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[Senate Report 106-497]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 947
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-497

======================================================================

 
PROVIDING FOR THE ISSUANCE OF BONDS TO PROVIDE FUNDING FOR THE 
  CONSTRUCTION OF SCHOOLS OF THE BUREAU OF INDIAN AFFAIRS OF THE 
  DEPARTMENT OF THE INTERIOR, AND FOR OTHER PURPOSES

                                _______
                                

   October 12, (legislative day, September 22), 2000.--Ordered to be 
                                printed

                                _______
                                

   Mr. Campbell, from the Committee on Indian Affairs, submitted the 
                               following

                              R E P O R T

                         [To accompany S. 2580]

    The Committee on Indian Affairs, to which was referred the 
bill (S. 2580), to provide for the issuance of bonds to provide 
funding for the construction of schools of the Bureau of Indian 
Affairs of the Department of the Interior, and for other 
purposes, having considered the same, reports favorably thereon 
with an amendment in the nature of a substitute, and recommends 
that the bill, as amended, do pass.

                                Purposes

    The purpose of S. 2580 is to provide optional funding 
mechanism for replacing Bureau of Indian Affairs (BIA) school 
facilities. It authorizes a two year pilot project that will 
provide Indian tribes with the authority to issue Qualified 
Tribal School Modernization Bonds (QTSMB). The bonds will 
generate revenue that will be used to build new school 
facilities. It also authorizes the creation of a new escrow 
account to provide tribes with the resources necessary to pay 
bondholders when the QTSMB matures.

                               Background

    Through numerous treaties and legislation including the 
Snyder Act of 1921 \1\ the Federal government has assumed a 
trust responsibility to provide an education to Indian 
children. This duty includes providing safe school facilities 
that have such basic amenities as heat and healthy air to 
breathe. Adequate facilities and such essential necessities are 
not being provided to many Indian children attending BIA-funded 
schools.
---------------------------------------------------------------------------
    \1\ Pub. L. 94-482 (25 U.S.C. 13).
---------------------------------------------------------------------------
    The Federal government is solely responsible for the 185 
Indian schools funded by the BIA. Nearly 4,500 facilities serve 
the Bureau's education program, consisting of over 20 million 
square feet of space, including dormitories, employee housing 
quarters, and other buildings providing education opportunities 
to more than 50,000 Indian students. These facilities serve 
more than 330 Federally recognized Indian tribes located in 23 
states through Indian Self-Determination and Education 
Assistance Act contracts, compacts, and grants.\2\
---------------------------------------------------------------------------
    \2\ Statement of William Mehojah, Director, Office of Indian 
Education Programs, Bureau of Indian Affairs, U.S. Department of the 
Interior, to the Senate Committee on Indian Affairs, September 6, 2000.
---------------------------------------------------------------------------
    Half of the school facilities in the BIA's inventory have 
exceeded their useful lives of 30 years, and more than 20 
percent of such facilities are over 50 years old. The BIA 
reports numerous deficiencies in the areas of health, safety, 
access for disabled students, classroom size, ability to 
integrate computer and telecommunications technology, and 
administrative space.\3\ Many Indian students lack access to 
computer and science labs, gymnasia, and other basic resources. 
Studies suggest these types of deficiencies can have serious 
adverse effects on student learning.
---------------------------------------------------------------------------
    \3\ Ibid.
---------------------------------------------------------------------------
    Moreover, a 1997 General Accounting Office (GAO) study 
entitled ``School Facilities, Reported Condition and Cost to 
Repair Schools Funded by the Bureau of Indian Affairs'' 
indicates that BIA schools report building deficiencies at a 
higher rate than public schools. Almost four-fifths of the BIA 
schools reported having at least one inadequate building 
feature, while about one-half to two-thirds of public schools 
reported at least one inadequate building feature.\4\
---------------------------------------------------------------------------
    \4\ School Facilities: Reported Condition and Costs to Repair 
Schools by the Bureau of Indian Affairs:, GAO/HEHS-98-47, December, 
1997.
---------------------------------------------------------------------------
    The existing backlog of education facility repairs and new 
construction needs is estimated at $2.1 billion. The BIA has 
published a list of 16 schools awaiting construction funds for 
replacement purposes. In addition, at least 96 schools have 
been identified as needing to be replaced. These schools have 
submitted data to the BIA which in turn has begun the process 
of ranking the schools by severity of need and related 
criteria.
    The Federal government has responded to the problem in 
piecemeal fashion, often using temporary solutions instead of 
working on a permanent plan of action. For instance, the 
current BIA budget requests $2 million for ``portables'' or 
trailer classrooms that have been used since 1993. To date, the 
BIA has purchased 472 portables and 20% of the BIA's total 
education buildings are now portable classrooms. The request 
states these trailers are needed due to overcrowding and 
unhealthy and unsafe buildings. It states that portables are 
used to replace buildings or parts of buildings that have 
``poor air quality'' that results in what the BIA calls ``sick 
building syndrome.''
    Indian school construction is one of the major focuses of 
the Fiscal Year 2001 Senate Interior and related agencies 
Appropriations bill in terms of funding increases, with $276.6 
million slated for such purposes. This represents a significant 
increase over the House recommended level of nearly $120.2 
million for the education construction budget, but short of the 
President's request of $300.5 million. Of the overall education 
construction budget, $121.12 million is designated for 
construction of six schools: Tuba City Boarding School, Second 
Mesa Day School, Zia Day School, Baca Thoreau Consolidated 
Community School, Lummi Tribal School and Wingate Elementary 
School.
    S. 2580 would provide Indian tribes with a new and 
voluntary option to fund school construction. Federal funds 
would be used to leverage private funds, allowing replacement 
schools to be build more quickly than otherwise would be 
possible with the same level of appropriations. The bill would 
also encourage tribes to gain experience in financing 
construction projects and to develop relationships with the 
financial community that could help support much-needed 
economic development in Indian country.
    The large and growing backlog of replacement schools 
strongly suggests the need for new schools in Indian country 
has reached a level of crisis and that innovative measures to 
address the problem must now be considered. The pilot project 
authorized in S. 2580 provides both tribes and the Federal 
government the opportunity to employ a new method of funding 
BIA school construction and determine whether it is a feasible 
and effective alternative to the current funding mechanism.

