II

106TH CONGRESS

1ST SESSION S. 1454

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

for the construction and renovation of public schools and to provide

tax incentives for corporations to participate in cooperative agreements

with public schools in distressed areas.

IN THE SENATE OF THE UNITED STATES

JULY 28, 1999

Mr. ROBB (for himself, Mr. LAUTENBERG, Mr. CONRAD, Mr. HARKIN, Mr.

KENNEDY, Mr. DASCHLE, Mr. REID, Mrs. MURRAY, Mr. LEVIN, Mr.

CLELAND, Mr. DODD, Mr. TORRICELLI, Mr. SCHUMER, Mrs. LINCOLN,

Mr. JOHNSON, Mr. WELLSTONE, Mr. KERRY, Mr. KERREY, and Mr.

AKAKA) 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 and to provide tax incentives for corporations to participate in cooperative agreements with public

schools in distressed areas.

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 and Overcrowding Relief Act of 1999’’.
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1 SEC. 2. FINDINGS.

2 Congress makes the following findings:

3 (1) Record numbers of students are enrolled in

4 our Nation’s elementary and secondary schools and

5 that record is expected to be broken every year

6 through 2007. The record numbers are straining

7 many school facilities. Addressing that growth will

8 require an increasing commitment of resources to

9 build and modernize schools, and to hire and train

10 new teachers. In addition, the increasing use of tech11 nology in the workplace is creating new demands to

12 incorporate computers and other high-technology

13 equipment into the classroom and into curricula.

14 (2) The General Accounting Office (in this sec15 tion referred to as the ‘‘GAO’’) has performed a

16 comprehensive survey of the Nation’s public elemen17 tary and secondary school facilities and has found

18 severe levels of disrepair in all areas of the United

19 States. The GAO report concluded that more than

20 14,000,000 children attend schools in need of exten21 sive repair or replacement, 7,000,000 children at22 tend schools with life safety code violations, and

23 12,000,000 children attend schools with leaky roofs.

24 (3) The General Accounting Office has found

25 the problem of crumbling schools transcends demo26 graphic and geographic boundaries. At 38 percent of
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1 urban schools, 30 percent of rural schools, and 29

2 percent of suburban schools, at least one building is

3 in need of extensive repair or should be completely

4 replaced.

5 (4) The condition of school facilities has a di6 rect effect on the safety of students and teachers

7 and on the ability of students to learn. Academic re8 search has provided a direct correlation between the

9 condition of school facilities and student achieve10 ment. At Georgetown University, researchers have

11 found the test scores of students assigned to schools

12 in poor condition can be expected to fall 10.9 per13 centage points below the test scores of students in

14 buildings in excellent condition. Similar studies have

15 demonstrated up to a 20 percent improvement in

16 test scores when students were moved from a poor

17 facility to a new facility.

18 (5) Furthermore, a recent study by the Envi19 ronmental Working Group concluded that portable

20 trailers, utilized by many school districts to accom21 modate school over-crowding, can ‘‘expose children

22 to toxic chemicals at levels that pose an unaccept23 able risk of cancer or other serious illnesses.’’ Be24 cause ventilation in portable trailers is poor, the pol25 lution through the build-up of toxins can be signifi-
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1 cant. This is particularly hazardous to those children

2 who have asthma. The prevalence of asthma in chil3 dren increased by 160 percent between 1980 and

4 1994. The report also stated, ‘‘Schools are facing

5 two epidemics: an epidemic of deteriorating facilities

6 and an epidemic of asthma among children.’’

7 (6) The General Accounting Office has found

8 most schools are not prepared to incorporate modern

9 technology in the classroom. Forty-six percent of

10 schools lack adequate electrical wiring to support the

11 full-scale use of technology. More than a third of

12 schools lack the requisite electrical power. Fifty-six

13 percent of schools have insufficient phone lines for

14 modems.

15 (7) The Department of Education has reported

16 that elementary and secondary school enrollment, al17 ready at a record high level, will continue to grow

18 over the next 10 years, and that in order to accom19 modate this growth, the United States will need to

20 build an additional 2,400 schools.

21 (8) The General Accounting Office has deter22 mined the cost of bringing schools up to good, over23 all condition to be $112,000,000,000, not including

24 the cost of modernizing schools to accommodate
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1 technology, or the cost of building additional facili2 ties needed to meet record enrollment levels.

3 (9) Schools run by the Bureau of Indian Affairs

4 (in this section referred to as the ‘‘BIA’’) for Native

5 American children are also in dire need of repair

6 and renovation. The General Accounting Office has

7 reported that the cost of total inventory repairs

8 needed for BIA facilities is $754,000,000. The De9 cember 1997 report by the Comptroller General of

10 the United States states that, ‘‘Compared with other

11 schools nationally, BIA schools are generally in poor12 er physical condition, have more unsatisfactory envi13 ronmental factors, more often lack key facilities re14 quirements for education reform, and are less able

15 to support computer and communications tech16 nology.’’

