Report Title:

Education; GO Bonds; Qualified Zone Academy Bonds


Authorizes the issuance of general obligation bonds in the amount of $1 to take advantage of the Qualified Zone Academy Bond Program. (SD1)


H.B. NO.



S.D. 1






relating to education.



SECTION 1. In 1997, Congress passed legislation making funds available for state governments to issue qualified zone academy bonds to establish qualified zone academies in those areas designated as empowerment zones, enterprise communities, or designated areas serving low- and moderate-income students as calculated through the National School Lunch Act. In 1999, Congress extended this program by making additional funds available in 2002 and 2003. This program was created to help school systems collaborate with business partners to renovate state and school district properties to support educational initiatives that will ensure that students are prepared to be competitive in today's global economy.

The fiscal benefits of the qualified zone academy bond program far outweigh the difficulties in the process. Due to the taxable status of the bonds, the issuer is able to set up a sinking fund reinvestment contract that allows interest earnings to help repay the loan. For example, in a situation where the loan amount is $6,000,000 and the repayment period is thirteen years, the structure is a bullet (single payment) maturity due on the thirteenth year. If the issuer receives an investment agreement that yields six and one-half per cent per year, the deposit due on the loan origination day would be $2,646,100.59.

Because the qualified zone academy bond program is a zero interest loan, due to a federal subsidy to the lender, the issuer can borrow $6,000,000 and repay only $2,646,100.59. What this means is that the issuer can leverage its current cash on hand at better than a 2:1 ratio.

To meet the federal requirements established in the Elementary and Secondary Education Act of 1965, as amended by the No Child Left Behind Act of 2002, the department of education seeks to work with existing business partners to develop and provide innovative instructional initiatives and technology centers that use research-based instructional strategies and advanced technology and practices.

In one example of how the qualified zone academy bond program can be implemented, the department of education is planning to separate a middle school from Molokai high and intermediate school. Funds from the qualified zone academy bond program will be used to enable the department to invest in rearranging facilities, establishing infrastructure, performing renovations, and obtaining equipment necessary for the middle school. Existing business partners have committed their support to this endeavor and other businesses have expressed strong interest in supporting this effort.

The purpose of this Act is to authorize the issuance of general obligation bonds to take advantage of the qualified zone academy bond program. Studies have shown that implementation of the middle school concept is a key contributor to providing a learning environment conducive to learning, engagement, and achievement for students in grades six through eight.

SECTION 2. The director of finance is authorized to issue general obligation bonds in the sum of $1, or so much thereof as may be necessary, and the same sum or so much thereof as may be necessary is appropriated for fiscal year 2004-2005 for department of education statewide projects under the qualified zone academy bond program.

SECTION 3. The appropriation made by this Act shall not lapse at the end of the fiscal year for which the appropriation is made; provided that all moneys that are unencumbered as of June 30, 2006, shall lapse as of that date.

SECTION 4. The sum appropriated shall be expended by the department of education for the purposes of this Act.

SECTION 5. This Act shall take effect on July 1, 2044.