New York could sell $192 million of qualified school construction bonds this year through the Dormitory Authority of the State of New York, according to a resolution adopted by the agency at its monthly board meeting yesterday.

The bonds would be backed by state personal income tax and would fund an existing school construction grant program, called Expanding Our Children's Education and Learning, or EXCEL.

The federal QSCB program was created in the American Recovery and Reinvestment Act and authorized the sale of $11 billion of the bonds in 2009 for school construction projects, with another $11 billion to be allocated in 2010.

The bonds pay the investor federal tax credits instead of interest, meaning that the issuer repays only the principal on the bonds. The state's allocation - excluding New York City, Buffalo, and Rochester, which each got separate allocations - was $192 million for 2009.

The state Legislature authorized DASNY to sell $2.6 billion of personal income tax bonds to fund the EXCEL program, which began in fiscal 2007. To date, DASNY has sold more than half of that.

The state Division of Budget told DASNY that it was contemplating allocating "all or a portion of" New York's 2009 and 2010 QSCB allocation with the intention of having the issuer market one or more series of bonds to fund EXCEL grants, according to the resolution.

Yesterday's resolution did not authorize a bond sale; rather, it just got the ball rolling.

"There's no green light for anybody to go ahead and do this," said DASNY spokesman Marc Violette. "It's kind of like preparing the way for something that might happen."

The possibility that all of the state's QSCBs would be issued by DASNY to fund grants didn't sit well with Richard Tortora, president of Capital Markets Advisors LLC, which he said counts about 100 school districts in the state as clients.

"If DASNY took all of the allocation and used it to issue debt to raise money to fund EXCEL, that might be good for the state of New York, but it seems as though it doesn't do anything for local school districts," Tortora said. Tortora said the school districts wouldn't receive any additional benefits from the state's use of QSCBs to fund EXCEL since the grants, which school districts had to apply for, were already anticipated.

"We'd like individual school districts to get those allocations so they can issue debt and reduce their cost of capital," he said. Tortora said he thought the intent of the law was to give local school districts a break.

But there doesn't appear to be problem with the state using its QSCB allocation to fund EXCEL grants, said Linda Schakel, a partner at Ballard Spahr Andrews & Ingersoll LLP.

"I don't think there would be anything wrong with the state treating it as a grant as long as the grant is going to be used for school construction," Schakel said. "The intended use of the proceeds is that they be used to construct or rehab or equip public schools, and it just says the school has to be within the state."

The DASNY board yesterday also gave final approval to three bond financings for higher education. Yeshiva University in New York City plans to market up to $145 million for new capital projects, to refinance a line of credit, and to refund some outstanding debt. JPMorgan will underwrite the bonds and Squire, Sanders & Dempsey LLP is bond counsel.

The board also approved the sale of $140 million of bonds on behalf of the University of Rochester for capital projects and refunding. Barclays Capital will lead manage the sale. Hawkins Delafield & Wood LLP is bond counsel.

Ithaca College plans to use up to $41 million to restructure variable-rate demand bonds issued last year as fixed-rate bonds. The deal will terminate a letter of credit provided by RBS Citizens NA. RBC Capital Markets will lead manage the sale. Harris Beach PLLC is bond counsel.

New York University received preliminary approval to market $469.7 million of bonds for various capital projects at its facilities in Manhattan.

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