17 (10) Across the Nation, schools will need to re18 cruit and hire an additional 2,000,000 teachers dur19 ing the period from 1998 through 2008. More than

20 200,000 teachers will be needed annually, yet cur21 rent teacher development programs produce only

22 100,000 to 150,000 teachers per year. This level of

23 recruitment is simply the level needed to maintain

24 existing student-teacher ratios.
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1 (11) The rapid growth in the student popu2 lation, in addition to the imminent shortage of quali3 fied teachers and recent efforts by Congress to help

4 States reduce class size, present urgent infrastruc5 ture needs across the Nation.

6 (12) State and local financing mechanisms have

7 proven inadequate to meet the challenges facing to8 day’s aging school facilities. Large numbers of local

9 educational agencies have difficulties securing fi10 nancing for school facility improvement.

11 (13) The Federal Government has provided re12 sources for school construction in the past. For ex13 ample, between 1933 and 1939, the Federal Govern14 ment assisted in 70 percent of all new school con15 struction.

16 (14) The Federal Government can support ele17 mentary and secondary school facilities without

18 interfering in issues of local control, and should help

19 communities leverage additional funds for the im20 provement of elementary and secondary school facili21 ties.

22 SEC. 3. EXPANSION OF INCENTIVES FOR PUBLIC SCHOOLS.

23 (a) IN GENERAL.—Chapter 1 of the Internal Rev24 enue Code of 1986 is amended by adding at the end the

25 following new subchapter:
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1 ‘‘Subchapter X—Public School Modernization

2 Provisions

‘‘Part I. Credit to holders of qualified public school modernization

bonds.

‘‘Part II. Qualified school construction bonds.

‘‘Part III. Incentives for education zones.

3 ‘‘PART I—CREDIT TO HOLDERS OF QUALIFIED

4 PUBLIC SCHOOL MODERNIZATION BONDS

‘‘Sec. 1400F. Credit to holders of qualified public school modernization bonds.

5 ‘‘SEC. 1400F. 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 a credit allowance date of such bond which occurs

10 during the taxable year, there shall be allowed as a credit

11 against the tax imposed by this chapter for such taxable

12 year an amount equal to the sum of the credits determined

13 under subsection (b) with respect to credit allowance dates

14 during such year on which the taxpayer holds such bond.

15 ‘‘(b) AMOUNT OF CREDIT.—

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

17 determined under this subsection with respect to any

18 credit allowance date for a qualified public school

19 modernization bond is 25 percent of the annual

20 credit determined with respect to such bond.
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1 ‘‘(2) ANNUAL CREDIT.—The annual credit de2 termined with respect to any qualified public school

3 modernization bond is the product of—

4 ‘‘(A) the applicable credit rate, multiplied

5 by

6 ‘‘(B) the outstanding face amount of the

7 bond.

8 ‘‘(3) APPLICABLE CREDIT RATE.—For purposes

9 of paragraph (1), the applicable credit rate with re10 spect to an issue is the rate equal to an average

11 market yield (as of the day before the date of

12 issuance of the issue) on outstanding long-term cor13 porate debt obligations (determined under regula14 tions prescribed by the Secretary).

15 ‘‘(4) SPECIAL RULE FOR ISSUANCE AND RE16 DEMPTION.—In the case of a bond which is issued

17 during the 3-month period ending on a credit allow18 ance date, the amount of the credit determined

19 under this subsection with respect to such credit al20 lowance date shall be a ratable portion of the credit

21 otherwise determined based on the portion of the 3-

22 month period during which the bond is outstanding.

23 A similar rule shall apply when the bond is re24 deemed.

25 ‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—
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1 ‘‘(1) IN GENERAL.—The credit allowed under

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

3 the excess of—

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

5 (as defined in section 26(b)) plus the tax im6 posed by section 55, over

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

8 under part IV of subchapter A (other than sub9 part C thereof, relating to refundable credits).

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

11 credit allowable under subsection (a) exceeds the

12 limitation imposed by paragraph (1) for such taxable

13 year, such excess shall be carried to the succeeding

14 taxable year and added to the credit allowable under

15 subsection (a) for such taxable year.

16 ‘‘(d) QUALIFIED PUBLIC SCHOOL MODERNIZATION

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

18 section—

19 ‘‘(1) QUALIFIED PUBLIC SCHOOL MODERNIZA20 TION BOND.—The term ‘qualified public school mod21 ernization bond’ means—

22 ‘‘(A) a qualified school construction bond,

23 and

24 ‘‘(B) a qualified zone academy bond.
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1 ‘‘(2) CREDIT ALLOWANCE DATE.—The term

2 ‘credit allowance date’ means—

3 ‘‘(A) March 15,

4 ‘‘(B) June 15,

5 ‘‘(C) September 15, and

6 ‘‘(D) December 15.

