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

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.

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.

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

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

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”.

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.

Category Notes General Obligation BondLease Purchase Agreement 1 /

Certificate of Participation Bond Counsel Bond attorney drafts authorizing and financing

documents and investor disclosure if bonds are publically offered.

$20-25k $25-30k

Rating Agency Fee (if deemed necessary; final fee may be lower depending on final financing amount)

It may not be necessary to retain a credit rating for the financing. Final fee may be lower depending on final borrowing amount.

$7.5-9k (S&P under $5mm) $8k (Moody's $1-4.9mm)

$8-9.5k (S&P under $5mm) $9k (Moody's $1.49mm)

Paying Agent & Registrar (or Trustee w/lease purchase)

Services provided by a the trust dept. of a commercial bank include receiving debt repayments from District and distributing to investors.

$900

$1,500-2,000Electronic Posting of Preliminary Official Statement (POS) - investor disclosure document

Disclosure document electronically posted for dissemination to investors.

$1,500 $1,500

DTC, CUSIP Fees (assumes $1mm par, 20 year term) Registration fees paid for every public offered bonds; fees based on amount of financing.

$1,000 $1,000

Title Commitment/InsuranceRequired for securing collateral in lease purchase agreement or COP NA $5-10k

Bond Counsel $10-20k $15-25k

Paying Agent & Registrar (Trustee w/lease purchase, if necessary) - trust dept of commercial bank $900 $1,500-2,000Title Commitment/Insurance NA $5-10k

QZAB Financing: Costs of Issuance Examples & Estimates (Public Offering)

QZAB Financing: Costs of Issuance Examples & Estimates (Private Placement)

1 A publically offered lease purchase agreement may be issued as a certificate of participation (COP). COPs are not eligible for Colorado's bond payment intercept program which provides district's issuing GO bonds the State's "AA" credit rating. Depending on the size and credit of the district, COPs unlikely to receive an investment grade rating (BBB or higher); therefore, this financing structure is most appropriate for a direct placement with a bank. | A commercial bank trust department may or may not need to serve in the capacity of a trustee in a lease purchase agreement financing.

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.

QZAB: More Information

Please contact Kristin Lortie (lortie_k@cde.state.co.us or (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.