                  Summary of the Provisions of S. 2580

    S. 2580 authorizes Indian tribes to issue up to $200 
million in Indian school construction bonds for the two year 
period beginning in Fiscal Year 2001. These bonds would provide 
purchasers a tax credit in lieu of interest for the duration of 
the bond. The bill dedicates $30 million to provide tribes with 
funds to pay off the bonds when they mature. As a result, 
tribes are authorized to issue approximately $75 million in 
bonds with funds identified to pay off the principal. This 
would allow six to ten tribal schools to be constructed more 
quickly than simply awaiting their turn for funding directly 
through the appropriations process.
    Indian tribes eligible to take advantage of this pilot 
project fall into three categories: first, according to their 
rank on the existing priority list for replacement schools; 
second according to any additions to that priority list; or 
third on the basis of the criteria used to determine the 
priority list for replacement schools.

                      Section-by-Section Analysis

Section 1. Short title

    The title of this bill is the Indian School Construction 
Act.

Section 2. Definitions

    For purposes of this Act definitions for terms such as 
Bureau, Indian, Tribe and Tribal School are included. A 
``Tribal School'' is defined to include elementary and 
secondary schools as well as dormitories operated by tribal 
organizations and receiving funds under the Indian Self 
Determination and Education Assistance Act (25 U.S.C. 450f, 
450(a), and 458(d) or under the Tribally Controlled Schools Act 
of 1988 (25 U.S.C. 2501 et seq.). The definition makes both 
contract and grant schools eligible for programs within the 
Act. In subsection (5), the definition of ``Tribe'' is the same 
as ``tribal government'' as that term is defined in Section 
7701(a) of the Internal Revenue Code.

Section 3. Issuance of bonds

    Under the Act, a pilot program is established providing 
eligible tribes the authority to issue bonds to provide funding 
to construct new tribal schools. To be eligible to participate 
in the pilot program Section 3(b) requires a tribe to:
          (1) prepare and submit a plan of construction that 
        includes a description of the improvements, repairs or 
        new construction;
          (2) undertake a comprehensive survey reflecting the 
        construction or renovation needs of the school 
        involved;
          (3) provide assurances that bond funding will be used 
        only for needs reflected in the plan; and any other 
        related information determined appropriated by the 
        Secretary, and
          (4) fill out an evaluation criteria form contained in 
        Instructions and Application for Replacement School 
        Construction, Revision 6, February 6, 1999, and provide 
        any other related information deemed appropriate by the 
        Secretary.
    Section 3(b)(3) discusses the approval process of tribes 
applying for bonding authority. Priority will be given to 
tribal schools currently on the BIA Replacement School 
Construction Priority List. Priority for schools not on the 
list will be based upon the BIA's criteria for determining 
``greatest need.''
    Section 3(b)(4) authorizes tribes to use escrow funds for 
costs associated with advance planning such as designing a and 
developing blueprints plans for a new school. In order to use 
escrow funds for advance planning and design, the tribe must 
request such funding in the initial plan of construction and 
must agree to pay back the full amount from bond revenues.
    Section 3(c) authorizes tribes to use bond revenues to 
retain and pay for licensed and bonded architects, engineers, 
financial advisors and other professionals whose services are 
required to assist tribes in bond issuance and school design.
    Section 3(d) requires each tribe to obtain a trustee to 
manage revenues received as a result of bond issuance. All 
bonds issued shall be subject to a trust agreement between the 
tribe and a trustee. Any bank or guarantee company meeting 
requirements set forth by the Secretary may serve as trustee. 
The duties of the trustee with respect to the bonds issued 
include: acting as a repository for bond proceeds; making 
payments to bondholders; investing the escrow money in 
obligations that are fully guaranteed by the United States; and 
investing the bond revenue in a segregated account. The trustee 
must have the project inspected for completion by a local 
financial institution or licensed professional before paying 
the contractor(s).
    Section 3(e) specifies that outstanding principal due on 
any qualified tribal school modernization bond is due on the 
stated maturity date which is within 15 years from the date of 
issuance. In lieu of interest, bondholders will be awarded a 
tax credit under section 1400F of the Internal Revenue Code of 
1986.
    Section 3(f) establishes an escrow account to guarantee 
payment of the principal on issued bonds. Payment of the 
principal portion of bonds is guaranteed by amounts transferred 
from the tribal school modernization escrow account and 
deposited with each respective bond trustee. This section also 
authorizes the Secretary to deposit not more than $30 million 
into a tribal school modernization escrow account. The 
Secretary is responsible for payments to trustees from money in 
the tribal modernization escrow account. Any money not used by 
a trustee for payment of project costs is to be returned to the 
tribal school modernization escrow account.
    Section 3(g) provides that tribes issuing tribal school 
modernization bonds shall not be responsible to repay the 
principal on the bond except to the extent of any escrowed 
funds furnished by the tribe. This section also provides that 
any land or facilities purchased or improved with bond revenue 
may not be mortgaged or used as collateral for such bonds.
    Section 3(h) authorizes the tribal school modernization 
bonds to be sold at a purchase price equal to, or more than, or 
less than the par amount.
    Section 3(i) provides that any money earned through 
investment of funds under the control of a trustee pursuant to 
a trust agreement described in subsection (d) shall not be 
subject to Federal income tax.
    Section 3(j) provides that any sinking fund established to 
ensure the payment of principal on qualified tribal school 
modernization bonds are to be invested in assets guaranteed by 
the United States or other assets as the Secretary of the 
Treasury may authorize by regulation.

