89–010★(STAR PRINT)

1Pub. L. 94–482 (25 U.S.C. 13).

Calendar No. 947

106TH CONGRESS REPORT

2d Session " ! SENATE 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

REPORT

[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

2

2Statement 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. 3 Ibid.

4School Facilities: Reported Condition and Costs to Repair Schools by the Bureau of Indian

Affairs:, GAO/HEHS–98–47, December, 1997.

such essential necessities are not being provided to many Indian

children attending BIA-funded schools.

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

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.

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

The existing backlog of education facility repairs and new con- struction 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 eduVerDate 11-MAY-2000 03:51 Oct 21, 2000 Jkt 089010 PO 00000 Frm 00002 Fmt 6659 Sfmt 6602 E:\HR\OC\SR497.XXX pfrm09 PsN: SR497
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cation 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 muchneeded 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 ‘‘tribVerDate 11-MAY-2000 03:51 Oct 21, 2000 Jkt 089010 PO 00000 Frm 00003 Fmt 6659 Sfmt 6602 E:\HR\OC\SR497.XXX pfrm09 PsN: SR497
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al 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 reVerDate 11-MAY-2000 03:51 Oct 21, 2000 Jkt 089010 PO 00000 Frm 00004 Fmt 6659 Sfmt 6602 E:\HR\OC\SR497.XXX pfrm09 PsN: SR497
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spective 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

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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

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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).

8

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

9

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.

10

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

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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 Native American 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

12

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 BIAfunded schools. While we can support separate legislation for BIAfunded 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.

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• 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

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‘‘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

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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

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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.

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(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), IN- CLUDING 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.

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(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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