I 

111TH CONGRESS 

2D SESSION H. R. 5340 

To allow a State to opt out of K–12 education grant programs and the 

requirements of those programs, to amend the Internal Revenue Code 

of 1986 to provide a credit to taxpayers in such a State, and for 

other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 19, 2010 

Mr. GARRETT of New Jersey introduced the following bill; which was referred 

to the Committee on Ways and Means, and in addition to the Committee 

on Education and Labor, for a period to be subsequently determined by 

the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned 

A BILL 

To allow a State to opt out of K–12 education grant programs and the requirements of those programs, to amend 

the Internal Revenue Code of 1986 to provide a credit 

to taxpayers in such a State, 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; TABLE OF CONTENTS. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Local Education Authority Returns Now Act’’. 


jbell on DSKDVH8Z91PROD with BILLS
2 

•HR 5340 IH

1 (b) TABLE OF CONTENTS.—The table of contents for 

2 this Act is as follows: 

Sec. 1. Short title; table of contents. 

TITLE I—ABILITY OF STATES TO OPT OUT OF K–12 EDUCATION 

GRANT PROGRAMS 

Sec. 101. Determinations by Secretary of Treasury as to which States are optout States. 

Sec. 102. Amounts creditable to States. 

Sec. 103. Opt-out States not eligible to receive grants under K–12 education 

grant programs. 

Sec. 104. Requirements of K–12 education grant programs do not apply to optout States. 

Sec. 105. Definitions. 

TITLE II—CREDIT TO TAXPAYERS IN OPT-OUT STATE 

Sec. 201. Refundable opt-out State education credit. 

3 TITLE I—ABILITY OF STATES TO 

4 OPT OUT OF K–12 EDUCATION 

5 GRANT PROGRAMS 

6 SEC. 101. DETERMINATIONS BY SECRETARY OF TREASURY 

7 AS TO WHICH STATES ARE OPT-OUT STATES. 

8 (a) DEADLINE.—Not later than February 1 of each 

9 calendar year (hereinafter in this title referred to as the 

10 ‘‘determination year’’), the Secretary of the Treasury shall 

11 determine which States, if any, are opt-out States for the 

12 calendar year (hereinafter in this title referred to as the 

13 ‘‘opt-out year’’) that follows the determination year. 

14 (b) DETERMINATION.—The Secretary of the Treas15 ury shall determine that a State is an opt-out State for 

16 an opt-out year under subsection (a) if, and only if, there 

17 is transmitted to the Secretary a copy of a law, in effect 

18 as of January 1 of the determination year, that can fairly 


jbell on DSKDVH8Z91PROD with BILLS
3 

•HR 5340 IH

1 be read to mean that the policy of the State is to not ac2 cept grant funds under the K–12 education grant pro3 grams, and thereby to not be bound by the requirements 

4 of those programs, for that opt-out year. 

5 (c) NOTIFICATION.—Upon making a determination 

6 under subsection (a), the Secretary of the Treasury shall 

7 transmit that determination to the Secretary of Education 

8 and to Congress. 

9 SEC. 102. AMOUNTS CREDITABLE TO STATES. 

10 (a) IN GENERAL.—For purposes of determinations 

11 relating to the refundable opt-out State education credit 

12 under section 36B of the Internal Revenue Code of 1986, 

13 as early as practicable for a calendar year, the Secretary 

14 of Education shall, for each State, determine the amount 

15 creditable to that State for that calendar year and make 

16 available that determination. 

17 (b) AMOUNT CREDITABLE.—The Secretary shall de18 termine the amount creditable to a State for a calendar 

19 year as follows: 

20 (1) If the State was not an opt-out State for 

21 the preceding calendar year, the amount creditable 

22 for the calendar year shall be equal to the aggregate 

23 K–12 funding (as determined under subsection (d)) 

24 for that State for that preceding calendar year. 


jbell on DSKDVH8Z91PROD with BILLS
4 

•HR 5340 IH

1 (2) If the State was an opt-out State for the 

2 preceding calendar year, the amount creditable for 

3 the calendar year shall be equal to— 

4 (A) the extrapolated amount (as deter5 mined under subsection (c)) for that preceding 

6 calendar year, plus 

7 (B) the amount that results when the 

8 amount creditable for that preceding calendar 

9 year is subtracted from the extrapolated 

10 amount (as determined under subsection (c)) 

11 for that preceding calendar year. 

