Imagine borrowing millions of dollars to build and repair schools and paying no interest on the construction loans.

Officials at Donegal and Lancaster school districts are hoping that scenario becomes more than just a pipe dream.

They've applied to participate in a new government-funded, zero-interest construction bond program that could save local taxpayers $50 million in interest payments in future years.

But there's a catch.

The two districts will be competing for the funds with scores of other school systems in Pennsylvania.

All of them want a share of the $315.7 million earmarked for the state under the Qualified School Construction Bond program.

Despite the competition, school officials are optimistic the program will pay off.

"It's a huge potential savings for the taxpayers," said Michael Rowen, co-chairman of the School District of Lancaster board's finance and facilities committee. "The timing is perfect for us, and I'm just glad we're in the running."

"Any place we can save some money, especially on something like this, it's always a positive," said Steve Cafrelli, president of Donegal school board.

The QSCB program, created under the American Recovery and Reinvestment Act, offers no-interest bonds to districts that are experiencing rapid growth or have high tax rates and/or high poverty levels.

Of Lancaster County's 17 school districts, only SDL, Donegal and Columbia qualified.

Columbia wanted to participate, business manager Laura Cowburn said, but delays in implementing the QSCB program — caused by the 101-day state budget standoff — scuttled the district's plan to use the bonds for its $17 million junior/senior high school expansion project.

QSCB funds must be used on projects that make schools more energy-efficient, improve kindergarten or pre-kindergarten programs, reduce class sizes, increase student safety or enhance science, technology, engineering and mathematics instruction.

The state Department of Education will rate applications on those criteria to determine which schools get the money.

Donegal is seeking $48 million to build a new high school, and SDL has requested $75.9 million for upgrades at 10 schools and an administrative center.

The bond funds would pay for only a small portion of the upgrade projects under way at SDL's Ross, Wharton, Washington and Lafayette elementary schools.

But the money could pay for nearly the entire second phase of projects planned to begin later this year at Martin, Carter & MacRae and Fulton elementary schools, Phoenix Academy, Steinman Clubhouse, Hand Middle School and Sheffey Administrative Center.

The potential interest savings for both districts are significant.

Financial adviser Ken Phillips estimates SDL could save as much as $35 million in interest over 15 to 17 years if it won approval for $70 million in bonds — the maximum Phillips expects the district to qualify for.

If Donegal qualified for $30 million, he said, the district could save $15 million in interest payments.

"I think everyone who applies and has a highly rated project is going to get something," said Phillips, managing director of RBC Capital Markets.

"Will they get 100 percent? No. But they'll get a good portion of it."

Donegal business manager Amy Swartz said the high school project meets many of the criteria of the bond program.

The new school will be more energy efficient and safer than the existing school and will enhance the district's science, technology, engineering and math programs.

"Our project is absolutely perfect for that," she said of the QSCB program. "And the timing is right."

Like the SDL projects, the high school is nearly "shovel ready" — which will give it funding priority over other projects that won't start until 2011.

Donegal plans to seek construction bids this summer, and work could begin in September, Swartz said.

SDL's projects also meet many of the evaluation criteria.

The upgrades are designed to make the schools safer and more energy efficient, reduce overcrowding and provide additional space for kindergarten and pre-K programs.

Still, there are 105 other school districts in the state eligible to apply for the limited pool of money.

How many are seeking the funds?

The Department of Education won't know that until it begins reviewing applications after the April 1 submission deadline, spokeswoman Leah Harris said.

About a month later, districts should find out whether their applications made the cut.

Next year, school districts will be able to vie for $286 million in QSCB funds.

"Regardless of what (the districts) end up getting, I do think it's a really good use of the stimulus money," Phillips said.

Rowen agreed.

"I think its a fantastic opportunity for the district to take advantage of something the government's offering," he said.

"There's no down side to the district at all."

bwallace@lnpnews.com