SECTION 1. SHORT TITLE.

    This Act may be cited as the ``School Construction Act of 1998''.

SEC. 2. INCENTIVES FOR PUBLIC SCHOOL CONSTRUCTION.

    (a) In General.--Part IV of subchapter A of chapter 1 of the 
Internal Revenue Code of 1986 (relating to credits against tax) is 
amended by inserting after subpart G the following new subpart:

``Subpart H--Credit to Holders of Qualified Public School Construction 
                                 Bonds.

                              ``Sec. 54. Credit to holders of qualified 
                                        public school construction 
                                        bonds.
                              ``Sec. 54A. Qualified public school 
                                        construction bonds.

``SEC. 54. CREDIT TO HOLDERS OF QUALIFIED PUBLIC SCHOOL CONSTRUCTION 
              BONDS.

    ``(a) Allowance of Credit.--In the case of a taxpayer who holds a 
qualified public school construction bond on the credit allowance date 
of such bond which occurs during the taxable year, there shall be 
allowed as a credit against the tax imposed by this chapter for such 
taxable year the amount determined under subsection (b).
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit determined 
        under this subsection with respect to any qualified public 
        school construction bond is the amount equal to the product 
        of--
                    ``(A) the credit rate determined by the Secretary 
                under paragraph (2) for the month in which such bond 
                was issued, multiplied by
                    ``(B) the face amount of the bond held by the 
                taxpayer on the credit allowance date.
            ``(2) Determination.--During each calendar month, the 
        Secretary shall determine a credit rate which shall apply to 
        bonds issued during the following calendar month. The credit 
        rate for any month is the percentage which the Secretary 
        estimates will on average permit the issuance of qualified 
        public school construction bonds without discount and without 
        interest cost to the issuer.
    ``(c) Limitation Based on Amount of Tax.--
            ``(1) In general.--The credit allowed under subsection (a) 
        for any taxable year shall not exceed the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under this 
                part (other than subpart C thereof, relating to 
                refundable credits).
            ``(2) Carryover of unused credit.--If the credit allowable 
        under subsection (a) exceeds the limitation imposed by 
        paragraph (1) for such taxable year, such excess shall be 
        carried to the succeeding taxable year and added to the credit 
        allowable under subsection (a) for such taxable year.
    ``(d) Definitions.--For purposes of this subpart--
            ``(1) Credit allowance date.--The term `credit allowance 
        date' means, with respect to any issue, the last day of the 1-
        year period beginning on the date of issuance of such issue and 
        the last day of each successive 1-year period thereafter.
            ``(2) Bond.--The term `bond' includes any obligation.
            ``(3) State.--The term `State' includes the District of 
        Columbia and any possession of the United States.
            ``(4) Public school facility.--The term `public school 
        facility' shall not include any stadium or other facility 
        primarily used for athletic contests or exhibitions or other 
        events for which admission is charged to the general public.
    ``(e) Credit Included in Gross Income.--Gross income includes the 
amount of the credit allowed to the taxpayer under this section and the 
amount so included shall be treated as interest income.
    ``(f) Bonds Held By Regulated Investment Companies.--If any 
qualified public school construction bond is held by a regulated 
investment company, the credit determined under subsection (a) shall be 
allowed to shareholders of such company under procedures prescribed by 
the Secretary.

``SEC. 54A. QUALIFIED PUBLIC SCHOOL CONSTRUCTION BONDS.

