II

105TH CONGRESS

2D SESSION S. 1705

To amend the Internal Revenue Code of 1986 to expand the incentives

for the construction and renovation of public schools.

IN THE SENATE OF THE UNITED STATES

MARCH 4, 1998

Ms. MOSELEY-BRAUN (for herself, Mr. MOYNIHAN, Mrs. MURRAY, Mr. KENNEDY, Mr. GRAHAM, Mr. DASCHLE, Mr. REID, Mr. GLENN, Mr. LAUTENBERG, Mr. LEVIN, Mr. KERRY, and Mr. REED) 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 expand

the incentives for the construction and renovation of

public schools.

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 Mod5 ernization Act of 1998’’.

6 SEC. 2. EXPANSION OF INCENTIVES FOR PUBLIC SCHOOLS.

7 (a) IN GENERAL.—Part IV of subchapter U of chap8 ter 1 of the Internal Revenue Code of 1986 (relating to
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1 incentives for education zones) is amended to read as fol2 lows:

3 ‘‘PART IV—INCENTIVES FOR QUALIFIED PUBLIC

4 SCHOOL MODERNIZATION BONDS

‘‘Sec. 1397E. Credit to holders of qualified public school modernization bonds.

‘‘Sec. 1397F. Qualified zone academy bonds.

‘‘Sec. 1397G. Qualified school construction bonds.

5 ‘‘SEC. 1397E. CREDIT TO HOLDERS OF QUALIFIED PUBLIC

6 SCHOOL MODERNIZATION BONDS.

7 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of a tax8 payer who holds a qualified public school modernization

9 bond on the credit allowance date of such bond which oc10 curs during the taxable year, there shall be allowed as a

11 credit against the tax imposed by this chapter for such

12 taxable year the amount determined under subsection (b).

13 ‘‘(b) AMOUNT OF CREDIT.—

14 ‘‘(1) IN GENERAL.—The amount of the credit

15 determined under this subsection with respect to any

16 qualified public school modernization bond is the

17 amount equal to the product of—

18 ‘‘(A) the credit rate determined by the Sec19 retary under paragraph (2) for the month in

20 which such bond was issued, multiplied by

21 ‘‘(B) the face amount of the bond held by

22 the taxpayer on the credit allowance date.
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1 ‘‘(2) DETERMINATION.—During each calendar

2 month, the Secretary shall determine a credit rate

3 which shall apply to bonds issued during the follow4 ing calendar month. The credit rate for any month

5 is the percentage which the Secretary estimates will

6 on average permit the issuance of qualified public

7 school modernization bonds without discount and

8 without interest cost to the issuer.

9 ‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—

10 ‘‘(1) IN GENERAL.—The credit allowed under

11 subsection (a) for any taxable year shall not exceed

12 the excess of—

13 ‘‘(A) the sum of the regular tax liability

14 (as defined in section 26(b)) plus the tax im15 posed by section 55, over

16 ‘‘(B) the sum of the credits allowable

17 under part IV of subchapter A (other than sub18 part C thereof, relating to refundable credits).

19 ‘‘(2) CARRYOVER OF UNUSED CREDIT.—If the

20 credit allowable under subsection (a) exceeds the

21 limitation imposed by paragraph (1) for such taxable

22 year, such excess shall be carried to the succeeding

23 taxable year and added to the credit allowable under

24 subsection (a) for such taxable year.
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1 ‘‘(d) QUALIFIED PUBLIC SCHOOL MODERNIZATION

2 BOND; CREDIT ALLOWANCE DATE.—For purposes of this

3 section—

4 ‘‘(1) QUALIFIED PUBLIC SCHOOL MODERNIZA5 TION BOND.—The term ‘qualified public school mod6 ernization bond’ means—

7 ‘‘(A) a qualified zone academy bond, and

8 ‘‘(B) a qualified school construction bond.

9 ‘‘(2) CREDIT ALLOWANCE DATE.—The term

10 ‘credit allowance date’ means, with respect to any

11 issue, the last day of the 1-year period beginning on

12 the date of issuance of such issue and the last day

13 of each successive 1-year period thereafter.

