This past Friday, in an effort to help states pursue capital projects, Treasury announced the Build America Bonds program and two new tax credit bond programs for schools, known as the Qualified School Construction Bonds and Qualified Zone Academy Bonds ("School Bonds"), all provided for or otherwise expanded under the American Recovery and Reinvestment Act of 2009 (ARRA). A brief description of the programs are as follows:

Build America Bonds

Treasury will make a direct payment to the state or local governmental issuer in an amount equal to 35% of the interest payment on the bond issued under this program. This federal subsidy will provide state and local governments with "lower net borrowing costs," and the ability to "reach more sources of borrowing than with more traditional tax-exempt or tax credit bonds." The IRS has released Notice 2009-26 to provide guidance on implementation of the Build America Bonds program, covering such items as how and when to request these subsidy payments and how to make the necessary elections to issue these bonds.

School Bonds

The federal government will provide those who buy bonds to finance public school construction projects and other eligible costs for public schools with a direct federal subsidy in the form of a tax credit to replace 100% of the interest payments on the bonds. This "essentially allows state and local governments to issue these bonds without interest cost." For Qualified School Construction Bonds, Treasury's announcement provides for the division of the $11 billion national bond volume authorization for 2009 (Sec. 1521 under ARRA) among the states and 100 largest school districts based on levels of federal school funding. For Qualified Zone Academy Bonds, Treasury's announcement provides for the division of the $1.4 billion national bond volume authorizations (Sec. 1522 under ARRA) for each of 2008 and 2009 among the states based on poverty levels

.