    ``(a) Qualified Public School Construction Bond.--For purposes of 
this subpart--
            ``(1) In general.--The term `qualified public school 
        construction bond' means any bond issued as part of an issue 
        if--
                    ``(A) 95 percent or more of the proceeds of such 
                issue are to be used for the construction, 
                rehabilitation, or repair of a public school facility,
                    ``(B) the bond is issued by a State or local 
                government within the jurisdiction of which such school 
                is located,
                    ``(C) the issuer designates such bond for purposes 
                of this section, and
                    ``(D) the term of each bond which is part of such 
                issue does not exceed 15 years.
            ``(2) Temporary period exception.--A bond shall not be 
        treated as failing to meet the requirement of paragraph (1)(A) 
        solely by reason of the fact that the proceeds of the issue of 
        which such bond is a part are invested for a reasonable 
        temporary period (but not more than 36 months) until such 
        proceeds are needed for the purpose for which such issue was 
        issued. Any earnings on such proceeds during such period shall 
        be treated as proceeds of the issue for purposes of applying 
        paragraph (1)(A).
    ``(b) Limitation on Amount of Bonds Designated.--The maximum 
aggregate face amount of bonds issued during any calendar year which 
may be designated under subsection (a) by any issuer shall not exceed 
the limitation amount allocated under subsection (d) for such calendar 
year to such issuer.
    ``(c) National Limitation on Amount of Bonds Designated.--There is 
a national qualified school construction bond limitation for each 
calendar year. Such limitation is--
            ``(1) $3,600,000,000 for 1999,
            ``(2) $3,600,000,000 for 2000, and
            ``(3) except as provided in subsection (e), zero after 
        2000.
    ``(d) Allocation of Limitation Among States.--
            ``(1) In general.--The Secretary shall allocate the 
        national qualified school construction bond limitation for any 
        calendar year among the States with projected enrollment 
        increases. The amount allocated to a State under the preceding 
        sentence shall be allocated by the State education agency to 
        issuers within such State and such allocations may be made only 
        if there is an approved State application.
            ``(2) Allocation formula.--
                    ``(A) In general.--The national qualified school 
                construction bond limitation shall be allocated among 
                the States with projected enrollment increases in 
                proportion to their respective shares of the national 
                projected enrollment increase.
                    ``(B) Projected enrollment increase.--The amount of 
                projected enrollment increase for the United States or 
                any State is the amount of the increase (as projected 
                by the Secretary of Education using data as of January 
                1, 1998) in enrollment in public elementary and 
                secondary schools in the United States or in such State 
                (as the case may be) during the 10-year period 
                beginning with 1997.
            ``(3) Approved state application.--For purposes of 
        paragraph (1), the term `approved State application' means an 
        application which is approved by the Secretary of Education and 
        which includes--
                    ``(A) the results of a recent publicly-available 
                survey (undertaken by the State with the involvement of 
                local education officials, members of the public, and 
                experts in school construction and management) of such 
                State's needs for public school facilities, including 
                descriptions of--
                            ``(i) health and safety problems at such 
                        facilities,
                            ``(ii) the capacity of public schools in 
                        the State to house projected enrollments, and
                            ``(iii) the extent to which the public 
                        schools in the State offer the physical 
                        infrastructure needed to provide a high-quality 
                        education to all students, and
                    ``(B) a description of how the State will allocate 
                to local educational agencies, or otherwise use, its 
                allocation under this subsection to address the needs 
                identified under subparagraph (A), including a 
                description of how it will--
                            ``(i) give priority to localities 
                        experiencing the largest increases in 
                        enrollment,
                            ``(ii) use its allocation under this 
                        subsection to assist localities that lack the 
                        fiscal capacity to issue bonds on their own, 
                        and
                            ``(iii) ensure that its allocation under 
                        this subsection is used only to supplement, and 
                        not supplant, the amount of school 
                        construction, rehabilitation, and repair in the 
                        State that would have occurred in the absence 
                        of such allocation.
        Any allocation under paragraph (1) by a State education agency 
        shall be binding if such agency reasonably determined that the 
        allocation was in accordance with the plan approved under this 
        paragraph.
    ``(e) Carryover of Unused Limitation.--If for any calendar year--
            ``(1) the amount allocated under subsection (d) to any 
        State, exceeds
            ``(2) the amount of bonds issued during such year which are 
        designated under subsection (a) pursuant to such allocation,
the limitation amount under such subsection for such State for the 
following calendar year shall be increased by the amount of such 
excess. The subsection shall not apply if such following calendar year 
is after 2002.''
    (b) Reporting.--Subsection (d) of section 6049 of such Code 
(relating to returns regarding payments of interest) is amended by 
adding at the end the following new paragraph:
            ``(8) Reporting of credit on qualified public school 
        construction bonds.--
                    ``(A) In general.--For purposes of subsection (a), 
                the term `interest' includes amounts includible in 
                gross income under section 54(e) and such amounts shall 
                be treated as paid on the credit allowance date (as 
                defined in section 54(d)(1)).
                    ``(B) Reporting to corporations, etc.--Except as 
                otherwise provided in regulations, in the case of any 
                interest described in subparagraph (A) of this 
                paragraph, subsection (b)(4) of this section shall be 
                applied without regard to subparagraphs (A), (H), (I), 
                (J), (K), and (L)(i).
                    ``(C) Regulatory authority.--The Secretary may 
                prescribe such regulations as are necessary or 
                appropriate to carry out the purposes of this 
                paragraph, including regulations which require more 
                frequent or more detailed reporting.''
    (c) Clerical Amendment.--The table of subparts for part IV of 
subchapter A of chapter 1 of such Code is amended by adding at the end 
the following new item:

                              ``Subpart H. Credit to holders of 
                                        qualified public school 
                                        construction bonds.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to obligations issued after December 31, 1998.
School Construction Act of 1998 - Amends the Internal Revenue Code to:  (1) allow a limited tax credit to holders of qualified public school construction bonds as an incentive for public school construction; (2) include in gross income the amount of such credit, which shall be treated as interest income; and (3) establish a national qualified school construction bond limitation for each calendar year, to be allocated among the States with projected enrollment increases.
School Construction Act of 1998