7 Such term includes the last day on which the bond

8 is outstanding.

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

10 subchapter—

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

12 ‘local educational agency’ has the meaning given to

13 such term by section 14101 of the Elementary and

14 Secondary Education Act of 1965. Such term in15 cludes the local educational agency that serves the

16 District of Columbia but does not include any other

17 State agency.

18 ‘‘(2) BOND.—The term ‘bond’ includes any ob19 ligation.

20 ‘‘(3) STATE.—The term ‘State’ includes the

21 District of Columbia and any possession of the

22 United States.

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

24 ‘public school facility’ shall not include any facility

25 which is not owned by a State or local government
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1 or any agency or instrumentality of a State or local

2 government.

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

4 income includes the amount of the credit allowed to the

5 taxpayer under this section (determined without regard to

6 subsection (c)) and the amount so included shall be treat7 ed as interest income.

8 ‘‘(g) BONDS HELD BY REGULATED INVESTMENT

9 COMPANIES.—If any qualified public school modernization

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

11 determined under subsection (a) shall be allowed to share12 holders of such company under procedures prescribed by

13 the Secretary.

14 ‘‘(h) CREDITS MAY BE STRIPPED.—Under regula15 tions prescribed by the Secretary—

16 ‘‘(1) IN GENERAL.—There may be a separation

17 (including at issuance) of the ownership of a quali18 fied public school modernization bond and the enti19 tlement to the credit under this section with respect

20 to such bond. In case of any such separation, the

21 credit under this section shall be allowed to the per22 son who on the credit allowance date holds the in23 strument evidencing the entitlement to the credit

24 and not to the holder of the bond.
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1 ‘‘(2) CERTAIN RULES TO APPLY.—In the case

2 of a separation described in paragraph (1), the rules

3 of section 1286 shall apply to the qualified public

4 school modernization bond as if it were a stripped

5 bond and to the credit under this section as if it

6 were a stripped coupon.

7 ‘‘(i) TREATMENT FOR ESTIMATED TAX PURPOSES.—

8 Solely for purposes of sections 6654 and 6655, the credit

9 allowed by this section to a taxpayer by reason of holding

10 qualified public school modernization bonds on a credit al11 lowance date shall be treated as if it were a payment of

12 estimated tax made by the taxpayer on such date.

13 ‘‘(j) CREDIT MAY BE TRANSFERRED.—Nothing in

14 any law or rule of law shall be construed to limit the trans15 ferability of the credit allowed by this section through sale

16 and repurchase agreements.

17 ‘‘(k) REPORTING.—Issuers of qualified public school

18 modernization bonds shall submit reports similar to the

19 reports required under section 149(e).

20 ‘‘(l) TERMINATION.—This section shall not apply to

21 any bond issued after September 30, 2005.

22 ‘‘PART II—QUALIFIED SCHOOL CONSTRUCTION

23 BONDS

‘‘Sec. 1400G. Qualified school construction bonds.
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1 ‘‘SEC. 1400G. QUALIFIED SCHOOL CONSTRUCTION BONDS.

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

3 For purposes of this subchapter, the term ‘qualified school

4 construction bond’ means any bond issued as part of an

5 issue if—

6 ‘‘(1) 95 percent or more of the proceeds of such

7 issue are to be used for the construction, rehabilita8 tion, or repair of a public school facility or for the

9 acquisition of land on which such a facility is to be

10 constructed with part of the proceeds of such issue,

11 ‘‘(2) the bond is issued by a State or local gov12 ernment within the jurisdiction of which such school

13 is located,

14 ‘‘(3) the issuer designates such bond for pur15 poses of this section, and

16 ‘‘(4) the term of each bond which is part of

17 such issue does not exceed 15 years.

18 ‘‘(b) LIMITATION ON AMOUNT OF BONDS DES19 IGNATED.—The maximum aggregate face amount of

20 bonds issued during any calendar year which may be des21 ignated under subsection (a) by any issuer shall not exceed

22 the sum of—

23 ‘‘(1) the limitation amount allocated under sub24 section (d) for such calendar year to such issuer,

25 and
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1 ‘‘(2) if such issuer is a large local educational

2 agency (as defined in subsection (e)(4)) or is issuing

3 on behalf of such an agency, the limitation amount

4 allocated under subsection (e) for such calendar year

5 to such agency.

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

7 DESIGNATED.—There is a national qualified school con8 struction bond limitation for each calendar year. Such lim9 itation is—

10 ‘‘(1) $11,800,000,000 for 2001,

11 ‘‘(2) $11,800,000,000 for 2005, and

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

13 after 2001 and before 2005, and after 2005.

