WASHINGTON, D.C. - The U.S. Treasury Department today issued guidance to State and local governments to jump-start the use of Build America and school construction bond funding as included in H.R. 1, The American Recovery and Reinvestment Act of 2009 (P.L. 111-5). This bond funding provides a critical resource to State and local governments to help create jobs and build and modernize local infrastructure, including roads, bridges and schools. The bond provisions originated in the Ways and Means Committee and the school construction bonds are based on legislation introduced in the 110th Congress by Chairman Charles B. Rangel (D-NY) and Committee Member Bob Etheridge (D-NC), the America’s Better Classrooms Act.
“These bonds give State and local governments a new, direct injection of capital to jumpstart infrastructure projects that will create jobs and improve our cities and towns," said Ways and Means Committee Chairman Charles B. Rangel (D-NY). “Secretary Geithner and the Treasury Department should be commended for their speedy implementation of this funding and I encourage State and local governments to learn more about the allocations announced and begin utilizing these funds today so we can start these projects immediately."
"In my state of North Carolina, and across the country, our schools are bursting at the seams. With state budgets in shortfalls during the recession we need this money now more than ever," said Ways and Means Committee Member Bob Etheridge (D-NC). “These bonds will put Americans back to work building quality facilities where our students can prepare to enter the 21st-century global economy. It`s a win-win solution for our students, workers and communities."
School Construction Bonds:
The Economic Recovery Act created a new category of tax credit bonds for public school construction and repair. The Act authorized approximately $24 billion of bonds for school construction, with direct allocation of the school construction bonds to the largest 125 school districts. Tax credit bonds are designed to allow State and local governments to issue bonds at little or no interest cost. The interest on the bond is paid through a Federal tax credit to the holder of the bond. In the case of these new school construction bonds, the Federal government would pay 100 percent of the interest through Federal tax credits.
An estimated 625,000 jobs could be created with $25 billion in school construction bonds.
Three quarters of America’s public school buildings are inadequate to serve the needs of students due to severe overcrowding, aging or outdated facilities, according to a 2005 report by the American Society of Civil Engineers, and the average public school building is almost 50 years old.
“Build America Bonds:"
The Economic Recovery Act created a new option for State and local borrowing, called a taxable bond option. Under the taxable bond option, a State or local government can issue a taxable bond, rather than a tax-exempt bond. These taxable bonds are called “Build America Bonds." If the State or local government utilizes this option, the Federal government will directly pay 35 percent of any interest on the bond. The Federal payment will be made at the same time as the interest payment is made. This option will enable State and local governments to market their bonds to investors for whom tax exemption is not relevant. That would include pension funds, charitable organizations and foreign investors.
The taxable bond option is available for any State or local financing of capital expenditures if the State or local government could issue a tax-exempt bond for that purpose. It is only available for general government borrowing, not private activity bonds.
The first issuance of Build America Bonds ($3.65 million) saved the city of Stevens Point, Wisconsin about $146,300 relative to traditional tax-exempt bond financing. This issuance shows that both small issuers and large issuers can benefit from this new taxable bond option.
* Click here to view the Treasury Department news release announcing the bond allocations.
* Click here to view a background sheet on the bond financing from the Treasury Department.
* Click here to view the guidance and state-by-state allocations issued by the Internal Revenue Service on school construction bonds.
* Click here to view the IRS guidance issued for Build America Bonds.
* Click here to view IRS guidance and state-by-state allocations for Qualified Zone Academy Bonds (QZABs).
