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Dare Inquire Representatives Truth

Uniontown Area School Board Members:

Re: Qualified Zone Academy Bonds (QZABs)

After reviewing the on-line information: Fixing Our Schools Now! QZABs: A New Approach to Financing School Renovation and Repair, many questions arise from the taxpayer's viewpoint. Ultimately, the initial bond issue must be paid off by the local taxpayers, as you are aware. Also, not only will the local taxpayers have to repay the initial bond, federal taxpayers will in the end be subsidizing the bondholders and the institutions which authorize the bonds with tax credits. The tax burden already faced by federal taxpayers for programs which the federal government is not constitutionally authorized to undertake is astronomical. In addition, the Federal Government is not granted by the U.S. Constitution the power to handle issues of local education. Unfortunately, the state of Pennsylvania has adopted many federal incentives to implement on the local level, involving local districts in numerous state unfunded yet mandated education programs. QZAB federal program requires that another entity must be created (an academy) within the school district to provide yet another way to (so-called) educate our youth

The board should ask - once an academy is established, who will pay for the upkeep of programs determined to be needed to develop an academy?

While it may seem a benefit to apply this bond program in order to undertake school renovation and repairs which might require raising revenues on the local level, the board should keep in mind that it is the duty of the state of PA to maintain an efficient and effective public school system, according to the state Constitution.

(The school district or other issuer is then, in general, only responsible for repaying the amount borrowed, but does not have to pay any interest -- typically about half the cost of renovating a school.... However, the program provides bondholders with an IRS tax credit in lieu of cash interest payments... Under these tax-credit bonds, the federal government pays, on average, all of the interest, whereas, under tax-exempt bonds, the school district typically recoups only 20 percent of the interest payments.)

Reject the idea that this new method of financing (with federal involvement in particular) another new program will work. If private entities want to enhance the local network of educational providers, private entities can establish and open their own school facilities. If private businesses want to have available to them well-educated youth, let private businesses stop taking the tax-exemptions which shift the tax burden onto other taxpayers.

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from Kelling, Northcross & Nobriga

Program qualification criteria are as follows:

The school district must be in an Empowerment Zone or Enterprise Community, OR At least 35% of the students at the school site qualify for free or reduced-cost lunches under the National School Lunch Act.

A partnership with a local private business in the form of a written commitment for a contribution to the program of least 10% of the proceeds of the bonds. The contribution can be in the form of direct funds, equipment, technical assistance, internships, mentors, and other in-kind contributions.

A program plan or "academy" designed in cooperation with the private business to enhance the academic curriculum, increase graduation and employment rates, and better prepare students for the rigors of college and the increasingly complex workforce.

Proceeds used for rehabilitation or repair of facilities, equipment, instructional materials, or professional development for the qualified program.

From the site: U.S. Department of Education

What is the benefit of the Qualified Zone Academy Bond program?

The benefit of the QZAB program is that it helps school districts save money and make their dollars go further. School districts usually issue bonds in order to finance renovation and repair projects to schools within the district. Interest owed on these bonds can equal up to 50 percent of the costs of the entire project. As a result, districts often find it difficult to undertake school renovation and repair.

In order to facilitate these projects, Congress created the QZAB program, which provides the bondholder with a federal tax credit in lieu of a cash interest payment. Because the federal government provides the interest payment, the district then is typically only responsible for repaying the value of the bond. Through this program, the burden on school districts of financing school renovation is eased.

How Do Qualified Zone Academy Bonds Work?

Schools usually fund large projects, like building renovation or construction, through debt mechanisms such as tax-exempt bonds or loans. School districts must then pay a substantial amount of interest on this debt. For schools serving low income students, QZABs reduce the burden of interest payments by giving financial institutions holding the bonds (or other debt mechanism) a tax credit in lieu of interest. The school district must still pay back the amount of money it initially borrowed, but does not have to pay any interest -- typically about half the cost of renovating a school. The credit rate for QZABs sold on a given day are set by the Treasury Department

What are the requirements of the program?

Requirements of the program include:

An academic program that QZAB funds will benefit

A partnership between the school and private entities

Some states have set additional parameters for the QZAB program. Contact your state educational agency for these details.

What is required of the public-private partnership?

Each school must enter into a partnership with a private entity or entities. The partner must contribute at least 10 percent of the net present value of the amount of money borrowed.

Qualified Zone Academy Bond Link to info from U.S. Dept. of Education

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