14 ‘‘(e) OTHER DEFINITIONS.—For purposes of this

15 part—

16 ‘‘(1) LOCAL EDUCATIONAL AGENCY.—The term

17 ‘local educational agency’ has the meaning given to

18 such term by section 14101 of the Elementary and

19 Secondary Education Act of 1965. Such term in20 cludes the local educational agency that serves the

21 District of Columbia but does not include any other

22 State agency.

23 ‘‘(2) BOND.—The term ‘bond’ includes any ob24 ligation.
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1 ‘‘(3) STATE.—The term ‘State’ includes the

2 District of Columbia and any possession of the

3 United States.

4 ‘‘(4) PUBLIC SCHOOL FACILITY.—The term

5 ‘public school facility’ shall not include any stadium

6 or other facility primarily used for athletic contests

7 or exhibitions or other events for which admission is

8 charged to the general public.

9 ‘‘(f) CREDIT INCLUDED IN GROSS INCOME.—Gross

10 income includes the amount of the credit allowed to the

11 taxpayer under this section and the amount so included

12 shall be treated as interest income.

13 ‘‘(g) BONDS HELD BY REGULATED INVESTMENT

14 COMPANIES.—If any qualified public school modernization

15 bond is held by a regulated investment company, the credit

16 determined under subsection (a) shall be allowed to share17 holders of such company under procedures prescribed by

18 the Secretary.

19 ‘‘SEC. 1397F. QUALIFIED ZONE ACADEMY BONDS.

20 ‘‘(a) QUALIFIED ZONE ACADEMY BOND.—For pur21 poses of this part—

22 ‘‘(1) IN GENERAL.—The term ‘qualified zone

23 academy bond’ means any bond issued as part of an

24 issue if—
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1 ‘‘(A) 95 percent or more of the proceeds of

2 such issue are to be used for a qualified pur3 pose with respect to a qualified zone academy

4 established by a local educational agency,

5 ‘‘(B) the bond is issued by a State or local

6 government within the jurisdiction of which

7 such academy is located,

8 ‘‘(C) the issuer—

9 ‘‘(i) designates such bond for purposes

10 of this section,

11 ‘‘(ii) certifies that it has written as12 surances that the private business con13 tribution requirement of paragraph (2) will

14 be met with respect to such academy, and

15 ‘‘(iii) certifies that it has the written

16 approval of the local educational agency

17 for such bond issuance, and

18 ‘‘(D) the term of each bond which is part

19 of such issue does not exceed 15 years.

20 ‘‘(2) PRIVATE BUSINESS CONTRIBUTION RE21 QUIREMENT.—

22 ‘‘(A) IN GENERAL.—For purposes of para23 graph (1), the private business contribution re24 quirement of this paragraph is met with respect

25 to any issue if the local educational agency that
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1 established the qualified zone academy has writ2 ten commitments from private entities to make

3 qualified contributions having a present value

4 (as of the date of issuance of the issue) of not

5 less than 10 percent of the proceeds of the

6 issue.

7 ‘‘(B) QUALIFIED CONTRIBUTIONS.—For

8 purposes of subparagraph (A), the term ‘quali9 fied contribution’ means any contribution (of a

10 type and quality acceptable to the local edu11 cational agency) of—

12 ‘‘(i) equipment for use in the qualified

13 zone academy (including state-of-the-art

14 technology and vocational equipment),

15 ‘‘(ii) technical assistance in developing

16 curriculum or in training teachers in order

17 to promote appropriate market driven tech18 nology in the classroom,

19 ‘‘(iii) services of employees as volun20 teer mentors,

21 ‘‘(iv) internships, field trips, or other

22 educational opportunities outside the acad23 emy for students, or

24 ‘‘(v) any other property or service

25 specified by the local educational agency.
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1 ‘‘(3) QUALIFIED ZONE ACADEMY.—The term

2 ‘qualified zone academy’ means any public school (or

3 academic program within a public school) which is

4 established by and operated under the supervision of

5 a local educational agency to provide education or

6 training below the postsecondary level if—

7 ‘‘(A) such public school or program (as the

8 case may be) is designed in cooperation with

9 business to enhance the academic curriculum,

10 increase graduation and employment rates, and

11 better prepare students for the rigors of college

12 and the increasingly complex workforce,

13 ‘‘(B) students in such public school or pro14 gram (as the case may be) will be subject to the

