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ORANGE COUNTY <br />BOARD OF COMMISSIONERS <br />ACTION AGENDA ITEM ABSTRACT <br />Meeting Date: September 15, 2009 <br />Action Agenda <br />Item No. ~ -p <br />SUBJECT: Approval of the Preliminary Steps Necessary to Seek Qualified School <br />Construction Bond Financing for the Carrboro High Cultural Arts Win <br />DEPARTMENT: Finance PUBLIC HEARING: (Y/N) No <br />ATTACHMENT(S): INFORMATION CONTACT: <br />1) Projected Financing Schedule <br />2) Resolution Supporting Financing Gary Humphreys 919-245-2453 <br />Bob Jessup 919-933-9891 <br />PURPOSE: To approve the preliminary steps necessary to seek Qualified School Construction <br />Bond Financing for the Carrboro High Cultural Arts Wing. <br />BACKGROUND: Upon the request of the Chapel Hill Carrboro School System (CHCSS) the <br />Board during the budget process in June committed to the construction of the $4.6 million <br />Carrboro High School Arts Wing contingent upon the availability of federal economic stimulus <br />Qualified School Construction Bonds (QSCB). At that time the expectation was that the CHCSS <br />allocation of QSCB funding for 2009 and 2010 would be approximately $5.0 million. The Chapel <br />Hill Carrboro School System applied to the Department of Public Instruction (DPI) and received <br />approval to use its 2009 QSCB allocation of $1.9 million for the Arts Wing project. There is $86 <br />million left statewide from the 2009 QSCB program which DPI is awarding in a second round <br />process. CHCSS submitted an application signed by the Chair for the remainder of the funding <br />needed for the project. Notification regarding the application is expected by mid September. <br />The Qualified School Construction Bonds are tax credit bonds. The issuer receives a tax credit <br />at an interest rate established by the Treasury Department at the time of issuance. The issuer <br />then provides the tax credit to the purchaser of the bonds. The potential purchaser(s) will <br />evaluate the financing including the issuer, the project and the tax credit rate. The potential <br />purchaser(s) will determine whether to purchase the QSCB, if the tax credit rate is sufficient or if <br />a higher interest rate is needed to make the financing. If the tax credit rate is accepted then the <br />interest rate paid by the issuer will be zero. If a higher rate of interest is needed then the issuer <br />would have to agree to pay interest on the debt at the difference between the tax credit rate and <br />the rate the purchaser requires. The tax credit rates are lower now than earlier in the year. This <br />makes it more likely that some interest would be paid on a QSCB financing. Orange County can <br />anticipate the interest rate for financing might be anywhere from 0% to 2.0% depending on what <br />occurs with the rates set by the Treasury Department. <br />The QCSB is a new program and there have been very limited number of participants <br />purchasing these bonds. Staff attended a meeting in August hosted by the NC Association of <br />County Commissioners along with DPI and the Local Government Commission (LGC). <br />Guggenheim Partners Asset Management made a presentation at the meeting. At the current <br />