II

106TH CONGRESS

1ST SESSION S. 526

To amend the Internal Revenue Code of 1986 to allow issuance of taxexempt private activity bonds to finance public-private partnership activities relating to school facilities in public elementary and secondary

schools, and for other purposes.

IN THE SENATE OF THE UNITED STATES

MARCH 3, 1999

Mr. GRAHAM (for himself, Mr. GRASSLEY, Mr. DEWINE, Mr. TORRICELLI,

Mrs. HUTCHISON, and Mr. KERREY) introduced the following bill; which

was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to allow

issuance of tax-exempt private activity bonds to finance

public-private partnership activities relating to school facilities in public elementary and secondary schools, and

for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Public School Con5 struction Partnership Act’’.
2

•S 526 IS

1 SEC. 2. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL

2 FACILITY BONDS AS EXEMPT FACILITY

3 BONDS.

4 (a) TREATMENT AS EXEMPT FACILITY BOND.—Sub5 section (a) of section 142 of the Internal Revenue Code

6 of 1986 (relating to exempt facility bond) is amended by

7 striking ‘‘or’’ at the end of paragraph (11), by striking

8 the period at the end of paragraph (12) and inserting ‘‘,

9 or’’, and by adding at the end the following:

10 ‘‘(13) qualified public educational facilities.’’

11 (b) QUALIFIED PUBLIC EDUCATIONAL FACILI12 TIES.—Section 142 of the Internal Revenue Code of 1986

13 (relating to exempt facility bond) is amended by adding

14 at the end the following new subsection:

15 ‘‘(k) QUALIFIED PUBLIC EDUCATIONAL FACILI16 TIES.—

17 ‘‘(1) IN GENERAL.—For purposes of subsection

18 (a)(13), the term ‘qualified public educational facil19 ity’ means any school facility which is—

20 ‘‘(A) part of a public elementary school or

21 a public secondary school, and

22 ‘‘(B) owned by a private, for-profit cor23 poration pursuant to a public-private partner24 ship agreement with a State or local edu25 cational agency described in paragraph (2).
3

•S 526 IS

1 ‘‘(2) PUBLIC-PRIVATE PARTNERSHIP AGREE2 MENT DESCRIBED.—A public-private partnership

3 agreement is described in this paragraph if it is an

4 agreement—

5 ‘‘(A) under which the corporation agrees—

6 ‘‘(i) to do 1 or more of the following:

7 construct, rehabilitate, refurbish, or equip

8 a school facility, and

9 ‘‘(ii) at the end of the term of the

10 agreement, to transfer the school facility to

11 such agency for no additional consider12 ation, and

13 ‘‘(B) the term of which does not exceed the

14 term of the issue to be used to provide the

15 school facility.

16 ‘‘(3) SCHOOL FACILITY.—For purposes of this

17 subsection, the term ‘school facility’ means—

18 ‘‘(A) school buildings,

19 ‘‘(B) functionally related and subordinate

20 facilities and land with respect to such build21 ings, including any stadium or other facility pri22 marily used for school events, and

23 ‘‘(C) any property, to which section 168

24 applies (or would apply but for section 179), for

25 use in the facility.
4

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1 ‘‘(4) PUBLIC SCHOOLS.—For purposes of this

2 subsection, the terms ‘elementary school’ and ‘sec3 ondary school’ have the meanings given such terms

4 by section 14101 of the Elementary and Secondary

5 Education Act of 1965 (20 U.S.C. 8801), as in ef6 fect on the date of the enactment of this subsection.

7 ‘‘(5) ANNUAL AGGREGATE FACE AMOUNT OF

8 TAX-EXEMPT FINANCING.—

9 ‘‘(A) IN GENERAL.—An issue shall not be

10 treated as an issue described in subsection

11 (a)(13) if the aggregate face amount of bonds

12 issued by the State pursuant thereto (when

13 added to the aggregate face amount of bonds

14 previously so issued during the calendar year)

15 exceeds an amount equal to the greater of—

16 ‘‘(i) $10 multiplied by the State popu17 lation, or

18 ‘‘(ii) $5,000,000.

19 ‘‘(B) ALLOCATION RULES.—

20 ‘‘(i) IN GENERAL.—Except as other21 wise provided in this subparagraph, the

22 State may allocate in a calendar year the

23 amount described in subparagraph (A) for

24 such year in such manner as the State de25 termines appropriate.
5

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1 ‘‘(ii) RULES FOR CARRYFORWARD OF

2 UNUSED AMOUNT.—With respect to any

3 calendar year, a State may make an elec4 tion under rules similar to the rules of sec5 tion 146(f), except that the sole

6 carryforward purpose with respect to such

7 election is the issuance of exempt facility

8 bonds described in section 142(a)(13).’’

9 (c) EXEMPTION FROM GENERAL STATE VOLUME

10 CAPS.—Paragraph (3) of section 146(g) of the Internal

11 Revenue Code of 1986 (relating to exception for certain

12 bonds) is amended—

13 (1) by striking ‘‘or (12)’’ and inserting ‘‘(12),

14 or (13)’’, and

15 (2) by striking ‘‘and environmental enhance16 ments of hydroelectric generating facilities’’ and in17 serting ‘‘environmental enhancements of hydro18 electric generating facilities, and qualified public

19 educational facilities’’.

20 (d) EXEMPTION FROM LIMITATION ON USE FOR

21 LAND ACQUISITION.—Section 147(h) of the Internal Rev22 enue Code of 1986 (relating to certain rules not to apply

23 to mortgage revenue bonds, qualified student loan bonds,

24 and qualified 501(c)(3) bonds) is amended by adding at

25 the end the following new paragraph:
6

•S 526 IS

1 ‘‘(3) EXEMPT FACILITY BONDS FOR QUALIFIED

2 PUBLIC-PRIVATE SCHOOLS.—Subsection (c) shall not

3 apply to any exempt facility bond issued as part of

4 an issue described in section 142(a)(13) (relating to

5 qualified public-private schools).’’

