SAN FRANCISCO — A small Idaho school district this week closed on a qualified school construction bond deal.

The Snake River School District No. 52’s $5 million QSCB placement was combined with a traditional $12 million competitive tax-exempt bond sale, said Alan Westenskow, vice president of financial adviser Zions Banks Public Finance.

The district pays zero interest on the QSCBs, because investors receive federal tax credits instead.

Between the QSCBs, and support from two state government programs, one to enhance the debt and another that assists with debt-service payments for districts with lower-than-average property values, the district over time expects to pay back less than it borrowed, Westenskow said in an e-mail.

The tax-exempt bonds received a Aaa from Moody’s Investors Service based on the enhancement provided by the Idaho State School Bond Guaranty Program. They are also bank-qualified.

The $5 million QSCB series does not carry a formal rating. But those bonds, which were privately placed with JPMorgan, also benefit from the state guaranty program, according to the official statement for the tax-exempt bonds.

The QSCB tax credit rate will be 7.04% with no supplemental coupons, the OS said.

The tax-exempt bonds were sold competitively at a July 15 sale with eight bidders, won by Stifel Nicolaus & Co. with a true interest cost of 3.5288%.

The QSCB program was created as part of the American Recovery and Reinvestment Act, which authorized $22 billion of these bonds through fiscal 2010.

Idaho received a $37.7 million allocation for 2009, and its state education department allocated $5 million to the Snake River district on the condition it could pass a GO bond authorization. The bond measure passed May 12, with more than 80% voting yes.

The district, which enrolls about 1,900 students, plans to use the bond proceeds to finance repairs, upgrades, and expansions to its existing school buildings.

The QSCBs are structured as a 2024 term bonds, with the district expecting to earn interest payments from its payments into a sinking fund, which is expected to generate approximately $680,000 over 15 years assuming an average reinvestment rate of 2%, according to Westenskow.

The state government will also subsidize about 38% of the district’s principal and interest payments under its bond levy equalization support program.

That means “it is very likely that the district will repay less money than it borrowed,” Westenskow said. Over time, the subsidy may change. The calculation adjusts every year and payment is subject to annual appropriation by the Legislature.

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