15 same academic standards and assessments as

16 other students educated by the local educational

17 agency,

18 ‘‘(C) the comprehensive education plan of

19 such public school or program is approved by

20 the local educational agency, and

21 ‘‘(D)(i) such public school is located in an

22 empowerment zone or enterprise community

23 (including any such zone or community des24 ignated after the date of the enactment of this

25 section), or
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1 ‘‘(ii) there is a reasonable expectation (as

2 of the date of issuance of the bonds) that at

3 least 35 percent of the students attending such

4 school or participating in such program (as the

5 case may be) will be eligible for free or reduced6 cost lunches under the school lunch program es7 tablished under the National School Lunch Act.

8 ‘‘(4) QUALIFIED PURPOSE.—The term ‘quali9 fied purpose’ means, with respect to any qualified

10 zone academy—

11 ‘‘(A) constructing, rehabilitating, or repair12 ing the public school facility in which the acad13 emy is established,

14 ‘‘(B) providing equipment for use at such

15 academy,

16 ‘‘(C) developing course materials for edu17 cation to be provided at such academy, and

18 ‘‘(D) training teachers and other school

19 personnel in such academy.

20 ‘‘(5) TEMPORARY PERIOD EXCEPTION.—A bond

21 shall not be treated as failing to meet the require22 ment of paragraph (1)(A) solely by reason of the

23 fact that the proceeds of the issue of which such

24 bond is a part are invested for a reasonable tem25 porary period (but not more than 36 months) until
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1 such proceeds are needed for the purpose for which

2 such issue was issued. Any earnings on such pro3 ceeds during such period shall be treated as proceeds

4 of the issue for purposes of applying paragraph

5 (1)(A).

6 ‘‘(b) LIMITATIONS ON AMOUNT OF BONDS DES7 IGNATED.—

8 ‘‘(1) IN GENERAL.—There is a national zone

9 academy bond limitation for each calendar year.

10 Such limitation is—

11 ‘‘(A) $400,000,000 for 1998,

12 ‘‘(B) $1,400,000,000 for 1999,

13 ‘‘(C) $1,400,000,000 for 2000, and

14 ‘‘(D) except as provided in paragraph (3),

15 zero after 2000.

16 ‘‘(2) ALLOCATION OF LIMITATION.—

17 ‘‘(A) ALLOCATION AMONG STATES.—

18 ‘‘(i) 1998 LIMITATION.—The national

19 zone academy bond limitation for calendar

20 year 1998 shall be allocated by the Sec21 retary among the States on the basis of

22 their respective populations of individuals

23 below the poverty line (as defined by the

24 Office of Management and Budget).
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1 ‘‘(ii) LIMITATION AFTER 1998.—The

2 national zone academy bond limitation for

3 any calendar year after 1998 shall be allo4 cated by the Secretary among the States in

5 the manner prescribed by section

6 1397G(d); except that, in making the allo7 cation under this clause, the Secretary

8 shall take into account Basic Grants at9 tributable to large local educational agen10 cies (as defined in section 1397G(e)).

11 ‘‘(B) ALLOCATION TO LOCAL EDU12 CATIONAL AGENCIES.—The limitation amount

13 allocated to a State under subparagraph (A)

14 shall be allocated by the State education agency

15 to qualified zone academies within such State.

16 ‘‘(C) DESIGNATION SUBJECT TO LIMITA17 TION AMOUNT.—The maximum aggregate face

18 amount of bonds issued during any calendar

19 year which may be designated under subsection

20 (a) with respect to any qualified zone academy

21 shall not exceed the limitation amount allocated

22 to such academy under subparagraph (B) for

23 such calendar year.

24 ‘‘(3) CARRYOVER OF UNUSED LIMITATION.—If

25 for any calendar year—
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1 ‘‘(A) the limitation amount under this sub2 section for any State, exceeds

3 ‘‘(B) the amount of bonds issued during

4 such year which are designated under sub5 section (a) with respect to qualified zone acad6 emies within such State,

7 the limitation amount under this subsection for such

8 State for the following calendar year shall be in9 creased by the amount of such excess. The preceding

10 sentence shall not apply if such following calendar

11 year is after 2002.

