February 17, 2010

To: Senate Majority Leader Senator Harry Reid, Senate Finance Committee Chairman Senator Max Baucus and Ranking Member Senator Chuck Grassley
From: Dr. Appu Kuttan , Chairman, National Education Foundation (NEF)

RE: Interest Reimbursement for QZABs in the Senate Jobs Bill

Last time we communicated with you and your staff members, you asked us to let you and the Senate Finance Committee staff know about the concerns of the Nation’s School Superintendents and State Directors re: QZAB.

Issue: The Senate “Jobs” draft bill developed by Senator Reid provides for the application of the Build America Bonds (BABs) formula –for QZABs and QSCBs
However, instead of providing an almost 100% reimbursement of interest as the House bill (HR 2847 “Jobs for Main Street Act”) would allow, the Senate draft provides only for 65% of interest costs for any issuer that sold less than $30 million during the calendar year, while larger issuers would receive 45% reimbursement of interest payments.

The issue both the House and Senate are correctly addressing is that the QZAB is not being issued anywhere near the rate as BABs. Our records show that only about $50 million QZABs were issued in 2009 out of a total $1.8 billion allocation (including 2008 and 09), while BABs have sold in significantly higher numbers in 2009 ($60 billion) based on their interest reimbursement rate of 35%.

We have completed a national survey of school superintendents and 50 State QZAB directors which shows overwhelming support for the House passed provision and underlines the fact that the current economic crisis has had a significant impact on school districts through reduced state aid and tax revenue. Because the QZAB program is targeted at high poverty schools, the higher poverty schools in particular are unable to afford paying the supplemental interest rates many banks are charging in order to issue a QZAB loan. To make matters worse, many of these districts have suffered as much as 10 percent cuts in state aid.

Here are some highlights of the survey:

• 97.9% of the school superintendents surveyed supported 100% reimbursement of interest for QZABs
• 72.8% of QZAB state directors thought the House proposal would lead to a significant increase in activity for QZABs

Recommendation: Support the House provision for the almost 100 percent interest reimbursement for QZABs issued under $30 million. The additional cost to the taxpayers is quite negligible. Adopt the house language in the case of QZAB. This will help the disadvantaged schools across the Nation.
Please respond. Dr. Laurence Peters (our QZAB director and the first QZAB program director at the U.S. Education Department) and I would be glad to come over and meet with you if you so desire. Thank you.