Section 1400F. Credit to holders of qualified tribal school 
        modernization provisions

    Section (a) authorizes a credit against the tax imposed by 
subchapter X for taxpayers holding qualified tribal school 
modernization bonds.
    Section (b) provides that the amount of such credit is 
equal to 25% of the annual credit determined, which in turn, is 
calculated by multiplying the applicable credit rate by the 
outstanding face amount of the bond. Subsection (b)(3) provides 
that the applicable credit rate with respect to a bond issue is 
the average market yield on outstanding long-term corporate 
debt obligations, to be determined on a monthly basis by the 
Secretary. Subsection (b)(4) provides that for bonds issued 
during the 3-month period ending on a credit allowance date, 
the amount of the credit shall be a rateable portion of the 
credit otherwise determined based on the portion of the 3-month 
period during which the bond is outstanding.
    Section (c) provides that the credit allowable to 
bondholders in any taxable year shall not exceed the excess of 
(1) the sum of the regular tax liability plus the tax imposed 
by section 55, over the sum of the credits allowable under 
subpart IV of subchapter A. Subsection (c)(2) provides that if 
the tax credit exceeds that bondholders total tax liability, 
then the excess is carried to the next year.
    Section (d) provides various definitions used in Section 
1400FF These definitions include ``Qualified Tribal School 
Modernization Bond,'' which is defined to include any bond 
issued under this Act whereby (1) 95% of the proceeds are used 
for construction, rehabilitation or repair of a school facility 
funded by the BIA, or for the acquisition of land on which such 
a facility is to be constructed with part of the proceeds of 
such issue; (2) the bond is issued by a tribe; (3) the issuer 
designates such bond for the purposes of this section; and (4) 
the term of each bond which is part of such issue does not 
exceed 15 years. Subsection (d)(1)(B) provides a national 
limitation of bonds issuable of $200 million in each of years 
2001 and 2002, and zero after 2002. The bond limitation is to 
be allocated to tribes by the Secretary of Interior according 
to the terms of this Act. The ``Credit Allowance Date'' is 
defined as the dates on which the tax credits will be allowed 
to the bondholders. These are March 15, June 15, September 15 
and December 15 respectively. The term ``bond'' includes any 
obligation. The term ``Tribe'' has the meaning given that term 
in Section 7701(a)(40) of the Internal Revenue Code.
    Section (e) provides that credits allowable to the taxpayer 
are included in gross income, and the amount so included is to 
be treated as interest income.
    Section (f) provides that if a tribal school modernization 
bond is held by a regulated investment company, the credit 
determined to be available is to be allowed to the shareholders 
of such company under procedures prescribed by the Secretary.
    Section (g) provides that the ownership of a qualified 
tribal school modernization bond and the entitlement to the 
credit with respect to such bond may be separated pursuant to 
regulations prescribed by the Secretary. In case of such 
separation, the credit is to be allowed to the person holding 
the instrument evidencing entitlement to the credit and not to 
the holder of the bond.
    Section (h) provides that the credit allowed to a taxpayer 
holding a qualified tribal school modernization bond is to be 
treated as if it were a payment of estimated tax by such 
taxpayer.
    Section (i) provides that nothing in any law shall be 
construed to limit the transferability of the credit allowed by 
this Act through sale and repurchase agreements.
    Section (j) authorizes the tax credit created by this bill 
to be treated as credit allowable under part IV of subchapter A 
of the Internal Revenue Code of 1986.
    Section (k) provides that issuers of qualified tribal 
school modernization bonds are required to submit reports 
similar to reports required under section 149(e) to the 
Secretary of the Treasury.

Section 5. Additional provision

    Section 5 provides that nothing in this Act or in the 
amendments made by this Act shall be construed to impact, 
limit, or affect the sovereign immunity of the Federal or any 
State or tribal government. The section further provides that 
the Act is to take effect on the date of enactment, with bonds 
being issued after December 31, 2000, regardless of the status 
of the regulations.

                          Legislative History

    S. 2580, the Indian School Construction Act, was introduced 
on May 17, 2000 by Senator Tim Johnson with Senators Bingaman, 
Inouye and Daschle as co-sponsors. Senators Cochran, Campbell, 
Baucus and Reid subsequently joined as cosponsors. This 
Committee held a hearing on the bill on September 6, 2000 and 
received testimony from the Administration, tribal witnesses 
and a financial consultant. The Committee convened a business 
meeting to consider S. 2580 and other measures that had been 
referred to it. On September 27, 2000, the Committee favorably 
reported S. 2580 with a substitute amendment.