6 (e) CONFORMING AMENDMENT.—The heading of sec7 tion 147(h) of the Internal Revenue Code of 1986 is

8 amended by striking ‘‘MORTGAGE REVENUE BONDS,

9 QUALIFIED STUDENT LOAN BONDS, AND QUALIFIED

10 501(c)(3) BONDS’’ in the heading and inserting ‘‘CERTAIN

11 BONDS’’.

12 (f) EFFECTIVE DATE.—The amendments made by

13 this section shall apply to bonds issued after December

14 31, 1999.

15 SEC. 3. ADDITIONAL INCREASE IN ARBITRAGE REBATE EX16 CEPTION FOR GOVERNMENTAL BONDS USED

17 TO FINANCE EDUCATION FACILITIES.

18 (a) SPENDING REQUIREMENT FOR PUBLIC SCHOOL

19 CONSTRUCTION ISSUE.—Paragraph (4)(C) of section

20 148(f) of the Internal Revenue Code of 1986 (relating to

21 required rebate to the United States) is amended by add22 ing at the end the following new clause:

23 ‘‘(xviii) 4-YEAR SPENDING REQUIRE24 MENT FOR PUBLIC SCHOOL CONSTRUCTION

25 ISSUE.—
7

•S 526 IS

1 ‘‘(I) IN GENERAL.—In the case

2 of a public school construction issue,

3 the spending requirements of clause

4 (ii) shall be treated as met if at least

5 10 percent of the available construc6 tion proceeds of the construction issue

7 are spent for the governmental pur8 poses of the issue within the 1-year

9 period beginning on the date the

10 bonds are issued, 30 percent of such

11 proceeds are spent for such purposes

12 within the 2-year period beginning on

13 such date, 50 percent of such pro14 ceeds are spent for such purposes

15 within the 3-year period beginning on

16 such date, and 100 percent of such

17 proceeds are spent for such purposes

18 within the 4-year period beginning on

19 such date.

20 ‘‘(II) PUBLIC SCHOOL CON21 STRUCTION ISSUE.—For purposes of

22 this clause, the term ‘public school

23 construction issue’ means any con24 struction issue if no bond which is

25 part of such issue is a private activity
8

•S 526 IS

1 bond and all of the available construc2 tion proceeds of such issue are to be

3 used for the construction (as defined

4 in clause (iv)) of public school facili5 ties to provide education or training

6 below the postsecondary level or for

7 the acquisition of land that is func8 tionally related and subordinate to

9 such facilities.

10 ‘‘(III) OTHER RULES TO

11 APPLY.—Rules similar to the rules of

12 the preceding provisions of this sub13 paragraph which apply to clause (ii)

14 shall apply to this clause.’’

15 (b) INCREASE IN ARBITRAGE REBATE EXCEPTION

16 FOR GOVERNMENTAL BONDS USED TO FINANCE EDU17 CATION FACILITIES.—Section 148(f)(4)(D)(vii) of the In18 ternal Revenue Code of 1986 (relating to increase in ex19 ception for bonds financing public school capital expendi20 tures) is amended by striking ‘‘$5,000,000’’ the second

21 place it appears and inserting ‘‘$10,000,000’’.

22 (c) EFFECTIVE DATE.—The amendment made by

23 this section shall apply to obligations issued after Decem24 ber 31, 1999.
9

•S 526 IS

1 SEC. 4. TREATMENT OF PUBLIC SCHOOL CONSTRUCTION

2 BONDS AS QUALIFIED TAX-EXEMPT OBLIGA3 TIONS.

4 (a) IN GENERAL.—Clause (i) of subsection (b)(3)(B)

5 of section 265 of the Internal Revenue Code of 1986 (re6 lating to expenses and interest relating to tax-exempt in7 come) is amended to read as follows:

8 ‘‘(i) IN GENERAL.—For purposes of

9 subparagraph (A), the term ‘qualified tax10 exempt obligation’ means a tax-exempt

11 obligation—

12 ‘‘(I) which is issued after August

13 7, 1986, by a qualified small issuer, is

14 not a private activity bond (as defined

15 in section 141), and is designated by

16 the issuer for purposes of this para17 graph, or

18 ‘‘(II) which is a public school

19 construction bond (within the mean20 ing of section 148(f)(4)(C)(xviii))

21 issued by a qualified small education

22 bond issuer (as defined in subpara23 graph (F)).’’

24 (b) DEFINITION OF QUALIFIED SMALL EDUCATION

25 BOND ISSUER.—Subsection (b)(3) of section 265 of the
10

•S 526 IS

1 Internal Revenue Code of 1986 is amended by adding at

2 the end the following new subparagraph:

3 ‘‘(F) QUALIFIED SMALL EDUCATION BOND

4 ISSUER.—For purposes of subparagraph

5 (B)(i)(II), the term ‘qualified small education

6 bond issuer’ means, with respect to bonds

7 issued during any calendar year, any issuer if

8 the reasonably anticipated amount of public

9 school construction bonds which will be issued

10 by such issuer during such calendar year does

11 not exceed $25,000,000.’’

12 (c) CONFORMING AMENDMENT.—Section

13 265(b)(3)(B)(ii) of such Code is amended by striking

14 ‘‘(i)(II)’’ in the matter preceding subclause (I) and insert15 ing ‘‘(i)’’.

16 (d) EFFECTIVE DATE.—The amendments made by

17 this section shall apply to obligations issued after Decem18 ber 31, 1999.

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