Federal-Funding Options

The federal government does not generally offer direct support to states or localities for financing school facilities. In recent years, growing attention to the poor condition of school facilities nationally has led many to advocate for increased federal investments in school construction through a number of legislative proposals, however comprehensive legislation has not passed. The federal government does, however, provide indirect support for school construction and renovation through the tax code and has recently expanded that support through the Qualified Zone Academy Bond (QZAB) program. QZABs use tax benefits to assist state and local educational agencies in financing the renovation and repair of public school facilities (they cannot be used for new construction). Under the QZAB program, the federal government provides a tax credit in lieu of the interest that local districts usually have to pay on general obligation bonds. The school district or other bond issuer is then only responsible for repaying the amount borrowed, significantly reducing the overall cost of a bond. To be eligible to use a QZAB, a public school must either be located within an Empowerment Zone or Enterprise Community or at least 35% of the school’s students must be eligible for the free or reduced-price lunch program. Schools that benefit from QZABs are required to receive cash or in-kind donations from private entities worth at least 10% of the bond amount (The Finance Project, Financing Facility Improvements for Out-of-School Time and Community School Programs, Vol.1, #4, Aug.2000).

Because interstate, and even international, population shifts are major components of this growth, the federal government can play a pivotal role in equalizing the burdens they create for schools in high-growth areas. (Sara Mead, 2001, School Construction, Policy Report, June 2001, p.3, Progressive Policy Institute)

However, slow implementation by state educational agencies and unfamiliarity with the tax credit bond concept in the financial community mean that schools must take considerable initiative to access these benefits. As a result, several states have yet to allocate any of their bonding authority, though continued outreach by the Department of Agriculture has accelerated implementation. (Sara Mead, 2001, School Construction, Policy Report, June 2001, p.7, Progressive Policy Institute)