            Committee Recommendation and Tabulation of Vote

    On September 27, 2000, the Committee on Indian Affairs, in 
an open business session, adopted an amendment in the nature of 
a substitute to S. 2580 by voice vote and ordered the bill, as 
amended, to be reported favorably to the Senate.

                    Cost and Budgetary Consideration

    The cost estimate for S. 2580 as calculated by the 
Congressional Budget Office and the Joint Committee on Taxation 
are set forth below:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, October 11, 2000.
Hon. Ben Nighthorse Campbell,
Chairman, Committee on Indian Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 2580, the Indian 
School Construction Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Paul 
Cullinan.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

S. 2580--Indian School Construction Act

    Summary: S. 2580 would authorize Indian tribes to issue 
qualified tribal school modernization bonds, which would carry 
a new federal income tax credit. The bill also would authorize 
the Secretary of the Interior to establish a $30-million escrow 
account, the funds from which would be used to provide certain 
tribes with enough collateral to issue these bonds. That 
funding would augment existing education spending by the Bureau 
of Indian Affairs (BIA).
    CBO estimates that implementing S. 2580 would cost $30 
million over the 2001-2005 period, assuming appropriation of 
the authorized amount. The bill also would reduce federal 
revenues (i.e., governmental receipts) by about $28 million 
over the same period and by $111 million through 2010. Because 
the bill would affect receipts, pay-as-you-go procedures would 
apply.
    S. 2580 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would impose no costs on state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 2580 is shown in the following table. 
The costs of this legislation fall within budget function 500 
(education, training, employment, and social services).
    Basis of estimate: For this estimate, CBO assumes that S. 
2580 will be enacted in October 2000, and that the authorized 
amounts will be appropriated at that time.

----------------------------------------------------------------------------------------------------------------
                                                                       By fiscal year, in millions of dollars--
                                                                    --------------------------------------------
                                                                       2001     2002     2003     2004     2005
----------------------------------------------------------------------------------------------------------------
                                        SPENDING SUBJECT TO APPROPRIATION

BIA Education Spending Under Current Law:
    Estimated Authorization Level \1\..............................      585      599      614      625      644
    Estimated Outlays..............................................      548      591      605      620      635
Proposed Changes:
    Authorization Level............................................       30        0        0        0        0
    Estimated Outlays..............................................        7       12       11        0        0
BIA Education Spending Under S. 2580:
    Estimated Authorization Level..................................      615      599      614      629      644
    Estimated Outlays..............................................      555      603      616      620      635

                                               CHANGES IN REVENUES

Qualified Tribal School Modernization Bonds Estimated Revenues.....    (\2\)       -2       -4       -9      -13
----------------------------------------------------------------------------------------------------------------
\1\ The amounts shown are CBO baseline projections, assuming annual increases for anticipated inflation. The
  2000 appropriation for BIA education programs was $570 million.
\2\  Less than $500,000.

    S. 2580 would authorize the Secretary of the Interior to 
allow qualified Indian tribes to issue new school construction 
bonds that would receive favorable federal income tax 
treatment. Tribes could issue these bonds, up to a total of 
$200 million a year in both calendar years 2001 and 2002, only 
if they are able to establish trust agreements with approved 
banks or trust companies. These trust agreements would specify 
that the trustee would hold accounts for the tribes and would 
handle all the proceeds from the bond issue, payments to bond 
holders, investment of the funds that the tribes would deposit 
into the account (including any grants from the Secretary for 
this purpose), and earnings on the fund balances. Deposits by 
(or on behalf of) the tribes would have to be sufficient, along 
with earnings on the funds, to repay the principal on the 
bonds. No principal payments would be required until a bond 
matured, which in no case would be later than 15 years after 
the issuance date. Tribes would not be responsible for any 
interest payments on the bonds; instead the federal government 
would provide a tax credit equal to the quarterly interest 
payments that would have been paid if the bonds earned interest 
at the corporate bond rate. In addition, tribes would not be 
required to make any additional deposits in the trusteed 
account if the balances are insufficient when the principal 
payments are due.

Spending subject to appropriation

    S. 2580 would authorize the Secretary, subject to the 
availability of appropriated funds, to establish a pilot 
program that would provide grants to certain tribes to provide 
the funds through which the tribes could ensure the repayment 
of the principal of the bonds that they issue. The Secretary 
could deposit not more than $30 million into a tribal school 
modernization escrow account. Projects that would be funded 
through the account would be based upon the priorities list 
described in the Education Facilities Replacement Construction 
Priorities List, published January 31, 2000, in the Federal 
Register or any subsequent such priorities list. In addition, 
other school construction projects that meet the criteria 
described in Instructions and Application for Replacement 
Schools, Revision 6, dated February 6, 1999, could qualify. The 
escrow funds could be used for advanced planning, design, and 
construction for the replacement of tribal schools. Monies used 
for planning and design activities would have to be repaid out 
of the proceeds of the bond sales.
    Based on discussions with BIA and Treasury staff as well as 
a bond specialist, CBO estimates that the $30 million in escrow 
funds would assist tribes in issuing approximately $70 million 
of the $400 million in new bonds authorized by the bill, and 
that the advanced planning and design costs would average 
$750,000 per school. CBO assumes that five tribal schools would 
receive full or partial funding for construction costs from the 
escrow account. At least one tribe is currently using private 
funds to finance the planning and design process, and might be 
ready to issue modernization bonds during 2001. For that 
school, CBO assumes that the tribe would not receive the escrow 
money for planning and design purposes, but would receive $6 
million for the repayment of principal owed by the tribe. We 
expect four additional tribes would request and receive 
distributions from the escrow fund for school planning and 
design, totaling $1 million in 2001 and $2 million in 2002. We 
expect these tribes to have successful bond issues in 2002 and 
2003--two issues each year--with additional grants of $5.25 
million to each tribe. Thus, CBO estimates that net 
distributions from the new tribal school account would be $7 
million in 2001, $12 million in 2002, and $11 million in 2003.

