Qualified Zone Academy Bonds (QZABs): An Introduction

1. Qualified Zone Academy Bonds (QZABs): An Introduction QZABs were instated under the 1997 Tax Payer Relief Act to encourage a public-private partnership among schools and the business community and provide low or no interest financing to schools in order to improve education in “at risk” schools. QZABs were extended through 2011 by the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 and the American Recovery and Reinvestment Act of 2009. Allocations: $1.4 billion in 2009 and 2010 |$400 million in 2011

2. QZAB: Eligibility Requirements • Eligible public school (qualified zone academy) must be located either in an empowerment zone or an enterprise community, or have reasonable expectation that at least 35% of the students attending such school will be eligible for free or reduced cost lunches . • 100% of proceeds may be used to rehabilitate or repair certain eligible public schools. May not be used to construct new public schools. • May be used for: • Renovating, repairing or rehabilitating school facilities: • Equipment • Development of course materials • Training for teachers • Requires a commitment from private business to contribute to the public school certain equipment, property, services or cash with a [net present] value equal to at least 10% of the principal amount of the QZAB.

3. Qualified Zone Academy Bonds (QZAB): Overview • Taxable bonds issued by a school district (may carry a supplemental interest rate) and tax credits are provided in lieu of interest payments. • Principal is paid at maturity. Secretary of U.S. Department of Treasury sets maximum maturity (4/11/11 = 15 yrs) . • Investor that buys QZAB is allowed annual federal income tax credits in lieu of periodic interest payments (4/11/11 = 5.50%). • For 2009 and 2010 allocations, Districts can receive direct subsidy in amount equal to Qualified Tax Credit Bond rate as published by the Bureau of Public Debt on its Internet site for State and Local Government Securities at http://www.treasurydirect.gov • May be issued as voted unlimited tax general obligation (UTGO) bonds or non-voted lease purchase agreement or certificate of participation (COP). • Principal amount of QZAB must not exceed applicable debt limits.

4. QZAB: State & Local Allocation • Federal law provides a national QZAB limitation for each calendar year, which is allocated among the states (based on poverty population) > limitation allocated by state education agency (in Colorado, CDE) to eligible school districts as defined (Code Section 54E(d)(2) defines “eligible local education agency” as any local educational agency as defined in Section 9101 of the Elementary and Secondary Education Act of 1965.). • States may carry forward any unused QZAB limitation amount for two years following the unused limitation year to be used on a first-in, first-out basis. • Currently, the total Colorado QZAB limitation amount that may be allocated by CDE to school districts is noted on the CDE web-site Allocation Tracking Form and Frequently Asked Questions documents at the following web-site location: http://www.cde.state.co.us/cdefinance/CapConstQZAB.htm

5. QZAB: Application Process Applications must include the following: • District Board of Directors Resolution • Provide the following items: • Statement identifying the qualified zone academy • Description of the expenditures the bonds will be used for • Confirmation that Davis-Bacon wages have been included • A written spending plan confirming all funding spent within 3 years • A description of the planned private business partnership • CDE Application • Applications are available on CDE’s website: http://www.cde.state.co.us/cdefinance/download/pdf/CC-11QZABApplicationFormEDAC.pdf

6. QZAB: Financing Upon receiving allocation QZABs may be issued as: • Voter-approved general obligation (GO) bonds • Most secure form of repayment and receives lowest cost of borrowing. • A lease purchase agreement, secured by collateral, and repaid from the annual appropriation of monies from the district’s general fund. • Can be issued without voter approval. • Receives slightly higher borrowing cost than GOs due to “appropriation clause”.

7. QZAB: Other Considerations • 2% limit on costs of issuance (COI) • Costs related to issuance above this limit are paid from traditional (fully) taxable bonds or cash on hand. • Please contact CDE or your financial advisor for more detailed information about costs of issuance.

8. QZAB: Other Considerations • Collateral – a lease purchase is generally secured by property, which less complicated and costly with a larger transaction • It’s easier to use an entire building as collateral for a QZAB lease purchase agreement or COP amounting to $2 million. Smaller-sized transaction amounts may require collateralization of a part of a building, etc...each proposed project will need to be studied independently to determine the best way to collateralize. • Davis - Bacon Requirements: 5-10% (estimated) increase in labor costs. Increase varies by project, local economy and job base.

9. QZAB: More Information • Please contact Kristin Lortie (lortie_k@cde.state.co.usor (303) 866-6184) at CDE for more information about QZAB eligibility and requirements. • CDE suggests contacting a few of the finance companies listed here in the QZAB F.A.Q. available here:(http://www.cde.state.co.us/cdefinance/CapConstQZAB.htm). • These companies will assist the District in determining if QZABs are appropriate for a project, how it will be structured (GO vs COP) and how it will be sold.