12 (c) EXTRAPOLATED AMOUNT.— 

13 (1) IN GENERAL.—The Secretary of Education 

14 shall determine the extrapolated amount for a State 

15 for a calendar year. The determination shall be 

16 based on— 

17 (A) the amount of grant funds that would 

18 have been received other than on a competitive 

19 basis, as direct grants, subgrants, or otherwise, 

20 under the K–12 education grant programs, by 

21 the State or any public educational entity in the 

22 State for that calendar year, had it elected not 

23 to be an opt-out State for that calendar year; 

24 plus 


jbell on DSKDVH8Z91PROD with BILLS
5 

•HR 5340 IH

1 (B) the average annual amount of all grant 

2 funds that would have been received on a com3 petitive basis, as direct grants, subgrants, or 

4 otherwise, under the K–12 education grant pro5 grams, by the State or any public educational 

6 entity in the State for that calendar year and 

7 the four preceding calendar years, had it elected 

8 not to be an opt-out State for those calendar 

9 years. 

10 (2) REGULATIONS.—The Secretary shall pre11 scribe regulations for making determinations re12 quired by this subsection. The initial regulations 

13 shall be prescribed not later than 6 months after the 

14 date of the enactment of this Act. 

15 (d) AGGREGATE K–12 FUNDING.—The aggregate K– 

16 12 funding for a State for a calendar year shall be equal 

17 to— 

18 (1) the amount of all grant funds received other 

19 than on a competitive basis, as direct grants, sub20 grants, or otherwise, under the K–12 education 

21 grant programs, by the State or any public edu22 cational entity in the State for that calendar year; 

23 plus 

24 (2) the average annual amount of all grant 

25 funds received on a competitive basis, as direct 


jbell on DSKDVH8Z91PROD with BILLS
6 

•HR 5340 IH

1 grants, subgrants, or otherwise, under the K–12 

2 education grant programs, by the State or any pub3 lic educational entity in the State for that calendar 

4 year and the four preceding calendar years. 

5 SEC. 103. OPT-OUT STATES NOT ELIGIBLE TO RECEIVE 

6 GRANTS UNDER K–12 EDUCATION GRANT 

7 PROGRAMS. 

8 (a) IN GENERAL.—When a State is an opt-out State 

9 for a calendar year, neither the State nor any public edu10 cational entity in the State is eligible to receive, as direct 

11 grants, subgrants, or otherwise, any funds under any of 

12 the K–12 education grant programs for that calendar 

13 year. 

14 (b) REALLOCATION.—Any funds under a K–12 edu15 cation grant program that are not allocated to a State or 

16 public educational entity in the State by reason of sub17 section (a) shall be returned to the Treasury. 

18 SEC. 104. REQUIREMENTS OF K–12 EDUCATION GRANT PRO19 GRAMS DO NOT APPLY TO OPT-OUT STATES. 

20 When a State is an opt-out State for a calendar year, 

21 neither the State nor any public educational entity in the 

22 State is subject to any statutory or regulatory requirement 

23 of a K–12 education grant program for that calendar year. 

24 SEC. 105. DEFINITIONS. 

25 In this title: 


jbell on DSKDVH8Z91PROD with BILLS
7 

•HR 5340 IH

1 (1) The term ‘‘K–12 education grant program’’ 

2 means any grant program carried out under any 

3 title of the Elementary and Secondary Education 

4 Act of 1965, except for the following: 

5 (A) INDIAN, NATIVE HAWAIIAN, AND ALAS6 KA NATIVE EDUCATION.—Title VII (20 U.S.C. 

7 7401 et seq.). 

8 (B) IMPACT AID.—Title VIII (20 U.S.C. 

9 7701 et seq.). 

10 (2) The term ‘‘public educational entity’’ 

11 means, with respect to a State, the State educational 

12 agency, any local educational agency in the State, or 

13 any public elementary or secondary school in the 

14 State. 

15 TITLE II—CREDIT TO 

16 TAXPAYERS IN OPT-OUT STATE 

17 SEC. 201. REFUNDABLE OPT-OUT STATE EDUCATION CRED18 IT. 

19 (a) IN GENERAL.—Subpart C of part IV of sub20 chapter A of chapter 1 of the Internal Revenue Code of 

21 1986 (relating to refundable credits) is amended by insert22 ing after section 36A the following new section: 

23 ‘‘SEC. 36B. OPT-OUT STATE EDUCATION CREDIT. 