Revenues

    S. 2580 would create a new income tax credit for qualified 
tribal school modernization bonds. The bill authorizes $200 
million in bond authority each year in calendar years 2001 and 
2002, and any unused authority may be carried over in the 
following years. The Joint Committee on Taxation estimates 
these bonds would reduce federal revenues by $28 million over 
the 2001-2005 period and $111 million during the 10-year period 
ending in 2010.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Acts sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes in receipts that are subject to pay-as-you-go 
procedures are shown in the following table. For the purposes 
of enforcing pay-as-you-go procedures, only the effects in the 
budget year and the four following years are counted.

----------------------------------------------------------------------------------------------------------------
                                                     By fiscal year, in millions of dollars--
                                 -------------------------------------------------------------------------------
                                   2001    2002    2003    2004    2005    2006    2007    2008    2009    2010
----------------------------------------------------------------------------------------------------------------
Changes in outlays..............                                  Not applicable
Changes in receipts.............       0      -2      -4      -9     -13     -16     -17     -17     -17     -17
----------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: S. 2580 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would impose no costs on state, local, or 
tribal governments. Enacting this legislation would benefit 
those Indian tribes that would be eligible to issue school 
modernization bonds. Any costs incurred by these tribes to meet 
the conditions established in the bill would be voluntary.
    Estimate prepared by: Federal Costs: Paul Cullinan. Federal 
Revenues: Erin Whitaker. Impact on State, Local, and Tribal 
Governments: Marjorie Miller. Impact on the Private Sector: 
Lauren Marks.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                      Regulatory Impact Statement

    Paragraph 11(b) of rule XXVI of the Standing Rules of the 
Senate requires that each report accompanying a bill to 
evaluate the regulatory paperwork impact that would be incurred 
in implementing the legislation. The Committee has concluded 
that enactment of S. 2580 will result in de minimis regulatory 
and paperwork impact.

                        Executive Communications

    The views on the Administration on S. 2580 are set forth in 
a letter of September 11, 2000 to Chairman Ben Nighthorse 
Campbell from the Honorable Kevin Gover, Assistant Secretary--
Indian Affairs, U.S. Department of the Interior, and in a 
letter of September 14, 2000, to Chairman Ben Nighthorse 
Campbell from Jonathan Talisman, Acting Assistant Secretary 
(Tax Policy), U.S. Department of the Treasury, as follows:

                   U.S. Department of the Interior,
                                   Office of the Secretary,
                                Washington, DC, September 11, 2000.
Hon. Ben Nighthorse Campbell,
Chairman, Committee on Indian Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: This letter sets forth the views of the 
Department of the Interior on S. 2580, the Indian School 
Construction Act.
    The Bureau of Indian Affairs (BIA) is the primary agency of 
the Federal Government charged with the responsibility to 
administer policy and operation for the Indian education 
programs at 185 federally recognized Tribal or BIA-managed 
schools. A critical part of the education program is school 
facilities, which Indian students attend.
    The BIA's facilities inventory is large, over 6,000 
buildings, of which nearly 4,500 serve the BIA's education 
program. The 185 BIA-funded schools consist of over 20 million 
square feet of space and include dormitories, employee housing 
quarters, and other buildings providing educational 
opportunities to over 50,000 students. The BIA operates or 
provides education opportunities to Indian students in 23 
states through Self-Determination contracts, compacts and 
education grants. The education program is critical to Indian 
communities as pointed out by the President in Executive Order 
13096, which calls for creating educational opportunities in 
our nation for Native Indian students.
    More than half of the school facilities inventory has 
exceeded its useful building life of 30 years and, as a result, 
numerous deficiencies exist regarding health, safety, 
disability access, classroom size, computer and communications 
technology, and administrative office space. Extensive repair 
or total replacements are needed for these deteriorated 
structures, which no longer meet national building codes and 
standards. The existing backlog of education facility repair 
needs is over $800 million.
    National studies of public schools have shown that the 
condition of education facilities have a definite influence on 
a student's ability to learn. The majority of the BIA's schools 
are old and in poor condition, and the physical environment has 
adversely impacted the education of Indian students who must 
attend these institutions.
    It is against this backdrop that the urgency and necessity 
to upgrade and modernize the BIA's aging educational facilities 
becomes apparent. The President has proposed the use of School 
Modernization Bonds in support of the renovation and 
construction of public and NativeAmerican schools throughout 
the U.S. School Modernization Bonds pay interest in the form of federal 
tax credits to investors, making the bonds interest-free for school 
districts. Under the President's proposal, $200 million of such bonds 
would be authorized for BIA-funded schools in both FY 2001 and FY 2002. 
The FY 2001 budget reflects the Administration's support by including 
substantial increases for school construction with over $300 million 
requested for facilities replacement, repair, and maintenance. Of this 
$300 million, up to $30 million may be used to defease the principal on 
school modernization bonds. Using $30 million to create sinking funds 
to repay the principal of the School Modernization Bonds will allow 
about $60 million of the proceeds from these bonds to be used for 
construction and repair of BIA-funded schools.
    S. 2580 would allow tax credit bonds to be issued only in 
those cases where sinking funds had been created out of the $30 
million. Tribal governments should have the opportunity to use 
the remainder of the $200 million in bonding authority even 
without these sinking funds to leverage their resources and 
issue bonds. We would recommend a provision to allow for the 
use of the remainder of the bonding authority.
    If the discretionary program is funded at the requested 
level, the three remaining schools of the total 16 school 
projects published in the Federal Register priority list of 
December 1993 will receive full construction funding. In 
addition, the first three schools on the new priority list 
published in January 2000 would also receive full funding. 
Another round of applications and selections is being 
contemplated to keep pace with Congressional appropriations at 
an anticipated rate of 4-6 school projects per year. We are 
also exploring possibilities for sharing costs with tribal 
partners in an effort to obtain non-Federal resources and speed 
construction of replacement schools.
    The BIA has made good progress in the management and 
administration of its school construction program during the 
last several years. The long-range 5-year Capital Improvement 
Plan addresses our backlog of code and standard deficiencies, 
but the need is great and will require massive outlays of 
resources if measurable results are to be made in stopping 
further deterioration and eliminating the backlog. The BIA is 
placing strong emphasis on capital asset planning and 
investment control. The BIA's construction processes were re-
engineered several years ago with a resultant success in 
reducing the time to complete a school from an average of 6-7 
years down to 2-3 years. This achievement was recognized in 
February 1999, when the BIA facilities construction program 
received the Vice President's Hammer Award for excellence in 
re-engineering the new school construction process.
    We support the concept within S.2580, the Indian School 
Construction Act. The Administration has endorsed a separate 
bipartisan proposal sponsored by Reps. Nancy Johnson and 
Charles Rangel, introduced as H.R. 4094. This legislation 
includes all the components of the national School 
Modernization Bonding Initiative including the authority for 
tribal governments to issue $200 million of tax credit bonds in 
both FY 2001 and FY 2002 for BIA-funded schools. While we can 
support separate legislation for BIA-funded schools that is 
consistent with the goals of the national Initiative, we have 
several concerns with S. 2580. The following provides a list of 
the Department's concerns with the current language in S. 2580:

