Bond Accountability Commission 2 Recommendations Page 122
the issuer may elect to receive the credit subsidy payment directly, as is the pattern set for BABs and credit QSCBs. When the credit is paid to bondholders, the amount of the credit is set at the time the bonds are issued based upon publication by the Internal Revenue Service and is designed to allow the QZABs to be marketed for par (in practice, issuers often must add a small supplemental coupon to keep from having to sell discount bonds). The amount of the credit is equal to the credit rate times the outstanding principal amount of the QZAB. The Internal Revenue Service also sets the maximum term for which the QZAB can be issued from time to time. The credit rate and the maximum maturity are the same as those available for QSCBs. As with QSCBs, it is not uncommon for the market to require a small supplemental coupon in addition to the tax credit on the QZABs. Where the issuer elects to receive the direct subsidy from the federal government, it receives a subsidy equal to the lesser of the otherwise applicable credit rate or the interest rate on the QZABs, and the investor merely gets taxable interest with no tax credit. There is a volume limitation to the amount of QZABs that can be issued in each State, and an issuer must receive an allocation of part of the limitation to issue QZABs.130 To qualify as a QZAB, no more than 2% of the proceeds of the bonds may be used to pay costs of issuing the bonds and all of the rest of the proceeds must be used to rehabilitate or repair a public school within a qualified zone academy, to equip the academy, develop course materials, or train teachers or other school personnel about the academy. A
In Ohio, the State’s share of the national QZAB limitation is administered by the Ohio Department of Education, and application must be made to the Department before CMSD can issue any QZABs.
Published on May 14, 2014