24 ‘‘(a) GENERAL RULE.—In the case of an eligible indi25 vidual, there shall be allowed as a credit against the tax 


jbell on DSKDVH8Z91PROD with BILLS
8 

•HR 5340 IH

1 imposed by this chapter for the taxable year the opt-out 

2 State education amount. 

3 ‘‘(b) OPT-OUT STATE EDUCATION AMOUNT.—For 

4 purposes of this section— 

5 ‘‘(1) IN GENERAL.—The term ‘opt-out State 

6 education amount’ means, with respect to a taxpayer 

7 for a taxable year beginning in an opt-out year, the 

8 amount equal to— 

9 ‘‘(A) the amount creditable under section 

10 102 of the Local Education Authority Returns 

11 Now Act to an opt-out State (determined under 

12 section 101 of such Act), multiplied by— 

13 ‘‘(B) a fraction— 

14 ‘‘(i) the numerator of which is the 

15 taxpayer’s household tax burden from such 

16 State for the opt-out year, and 

17 ‘‘(ii) the denominator of which is the 

18 total tax revenue of such State for the opt19 out year. 

20 ‘‘(2) HOUSEHOLD TAX BURDEN.—The house21 hold tax burden from a State for an opt-out year is 

22 the sum of— 

23 ‘‘(A) the State real property taxes, 

24 ‘‘(B) the State personal property taxes, 


jbell on DSKDVH8Z91PROD with BILLS
9 

•HR 5340 IH

1 ‘‘(C) the State income, war profits, and ex2 cess profits taxes, plus 

3 ‘‘(D) the State general sales taxes, 

4 for the calendar year in which the second preceding 

5 taxable year ends and within which paid or accrued 

6 by the taxpayer. For purposes of this section, terms 

7 used in the preceding sentence which are also used 

8 in section 164 shall have the respective meanings 

9 given such terms by section 164. 

10 ‘‘(3) TOTAL TAX REVENUE.—The total tax rev11 enue of a State for an opt-out year is the amount 

12 determined by the Secretary to be the aggregate tax 

13 revenue of such State for the calendar year in which 

14 the second preceding taxable year ends. 

15 ‘‘(c) ELIGIBLE INDIVIDUAL.—For purposes of this 

16 section— 

17 ‘‘(1) IN GENERAL.—The term ‘eligible indi18 vidual’ means an individual whose principal place of 

19 abode (within the meaning of section 121) was in 

20 the opt-out State for the entire taxable year. 

21 ‘‘(2) DEPENDENTS.—The term ‘eligible indi22 vidual’ does not include any individual if a deduction 

23 under section 151 with respect to such individual is 

24 allowed to another taxpayer for a taxable year beginVerDate Mar 15 2010 02:32 May 20, 2010 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H5340.IH H5340

jbell on DSKDVH8Z91PROD with BILLS
10 

•HR 5340 IH

1 ning in the calendar year in which such individual’s 

2 taxable year begins. 

3 ‘‘(d) OPT-OUT YEAR.—The term ‘opt-out year’ 

4 means a calendar year for which the Secretary determines 

5 a State to be an opt-out State under section 101 of the 

6 Local Education Authority Returns Now Act. 

7 ‘‘(e) AMOUNT OF CREDIT SHALL BE DETERMINED

8 UNDER TABLES.— 

9 ‘‘(1) IN GENERAL.—The credit under sub10 section (a) shall be determined under tables pre11 scribed by the Secretary. 

12 ‘‘(2) REQUIREMENTS FOR TABLES.—The tables 

13 prescribed under paragraph (1) shall— 

14 ‘‘(A) reflect the provisions of this section, 

15 and 

16 ‘‘(B) take into account filing status, State 

17 of residence, and adjusted gross income.’’. 

18 (b) CONFORMING AMENDMENTS.— 

19 (1) Paragraph (2) of section 1324(b) of title 

20 31, United States Code, is amended by inserting 

21 ‘‘36B,’’ after ‘‘36A,’’. 

22 (2) The table of sections for subpart C of part 

23 IV of subchapter A of chapter 1 of the Internal Rev24 enue Code of 1986 is amended by inserting after the 

25 item relating to section 36A the following new item: 

‘‘Sec. 36B. Opt-out State education credit.’’. 


jbell on DSKDVH8Z91PROD with BILLS
11 

•HR 5340 IH

1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 the date of the enactment of this Act. 

Æ 


jbell on DSKDVH8Z91PROD with BILLS