On March 4, 2010, the House of Representatives approved a revised jobs bill (the House Jobs Bill) amending the Senate’s version of jobs legislation. Most significantly for the state and local finance industry, the House Jobs Bill expands and increases the subsidies available for qualified school construction bonds (QSCBs), qualified zone academy bonds (QZABs), new clean renewable energy bonds (New CREBs), and qualified energy conservation bonds (QECBs and together with QSCBs, QZABs and New CREBs, the QTCBs). The House Jobs Bill does not affect Recovery Zone Bonds, Build America Bonds or qualified forestry conservation bonds.
The House Jobs Bill allows QTCB issuers to receive a subsidy payment (the Direct Payment), similar to the direct payment option given to issuers of Build America Bonds (BABs). Under current law, the QTCB subsidy is a federal income tax credit (the Tax Credit). Under the House Jobs Bill, a QTCB issuer may choose whether the subsidy is delivered in the form of a Tax Credit or a Direct Payment. For QSCBs and QZABs, the Direct Payment is equal to the lesser of (i) the interest paid by the issuer on each interest payment date or (ii) the amount of interest that would have been payable had the issuer selected the Tax Credit option and such interest was determined using the applicable rate of the Tax Credit. For New CREBs and QECBs, the Direct Payment is equal to the lesser of (i) the interest paid by the issuer on each interest payment date or (ii) 70% of the amount of interest that would have been payable had the issuer selected the Tax Credit option and such interest was determined using the applicable rate of the Tax Credit. The foregoing House Jobs Bill provisions will be effective for QTCBs issued after the date of enactment.
The House Jobs Bill’s amendments are to be contrasted with the provisions of the Senate Jobs Bill, S.A. 3310, which were described in our prior alert. Under the Senate Jobs Bill, for QTCB issuers that issue $30 million or less in tax-exempt bonds (excluding private activity bonds) and QTCBs (regardless of whether issued with a Tax Credit or Direct Payment) in a single calendar year, the Direct Payment equals 65% of the interest paid by the issuer on each interest payment date. For other QTCB issuers, the Direct Payment equals 45% of the interest paid by the issuer on each interest payment date.
Under each of the bills, an issuer must irrevocably elect the Direct Payment. The House Jobs Bill also contains technical corrections. One such correction allows large local education agencies having received direct 2009 QSCB allocation to carryforward their unused 2009 allocations. This provision is retroactively effective as of February 17, 2009, the date of enactment of the American Recovery and Reinvestment Act of 2009.
If you have any questions regarding QTCBs, please contact the authors, or visit McGuireWoods’ Public Finance practice. You can also refer to prior alerts on QSCBs, QZABs, New CREBs, and BABs in our news archive and our Stimulus Package section for more updates on ARRA.