12 ‘‘SEC. 1397G. QUALIFIED SCHOOL CONSTRUCTION BONDS.

13 ‘‘(a) QUALIFIED SCHOOL CONSTRUCTION BOND.—

14 For purposes of this part, the term ‘qualified school con15 struction bond’ means any bond issued as part of an issue

16 if—

17 ‘‘(1) 95 percent or more of the proceeds of such

18 issue are to be used for the construction, rehabilita19 tion, or repair of a public school facility,

20 ‘‘(2) the bond is issued by a State or local gov21 ernment within the jurisdiction of which such school

22 is located,

23 ‘‘(3) the issuer designates such bond for pur24 poses of this section, and
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1 ‘‘(4) the term of each bond which is part of

2 such issue does not exceed 15 years.

3 Rules similar to the rules of section 1397F(a)(5) shall

4 apply for purposes of paragraph (1).

5 ‘‘(b) LIMITATION ON AMOUNT OF BONDS DES6 IGNATED.—The maximum aggregate face amount of

7 bonds issued during any calendar year which may be des8 ignated under subsection (a) by any issuer shall not exceed

9 the sum of—

10 ‘‘(1) the limitation amount allocated under sub11 section (d) for such calendar year to such issuer,

12 and

13 ‘‘(2) if such issuer is a large local educational

14 agency (as defined in subsection (e)) or is issuing on

15 behalf of such an agency, the limitation amount allo16 cated under subsection (e) for such calendar year to

17 such agency.

18 ‘‘(c) NATIONAL LIMITATION ON AMOUNT OF BONDS

19 DESIGNATED.—There is a national qualified school con20 struction bond limitation for each calendar year. Such lim21 itation is—

22 ‘‘(1) $9,700,000,000 for 1999,

23 ‘‘(2) $9,700,000,000 for 2000, and

24 ‘‘(3) except as provided in subsection (f), zero

25 after 2000.
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1 ‘‘(d) HALF OF LIMITATION ALLOCATED AMONG

2 STATES.—

3 ‘‘(1) IN GENERAL.—One-half of the limitation

4 applicable under subsection (c) for any calendar year

5 shall be allocated among the States under paragraph

6 (2) by the Secretary. The limitation amount allo7 cated to a State under the preceding sentence shall

8 be allocated by the State education agency to issuers

9 within such State and such allocations may be made

10 only if there is an approved State application.

11 ‘‘(2) ALLOCATION FORMULA.—The amount to

12 be allocated under paragraph (1) for any calendar

13 year shall be allocated among the States in propor14 tion to the respective amounts each such State re15 ceived for Basic Grants under subpart 2 of part A

16 of title I of the Elementary and Secondary Edu17 cation Act of 1965 (20 U.S.C. 6331 et seq.) for the

18 most recent fiscal year ending before such calendar

19 year. For purposes of the preceding sentence, Basic

20 Grants attributable to large local educational agen21 cies (as defined in subsection (e)) shall be dis22 regarded.

23 ‘‘(3) MINIMUM ALLOCATIONS TO STATES.—

24 ‘‘(A) IN GENERAL.—The Secretary shall

25 adjust the allocations under this subsection for
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1 any calendar year for each State to the extent

2 necessary to ensure that the sum of—

3 ‘‘(i) the amount allocated to such

4 State under this subsection for such year,

5 and

6 ‘‘(ii) the aggregate amounts allocated

7 under subsection (e) to large local edu8 cational agencies in such State for such

9 year,

10 is not less than an amount equal to such

11 State’s minimum percentage of one-half of the

12 national qualified school construction bond limi13 tation under subsection (c) for the calendar

14 year.

15 ‘‘(B) MINIMUM PERCENTAGE.—A State’s

16 minimum percentage for any calendar year is

17 the minimum percentage described in section

18 1124(d) of the Elementary and Secondary Edu19 cation Act of 1965 (20 U.S.C. 6334(d)) for

20 such State for the most recent fiscal year end21 ing before such calendar year.