 Section 2(4) Definition of Tribal Schools

    The definition of tribal schools should be expanded to 
include BIA operated schools. As written, the language would 
extend bonding authority to only those tribes with schools 
operated under contracts, grants, and by cooperative agreement.

 Section 2(5) Definition of Tribe

    The bonds should be issued by Indian Tribal Governments as 
defined in section 7701 of the Internal Revenue Code.

 Section 3 Issuance of Bonds (a) In General

    The phrase ``new construction'' may be interpreted to 
connote the establishment and building of a new school, instead 
of replacement or rehabilitation of BIA's current 185 
elementary and secondary schools.

 Section 3 Issuance of Bonds (b) Eligibility

    Needs to be clarified as to how the comprehensive survey 
mentioned in the legislation would relate to the current BIA 
backlog of code and standard deficiencies, space guidelines and 
or education specifications, which currently regulate school 
facilities. Further, we ask that the phrases ``and cost'' and 
``critical health and safety related'' be inserted to language 
in Sec. 3. (b)(2)(A) as follows: ``contains a description and 
cost of the critical health and safety related improvements, 
repairs, or new construction * * *''

 Section 3. (b)(3) Priority

    The Department agrees with the language that says the 
priority will be given to projects described in the Replacement 
School Construction priority list, however we are concerned 
that the current language makes no reference to how priorities 
will be established for Facilities Improvement and Repair 
(FI&R) projects.
    Concern: We have a concern about whether these projects 
will also be based on a BIA National FI&R Ranking List, and if 
this list will be established based on need relating to health 
and safety code and standard deficiencies.

 Section 3. (b)(4) Approval

    The language currently reads ``* * * approved plans of 
construction will be based on the order in which the plans are 
received by the Secretary * * *''
    Concern: We are concerned that this might give (1) tribes 
that have financial resources an advantage over poor tribes; 
(2) not correspond to the National Priority List order for 
Replacement Schools by allowing more of a first come first 
served basis on consideration; and (3) not correspond to the 
National FI&R lists established based upon need as shown in 
backlog of code and standard deficiencies.

 Section 3. (c) Permissible Activities (1)

    (1) enter into contracts with A/E's contractors, * * * in 
order to determine needs of Tribal schools.
    Concern: We are concerned that there is no language 
provided on the qualifications of the people listed, i.e., 
professional engineers. We suggest more accountability with 
reference to the inspection of the final product. We advocate 
that the facilities should be inspected by those knowledgeable 
of space requirements, safety codes, etc.

 Section 3. (d) Bond Trustee (4)(A)

    The language ``* * * the tribe shall require the trustee * 
* * to inspect the project * * * or provide for an inspection 
of that project by a local financial institution to ensure 
completion of the project''
    Concern: The current state of the language here provides no 
provision for BIA inspection and clearance by the Office of 
Facilities Management and Construction. The BIA should have 
review and inspection of oversight of education specifications, 
planning, design and the final inspection authority.

