7/13/04 -- Both the House and the Senate have passed corporate tax overhaul bills that include provisions to extend the issuance of tax-exempt qualified zone academy bonds (QZABs) for school modernization and programs.
The American Jobs Creation Act of 2004 (H.R.4520), passed by the House June 17, would extend the authority of states and local governments to issue QZABs through 2005 at an aggregate amount of $400 million a year for public school repairs, renovations, equipment, development of course materials, and staff training.
To be eligible, a school must be in a federally designated empowerment zone or enterprise community or must have at least 35 percent of its students eligible for free or reduced-price lunches.
The Senate passed a corporate tax bill, the Jumpstart Our Business Strength (JOBS) Act (S.1637), earlier this spring.
NSBA is urging congressional conferees to support the Senate bill because it contains all of the same provisions on QZABs as the House bill but allows QZABs to finance school construction, as well as renovation.
The bills appear to be headed for a conference committee, but resolution of the more controversial issues in the legislation -- on corporate tax incentives, state and local government leasing deals, and various types of municipal bonds -- means negotiations could take months.
With regular tax-exempt bonds issued by state or local governments, the interest is generally excluded from gross income for federal or state income tax purposes if the bond proceeds are used to finance government projects, such as public schools.
QZABs are alternatives to regular tax-exempt bonds. Financial institutions that hold QZABs are entitled to a nonrefundable tax credit in an amount equal to a credit rate multiplied by the face amount of the bond. A taxpayer holding a QZAB is also allowed a tax credit.
The Treasury Department sets the credit rate at a rate to allow issuance of QZABs without discount and without interest cost to the issuer. The maximum term of the bond is determined by the Treasury Department.
One example of a school district that has used QZABs extensively is the Pomona (Calif.) Unified School District.
So far, the district has raised $30 million in QZABs for a variety of projects, says Superintendent Patrick D. Leier.
Pomona used $5 million in QZAB financing for the $60 million Village @ Indian Hill project, which consists of a K-8 school, high school, conference center, and technology production center developed on the site of a former grocery store.
The district also used $5 million in QZAB financing for computers and other technology and training associated with that project and $10 million for districtwide technology initiatives. The remaining $10 million in QZABs is slated for curriculum enhancements but hasn't been expended yet, Leier says.
Both bills also extend income tax deductions for certain teacher expenses. The bills would allow public school teachers to continue to deduct up to $250 a year for expenses incurred for books, supplies, and equipment for classroom instruction.
The provision applies to K-12 teachers, counselors, principals, or aides who work at least 900 hours during a school year.