On December 2, 2009, U.S. House of Representatives Ways and Means committee chairman Charles Rangel introduced a bill to make technical corrections to certain tax provisions, including ones contained in the American Recovery and Reinvestment Tax Act of 2009 (the Act). Of particular interest to those involved in the financing of public school facilities, the bill makes a correction to the tax code to allow the nation’s 100 largest local education agencies (as measured by the number of school age children living below the poverty level) to carry forward their unused 2009 allocations of Qualified School Construction Bonds (QSCBs) to calendar year 2010.
Under current law, allocations of QSCBs are made to three categories of issuers: states, large local education agencies (i.e., school districts), and tribal governments. Pursuant to the Act and Notice 2009-35 (2009-17 I.R.B. 876), states and tribal governments are permitted to carry their allocations forward, but the nation’s 100 largest local education agencies, the large local education agencies awarded 2009 allocations, are not. The change proposed in the House bill would correct this disparity so that all direct 2009 and 2010 QSCB allocation recipients may carry forward their unused allocations to the succeeding calendar year.
In order for a large local education agency to retain its unused allocation under current law, the agency would have to transfer the unused allocation to the state in which it is located and ask the state to re-allocate to the agency in the following year. The bill would eliminate this administrative burden. But for some of the agencies, the bill comes too late. For example, in Maryland, in order to meet a state-imposed deadline, agencies with unused 2009 allocations have already transferred their allocations to the state. It should also be noted that there are no large local education agencies in many states, such as Virginia.
QSCBs are tax credit bonds created by the Act that may finance the construction, rehabilitation, or repair of a public school facility, and may cover the cost of acquiring the site on which such a facility is to be constructed and costs of acquisition of equipment to be used in the portion of the public school facility being constructed, rehabilitated, or repaired. QSCBs are intended to bear little or no interest. The tax credit amount is based on a percentage of the outstanding bond principal. The credit accrues quarterly, is included in gross income as if it was a taxable interest payment, and can be applied to offset federal income tax or AMT liabilities. Under regulations to be provided by the U.S. Treasury Department, the credit may also be stripped from the bonds and sold to a third party.
If you have any questions regarding QSCBs, please contact one of the attorneys listed below, or visit McGuireWoods’ Public Finance practice. You can also refer to our prior coverage of QSCBs and our Stimulus Package section for more updates on the American Reinvestment and Recovery Act.