 Section 3. (f) Bond Guarantees (2)(A)

    The language here states ``* * * notwithstanding any other 
provision of law, subject to the availability of amounts made 
available under any appropriations Act, beginning in fiscal 
year 2001, the Secretary may deposit not more than $30,000,000 
of unobligated funds into a tribal school modernization escrow 
account.'' Neither the House nor the Senate appropriated FY 
2001 funds for the School Bonding Initiative.
    Concern: The Department has serious concerns with this 
section of the proposed bill that is broadly worded and 
authorizes the use of unobligated funds from any account under 
any appropriations Act to be made available for the Bonding 
Initiative. This could result in displacement of funding for 
high priority projects within the same appropriation or within 
any appropriations Act.

 Section 3. (g) Limitations (1)

    Concern: As drafted, this language creates a new loan 
guarantee program that would be subject to the Federal Credit 
Reform Act of 1990, as amended. In addition to implementation 
issues, we are concerned that the Federal Government would 
ultimately be responsible for repayment on the bonds if the 
tribes are absolved of the responsibility to repay principal in 
the event that something goes wrong. We would recommend a clear 
statement in the bill that ``Neither BIA nor any other Federal 
agency will be liable for repayment should the tribes fail to 
repay principal on the bonds.''

 Section 4. Expansion of Incentives for Schools

    Subchapter X--Tribal School Modernization Provisions. The 
Department is not in a position to comment on this section as 
we recognize that this is within the purview of the Treasury 
Department and should be evaluated by them.
    We understand that Treasury has additional concerns with S. 
2580 and will be submitting a letter to the Committee shortly.
    We look forward to working with you and Committee staff to 
support a bill that is consistent with the goals of the 
Administration's proposal for School Modernization, and to 
accomplish our mutual goal of providing quality educational 
opportunities to American Indian youth in a contemporary 
setting conducive to productive learning.
    The Office of Management and Budget has advised that there 
is no objection to the presentation of this report from the 
standpoint of the Administration's program
            Sincerely,
                                               Kevin Gover,
                            Assistant Secretary for Indian Affairs.
                                ------                                

                                Department of the Treasury,
                                    Washington, September 14, 2000.
Hon. Ben Nighthorse Campbell,
Chairman, Committee on Indian Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Department of the Treasury is 
pleased to submit these comments on S. 2580, the ``Indian 
School Construction Act.'' Section 4 of the bill would amend 
the Internal Revenue Code to allow specific amounts of tax 
credit bonds to be issued for the construction, rehabilitation 
or repair of tribal school facilities.
    The amendments to the tax code contained in S. 2580 are 
modeled on the portion of the Administration's proposal for 
school modernization bonds that would provide authority to 
issue $200 million of tax credit bonds in both 2001 and 2002 
for the construction, rehabilitation or repair of Bureau of 
Indian Affairs-funded schools. The Department hopes to work 
closely with the tax-writing committees to enact the National 
School Modernization bond proposal before Congress adjourns. 
The proposal is a major priority of the Administration.
    The Department would support enactment of a separate 
provision dealing with Indian schools if structured along the 
lines of the Administration's original proposal. To that end, 
we urge that S. 2580 be amended to allow Indian tribal 
governments, with the approval of the Bureau of Indian Affairs, 
to issue tax credit bonds where repayment of principal is 
provided by funds other than, or in addition to, any funds that 
might be made available through section 3 of the bill. We also 
urge that S. 2580 incorporate the technical specifications for 
tax credit bonds contained in the Administration's proposal for 
school modernization bonds and Better America Bonds. These 
include requiring that 95 percent of any investment earnings be 
treated as bond proceeds that must be used for allowable 
purposes, and providing that any proceeds not expended within 
three years be used to redeem outstanding bonds. The bill 
should also include provisions requiring bond proceeds, and any 
sinking funds established to repay bond principal, to be 
invested safely. In addition, the definition of Indian tribal 
governments eligible to issue tax credit bonds should, in order 
to simplify administration of the program established under S. 
2580, conform to the current definition in the tax code. Other 
minor changes to S. 2580 would need to be made to allow these 
tax credit bonds to be marketed easily and to permit the 
program to be administered by the Internal Revenue Service.
    The Department looks forward to working with the Congress 
and the Bureau of Indian Affairs to ensure a bill that is 
consistent with the goals of the Administration's proposal for 
school modernization.
    OMB has advised that there is no objection to the 
presentation of this report from the standpoint of the 
Administration's program.
            Sincerely,
                                         Jonathan Talisman,
                           Acting Assistant Secretary (Tax Policy).

                        Changes in Existing Law

    In compliance with subsection 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
the bill are required to be set out in that accompanying 
Committee report. The Committee finds that enactment of S. 2580 
will result in the following changes in existing law. All text 
to be inserted is indicated in italic. At the end of Chapter 1 
of the Internal Revenue Code of 1986, the following new 
subchapter will be added.

           *       *       *       *       *       *       *

Sec. 1400F.  Credit to holders of qualified tribal school modernization 
          bonds.
     * * * * * * *

SEC. 1400F. CREDIT TO HOLDERS OF QUALIFIED TRIBAL SCHOOL MODERNIZATION 
                    BONDS.

