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Bucks for Bonds

Bucks for Bonds

Tucked away in the recently enacted economic stimulus bill is a potential boon for school construction.

Tucked away in the recently enacted economic stimulus bill is a potential boon for school construction: $25 billion in zero-interest school construction bonds that could save education institutions billions of dollars in interest payments and provide incentive for increased school construction.

The provision, part of the American Recovery and Reinvestment Act of 2009, makes available over two years $25 billion in tax credits to bond holders for the interest normally paid on school construction bonds. This permits education institutions to pay back only the principal. The money saved by not paying interest can be directed toward other education needs.

First introduced in Congress more than a decade ago, the America's Better Classrooms Act (which the zero-interest bond program was called prior to being included in the final stimulus bill) has been advocated by House and Senate Democrats for some time. As part of the historic economic stimulus package recently passed, it finally has come to fruition.

The tax credit enables state and local governments to issue up to $22 billion in Qualified School Construction Bonds ($11 billion this year and $11 billion in 2010). It also increases funding by $2.8 billion ($1.4 billion this year and $1.4 billion in 2010) for the existing Qualified Zone Academy Bonds program. Bond proceeds can be used for the construction, modernization, upgrade and repair of public school facilities, as well as the acquisition of land for the new construction.

As education institutions continue to try to meet the growing need of rebuilding, improving and adding to their infrastructure, the tax credits will make school construction bonds more attractive to investors — and make construction projects more affordable for schools.

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