A r c h i v e d  I n f o r m a t i o n

Fostering A Dream

A Financier?s Perspective on Using QZABs

Pomona Unified School District of California issued a $12 million QZAB to benefit a Technology Academy, a Hospitality Academy, a Health Education Academy, and a Professional Teaching Academy. Stone & Youngberg LLC served as the placement agent for the district. Jeffrey Baratta of Stone & Youngberg offers a financier?s thoughts on the QZAB program:

"Facility funding is a major issue throughout the nation today. The problem facing districts is the ability to provide adequate building space for enhanced educational opportunities. Many school districts cannot provide these programs because of a lack of facility dollars. The Qualified Zone Academy Bond program has proved to be very beneficial for many different types of school districts. Districts ranging in size from the largest to the smallest have benefited both financially and through curriculum enhancement by utilizing funds through the QZAB program.

If school districts had to borrow money through traditional methods of financing, they would be required to repay almost double what they borrowed. In a typical $12 million financing project, a school would repay approximately $23 million in principal and interest to the lenders. In November 1999, the Pomona Unified School District borrowed $12 million under the QZAB program. Pomona USD repaid its loan by depositing $5.4 million of available district funds into an investment agreement. The length of the agreement is set for the same period as the loan. At maturity, the agreement will have a value of $12 million and will be used for the repayment of the loan. During the loan period, the lender will receive annual federal taxcredits in lieu of traditional interest payment. This structure represents savings to the district of approximately $17.6 million.

The savings from the QZAB program can be viewed in two ways:

1. The district can afford a program that was once unattainable; or
2. The district can fund other programs and can further enhance educational opportunities for the children.

The QZAB program started in January 1998. Even though it is fairly new to the finance community, it is being utilized more frequently than expected. Over the last year we have seen more lenders become open to this type of structure. Further expansion of this program will increase lender interest and decrease borrowing costs. While the QZAB program is not for every district, it does offer viable and effective alternatives for many."

[Designing a Dream: A School Deputy Superintendent's Perspective on Using QZABs]

[Making a Dream Come True: Profiles of QZAB Programs in School Districts]