, for the month in which the bond is sold.  This structure also maximizes the amount of the tax credit to the holder of the QSCBs because the principal amount, upon which the tax credit is calculated, remains at the maximum amount until maturity, instead of being paid down each year.


Aileen Thomas is an attorney with Watkins Ludlam Winter & Stennis, P.A. and focuses her practice in the areas of corporate and public finance including securities law and bond financing. She may be reached at (601) 949-4900.


… we’d like to ask for your support. More people are reading the Mississippi Business Journal than ever before, but advertising revenues for all conventional media are falling fast. Unlike many, we do not use a pay wall, because we want to continue providing Mississippi’s most comprehensive business news each and every day. But that takes time, money and hard work. We do it because it is important to us … and equally important to you, if you value the flow of trustworthy news and information which have always kept America strong and free for more than 200 years.

If those who read our content will help fund it, we can continue to bring you the very best in news and information. Please consider joining us as a valued member, or if you prefer, make a one-time contribution.

Click for more info

About For the MBJ

Leave a Reply