22 ‘‘(4) ALLOCATIONS TO CERTAIN POSSES23 SIONS.—The amount to be allocated under para24 graph (1) to any possession of the United States

25 other than Puerto Rico shall be the amount which
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1 would have been allocated if all allocations under

2 paragraph (1) were made on the basis of respective

3 populations of individuals below the poverty line (as

4 defined by the Office of Management and Budget).

5 In making other allocations, the amount to be allo6 cated under paragraph (1) shall be reduced by the

7 aggregate amount allocated under this paragraph to

8 possessions of the United States.

9 ‘‘(5) APPROVED STATE APPLICATION.—For

10 purposes of paragraph (1), the term ‘approved State

11 application’ means an application which is approved

12 by the Secretary of Education and which includes—

13 ‘‘(A) the results of a recent publicly-avail14 able survey (undertaken by the State with the

15 involvement of local education officials, mem16 bers of the public, and experts in school con17 struction and management) of such State’s

18 needs for public school facilities, including de19 scriptions of—

20 ‘‘(i) health and safety problems at

21 such facilities,

22 ‘‘(ii) the capacity of public schools in

23 the State to house projected enrollments,

24 and
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1 ‘‘(iii) the extent to which the public

2 schools in the State offer the physical in3 frastructure needed to provide a high-qual4 ity education to all students, and

5 ‘‘(B) a description of how the State will al6 locate to local educational agencies, or other7 wise use, its allocation under this subsection to

8 address the needs identified under subpara9 graph (A), including a description of how it

10 will—

11 ‘‘(i) give highest priority to localities

12 with the greatest needs, as demonstrated

13 by inadequate school facilities coupled with

14 a low level of resources to meet those

15 needs,

16 ‘‘(ii) use its allocation under this sub17 section to assist localities that lack the fis18 cal capacity to issue bonds on their own,

19 and

20 ‘‘(iii) ensure that its allocation under

21 this subsection is used only to supplement,

22 and not supplant, the amount of school

23 construction, rehabilitation, and repair in

24 the State that would have occurred in the

25 absence of such allocation.
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1 Any allocation under paragraph (1) by a State edu2 cation agency shall be binding if such agency reason3 ably determined that the allocation was in accord4 ance with the plan approved under this paragraph.

5 ‘‘(e) HALF OF LIMITATION ALLOCATED AMONG

6 LARGEST SCHOOL DISTRICTS.—

7 ‘‘(1) IN GENERAL.—One-half of the limitation

8 applicable under subsection (c) for any calendar year

9 shall be allocated under paragraph (2) by the Sec10 retary among local educational agencies which are

11 large local educational agencies for such year. No

12 qualified school construction bond may be issued by

13 reason of an allocation to a large local educational

14 agency under the preceding sentence unless such

15 agency has an approved local application.

16 ‘‘(2) ALLOCATION FORMULA.—The amount to

17 be allocated under paragraph (1) for any calendar

18 year shall be allocated among large local educational

19 agencies in proportion to the respective amounts

20 each such agency received for Basic Grants under

21 subpart 2 of part A of title I of the Elementary and

22 Secondary Education Act of 1965 (20 U.S.C. 6331

23 et seq.) for the most recent fiscal year ending before

24 such calendar year.
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1 ‘‘(3) LARGE LOCAL EDUCATIONAL AGENCY.—

2 For purposes of this section, the term ‘large local

3 educational agency’ means, with respect to a cal4 endar year, any local educational agency if such

5 agency is—

6 ‘‘(A) among the 100 local educational

7 agencies with the largest numbers of children

8 aged 5 through 17 from families living below

9 the poverty level, as determined by the Sec10 retary using the most recent data available

11 from the Department of Commerce that are

12 satisfactory to the Secretary, or

13 ‘‘(B) 1 of not more than 25 local edu14 cational agencies (other than those described in

15 clause (i)) that the Secretary of Education de16 termines (based on the most recent data avail17 able satisfactory to the Secretary) are in par18 ticular need of assistance, based on a low level

19 of resources for school construction, a high level

20 of enrollment growth, or such other factors as

21 the Secretary deems appropriate.