    (a) Allowance of Credit.--In the case of a taxpayer who 
holds a qualified tribal school modernization bond on a 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 an amount equal 
to the sum of the credits determined under subsection (b) with 
respect to credit allowance dates during such year on which the 
taxpayer holds such bond.
    (b) Amount of Credit.--
          (1) In general.--The amount of the credit determined 
        under this subsection with respect to any credit 
        allowance date for a qualified tribal school 
        modernization bond is 25 percent of the annual credit 
        determined with respect to such bond.
          (2) Annual credit.--The annual credit determined with 
        respect to any qualified tribal school modernization 
        bond is the product of--
                  (A) the applicable credit rate, multiplied by
                  (B) the outstanding face amount of the bond.
          (3) Applicable credit rate.--For purposes of 
        paragraph (1), the applicable credit rate with respect 
        to an issue is the rate equal to an average market 
        yield (as of the day before the date of issuance of the 
        issue) on outstanding long-term corporate debt 
        obligations (determined monthly by the Secretary).
          (4) Special rule for issuance and redemption.--In the 
        case of a bond which is issued during the 3-month 
        period ending on a credit allowance date, the amount of 
        the credit determined under this subsection with 
        respect to such credit allowance date shall be a 
        ratable portion of the credit otherwise determined 
        based on the portion of the 3-month period during which 
        the bond is outstanding. A similar rule shall apply 
        when the bond is redeemed.
    (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 
                part IV of subchapter A (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) Qualified Tribal School Modernization Bond; Other 
Definitions.--For purposes of this section--
          (1) Qualified tribal school modernization bond.--
                  (A) In general.--The term ``qualified tribal 
                school modernization bond'' means, subject to 
                subparagraph (B), any bond issued as part of an 
                issue under section 3 of the Indian School 
                Construction Act, as in effect on the date of 
                the enactment of this section, if--
                          (i) 95 percent or more of the 
                        proceeds of such issue are to be used 
                        for the construction, rehabilitation, 
                        or repair of a school facility funded 
                        by the Bureau of Indian Affairs of the 
                        Department of the Interior or for the 
                        acquisition of land on which such a 
                        facility is to be constructed with part 
                        of the proceeds of such issue,
                          (ii) the bond is issued by a tribe,
                          (iii) the issuer designates such bond 
                        for purposes of this section, and
                          (iv) the term of each bond which is 
                        part of such issue does not exceed 15 
                        years.
                  (B) National limitation on amount of bonds 
                designated.--
                          (i) National limitation.--There is a 
                        national qualified tribal school 
                        modernization bond limitation for each 
                        calendar year. Such limitation is--
                                  (I) $200,000,000 for 2001,
                                  (ii) $200,000,000 for 2002, 
                                and
                                  (III) zero after 2002.
                          (ii) Allocation of Limitation.--The 
                        national qualified tribal school 
                        modernization bond limitation shall be 
                        allocated to tribes by the Secretary of 
                        the Interior pursuant to the Indian 
                        School Construction Act as in effect on 
                        the date of the enactment of this 
                        section.
                          (iii) Designation Subject To 
                        Limitation Amount.--The maximum 
                        aggregate face amount of bonds issued 
                        during any calendar year which may be 
                        designated under subsection (d)(1) with 
                        respect to any tribe shall not exceed 
                        the limitation amount allocated to such 
                        government under clause (ii) for such 
                        calendar year.
          (2) Credit Allowance Date.--The term ``credit 
        allowance date'' means--
                  (A) March 15,
                  (B) June 15,
                  (C) September 15, and
                  (D) December 15.
        Such term includes the last day on which the bond is 
        outstanding.
          (3) Bond.--The term ``bond'' includes any obligation.
          (4) Tribe.--The term ``tribe'' has the meaning given 
        the term ``Indian tribal government'' by section 
        7701(a)(40), including the application of section 
        7871(d).
    (e) Credit Included in Gross Income.--Gross income includes 
the amount of the credit allowed to the taxpayer under this 
section (determined without regard to subsection (c)) and the 
amount so included shall be treated as interest income.
    (f) Bonds Held by Regulated Investment Companies.-- If any 
qualified tribal school modernization 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.
    (g) Credits May Be Stripped.--Under regulations prescribed 
by the Secretary--
          (1) In general.--There may be a separation (including 
        at issuance) of th4e ownership of a qualified tribal 
        school modernization bond and the entitlement to the 
        credit under this section with respect to such bond. In 
        case of any such separation, the credit under this 
        section shall be allowed to the person who on the 
        credit allowance date holds the instrument evidencing 
        the entitlement to the credit and not to the holder of 
        the bond.
          (2) Certain rules to apply.--In the case of a 
        separation described in paragraph (1)(, the rules of 
        section 1286 shall apply to the qualified tribal school 
        modernization bond as if it were a stripped bond and to 
        the credit under this section as if it were a stripped 
        coupon.
    (h) Treatment for Estimated Tax Purposes.--Solely for 
purposes of sections 6654 and 6655, the credit allowed by this 
section to a taxpayer by reason of holding a qualified tribal 
school modernization bonds on a credit allowance date shall be 
treated as if it were a payment of estimated tax made by the 
taxpayer on such date.
    (i) Credit May Be Transferred.--Nothing in any law or rule 
of law shall be construed to limit the transferability of the 
credit allowed by this section through sale and repurchasing 
agreements.
    (j) Credit Treated As Allowed Under Part IV of Subchapter 
A.--For purposes of subtitle F, the credit allowed by this 
section shall be treated as a credit allowable under part IV of 
subchapter A of this chapter.
    (k) Reporting.--Issuers of qualified tribal school 
modernization bonds shall submit reports similar to the reports 
required under section 149(e).

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