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Bond Accountability Commission 2 Recommendations Page 115

no more than three years) pending their expenditures and “arbitrage profits” earned by investing at above the yield on the bonds must be remitted (or “rebated”) to the federal government unless the proceeds are spent on an expedited basis. There are no volume restrictions on the ability of a state or local government to issue tax-exempt governmental bonds.


Qualified School Construction Bonds A relatively new type of bond that can be used by school districts is qualified school

construction bonds (“QSCBs”). Under federal tax law, depending upon an election by the issuing school district, a holder of QSCBs may receive a periodic tax credit to reduce federal income tax liability rather than tax-exempt interest (a “credit QSCB”). The amount of the credit is set at the time the credit QSCBs are issued and based upon a percentage periodically published rate by the Internal Revenue Service and designed to allow the credit QSCBs to marketed at par with no current interest payments. (In practice, for bonds paying the tax credit to investors, issuers usually have to add an additional amount of interest to successfully market the credit QSCBs at par.) Alternatively, pursuant to legislation recently signed by the President, the issuer may elect to receive the subsidy payment directly, as is the pattern set for Build America Bonds (“BABs”), discussed further below. 122 Based upon the market’s experience with                                                             122

Schroeder, “Obama Signs BABified Jobs Bill” (Bond Buyer Online March 17, 2010) (“The Hiring Incentives to Restore Employment Act allows issuers of qualified school construction bonds, qualified zone academy bonds, new clean energy bonds and qualified energy conservation bonds to opt to receive direct subsidy payments from the federal government instead of offering investors a tax credit. … Issuers of the school bonds that opt for the direct-pay mode will receive payments equal to the lesser of the actual interest rate of the bonds or the tax-credit rate for muni tax-credit bonds, which the Treasury sets daily.”)

BAC2 Recomendations Final 04062010  
BAC2 Recomendations Final 04062010