22 ‘‘(4) APPROVED LOCAL APPLICATION.—For

23 purposes of paragraph (1), the term ‘approved local

24 application’ means an application which is approved

25 by the Secretary of Education and which includes—
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1 ‘‘(A) the results of a recent publicly-avail2 able survey (undertaken by the local educational

3 agency with the involvement of school officials,

4 members of the public, and experts in school

5 construction and management) of such agency’s

6 needs for public school facilities, including de7 scriptions of—

8 ‘‘(i) the overall condition of the local

9 educational agency’s school facilities, in10 cluding health and safety problems,

11 ‘‘(ii) the capacity of the agency’s

12 schools to house projected enrollments, and

13 ‘‘(iii) the extent to which the agency’s

14 schools offer the physical infrastructure

15 needed to provide a high-quality education

16 to all students,

17 ‘‘(B) a description of how the local edu18 cational agency will use its allocation under this

19 subsection to address the needs identified under

20 subparagraph (A), and

21 ‘‘(C) a description of how the local edu22 cational agency will ensure that its allocation

23 under this subsection is used only to supple24 ment, and not supplant, the amount of school

25 construction, rehabilitation, or repair in the lo-
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1 cality that would have occurred in the absence

2 of such allocation.

3 A rule similar to the rule of the last sentence of sub4 section (d)(5) shall apply for purposes of this para5 graph.

6 ‘‘(f) CARRYOVER OF UNUSED LIMITATION.—If for

7 any calendar year—

8 ‘‘(1) the amount allocated under subsection (d)

9 to any State, exceeds

10 ‘‘(2) the amount of bonds issued during such

11 year which are designated under subsection (a) pur12 suant to such allocation,

13 the limitation amount under such subsection for such

14 State for the following calendar year shall be increased

15 by the amount of such excess. A similar rule shall apply

16 to the amounts allocated under subsection (e). The sub17 section shall not apply if such following calendar year is

18 after 2002.’’.

19 (b) REPORTING.—Subsection (d) of section 6049 of

20 such Code (relating to returns regarding payments of in21 terest) is amended by adding at the end the following new

22 paragraph:

23 ‘‘(8) REPORTING OF CREDIT ON QUALIFIED

24 PUBLIC SCHOOL MODERNIZATION BONDS.—
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1 ‘‘(A) IN GENERAL.—For purposes of sub2 section (a), the term ‘interest’ includes amounts

3 includible in gross income under section

4 1397E(f) and such amounts shall be treated as

5 paid on the credit allowance date (as defined in

6 section 1397E(d)(2)).

7 ‘‘(B) REPORTING TO CORPORATIONS,

8 ETC.—Except as otherwise provided in regula9 tions, in the case of any interest described in

10 subparagraph (A) of this paragraph, subsection

11 (b)(4) of this section shall be applied without

12 regard to subparagraphs (A), (H), (I), (J), (K),

13 and (L)(i).

14 ‘‘(C) REGULATORY AUTHORITY.—The Sec15 retary may prescribe such regulations as are

16 necessary or appropriate to carry out the pur17 poses of this paragraph, including regulations

18 which require more frequent or more detailed

19 reporting.’’

20 (c) CLERICAL AMENDMENTS.—

21 (1) The table of parts for subchapter U of

22 chapter 1 of such Code is amended by striking the

23 item relating to part IV and inserting the following

24 new item:

‘‘Part IV. Incentives for qualified public school modernization

bonds.’’.
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1 (2) Part V of subchapter U of chapter 1 of

2 such Code is amended by redesignating both section

3 1397F and the item relating thereto in the table of

4 sections for such part as section 1397H.

5 (d) EFFECTIVE DATES.—

6 (1) IN GENERAL.—Except as provided in para7 graph (2), the amendments made by this section

8 shall apply to obligations issued after December 31,

9 1998.

10 (2) REPEAL OF RESTRICTION ON ZONE ACAD11 EMY BOND HOLDERS.—The repeal of the limitation

12 of section 1397E of the Internal Revenue Code of

13 1986 (as in effect on the day before the date of the

14 enactment of this Act) to eligible taxpayers (as de15 fined in subsection (d)(6) of such section) shall

16 apply to obligations issued after December 31, 1997.

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