IRS Allocates QZABs to States, DC, Territories for 2015, 2016

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WASHINGTON – The Internal Revenue Service has announced how many qualified zone academy bonds can be issued in each state, the District of Columbia and U.S. territories in 2015 and 2016.

The announcement was made in Notice 2016-20, released Friday, after legislation enacted last year authorized $400 million of QZABs to be issued in each of calendar years 2015 and 2016. QZAB amounts that are not used can be carried forward for two years following the year in which they were unused.

The QZAB amounts allocated are determined based on populations of individuals below the poverty line, as defined by the Office of Management and Budget.

For each of 2015 and 2016, the highest allocation is $49.866 million for California, followed by $36.040 million for Texas, $25.766 million for Florida and $14.519 for Puerto Rico, according to the notice.

The smallest allocations are $185,000 for the Northern Mariana Islands, $196,000 for the U.S. Virgin Islands, $325,000 for American Samoa, and $352,000 for Guam.

Among the states, Wyoming has the lowest allocation of $509,000 in each year.

QZABs are traditional taxable, tax credit bonds for which institutional or individual holders receive tax credits. They must be issued by state of local governments to finance the rehabilitation or repair of public school or program facilities, equipment purchase, course material development and teacher training in a "qualified zone academy."

The public school or program must be established and run by an eligible local education agency and must meet certain requirements. It must provide education and training below the college level. It must also be located in an empowerment zone or enterprise community or where there is a reasonable expectation that at least 35% of students will be eligible for free or reduced-cost lunches under a school lunch program.

At the closing of a QZAB transaction, the issuer must have written commitments that private parties will contribute amounts equal to 10% of the bond amount, based on a present value calculation.

The IRS also requires the QZAB issuer, within six months of issuance, to have as written commitment to spend an amount equal to at least 10% of the bond proceeds. The rest of the proceeds must be spent within three years. An issuer can get additional time to spend the proceeds through a private-letter ruling or it can redeem any unspent bond proceeds at the end of three years.

QZABs have been available to local school districts since January 1998. In recent years, Congress has provided authority for roughly $400 million of QZABs to be issued each year. However, during 2008, 2009, and 2010, the American Recovery and Reinvestment Act increased these amounts of $1.4 billion. The 2011 allocation was returned to the $400 million level. Also, during 2010, QZABs could be issued as taxable, direct-pay bonds, through which the issue received a subsidy payment from Treasury.

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