14 ‘‘(d) SIXTY-FIVE PERCENT OF LIMITATION ALLO15 CATED AMONG STATES.—

16 ‘‘(1) IN GENERAL.—Sixty-five percent of the

17 limitation applicable under subsection (c) for any

18 calendar year shall be allocated among the States

19 under paragraph (2) by the Secretary. The limita20 tion amount allocated to a State under the preceding

21 sentence shall be allocated by the State to issuers

22 within such State and such allocations may be made

23 only if there is an approved State application.

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

25 be allocated under paragraph (1) for any calendar
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1 year shall be allocated among the States in propor2 tion to the respective amounts each such State re3 ceived for Basic Grants under subpart 2 of part A

4 of title I of the Elementary and Secondary Edu5 cation Act of 1965 (20 U.S.C. 6331 et seq.) for the

6 most recent fiscal year ending before such calendar

7 year. For purposes of the preceding sentence, Basic

8 Grants attributable to large local educational agen9 cies (as defined in subsection (e)) shall be dis10 regarded.

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

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

13 adjust the allocations under this subsection for

14 any calendar year for each State to the extent

15 necessary to ensure that the sum of—

16 ‘‘(i) the amount allocated to such

17 State under this subsection for such year,

18 and

19 ‘‘(ii) the aggregate amounts allocated

20 under subsection (e) to large local edu21 cational agencies in such State for such

22 year,

23 is not less than an amount equal to such

24 State’s minimum percentage of the amount to
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1 be allocated under paragraph (1) for the cal2 endar year.

3 ‘‘(B) MINIMUM PERCENTAGE.—A State’s

4 minimum percentage for any calendar year is

5 the minimum percentage described in section

6 1124(d) of the Elementary and Secondary Edu7 cation Act of 1965 (20 U.S.C. 6334(d)) for

8 such State for the most recent fiscal year end9 ing before such calendar year.

10 ‘‘(4) ALLOCATIONS TO CERTAIN POSSES11 SIONS.—The amount to be allocated under para12 graph (1) to any possession of the United States

13 other than Puerto Rico shall be the amount which

14 would have been allocated if all allocations under

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

16 populations of individuals below the poverty line (as

17 defined by the Office of Management and Budget).

18 In making other allocations, the amount to be allo19 cated under paragraph (1) shall be reduced by the

20 aggregate amount allocated under this paragraph to

21 possessions of the United States.

22 ‘‘(5) ALLOCATIONS FOR INDIAN SCHOOLS.—In

23 addition to the amounts otherwise allocated under

24 this subsection, $200,000,000 for calendar year

25 2001, and $200,000,000 for calendar year 2005,
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1 shall be allocated by the Secretary of the Interior for

2 purposes of the construction, rehabilitation, and re3 pair of schools funded by the Bureau of Indian Af4 fairs. In the case of amounts allocated under the

5 preceding sentence, Indian tribal governments (as

6 defined in section 7871) shall be treated as qualified

7 issuers for purposes of this subchapter.

8 ‘‘(6) APPROVED STATE APPLICATION.—For

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

10 application’ means an application which is approved

11 by the Secretary of Education and which includes—

12 ‘‘(A) the results of a recent publicly-avail13 able survey (undertaken by the State with the

14 involvement of local education officials, mem15 bers of the public, and experts in school con16 struction and management) of such State’s

17 needs for public school facilities, including de18 scriptions of—

19 ‘‘(i) health and safety problems at

20 such facilities,

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

22 the State to house projected enrollments,

23 and

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

25 schools in the State offer the physical in-
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1 frastructure needed to provide a high-qual2 ity education to all students, and

3 ‘‘(B) a description of how the State will al4 locate to local educational agencies, or other5 wise use, its allocation under this subsection to

6 address the needs identified under subpara7 graph (A), including a description of how it

8 will—

9 ‘‘(i) give highest priority to localities

10 with the greatest needs, as demonstrated

11 by inadequate school facilities coupled with

12 a low level of resources to meet those

13 needs,

14 ‘‘(ii) use its allocation under this sub15 section to assist localities that lack the fis16 cal capacity to issue bonds on their own,

17 and

18 ‘‘(iii) ensure that its allocation under

19 this subsection is used only to supplement,

20 and not supplant, the amount of school

21 construction, rehabilitation, and repair in

22 the State that would have occurred in the

23 absence of such allocation.

24 Any allocation under paragraph (1) by a State shall

25 be binding if such State reasonably determined that
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1 the allocation was in accordance with the plan ap2 proved under this paragraph.

3 ‘‘(e) THIRTY-FIVE PERCENT OF LIMITATION ALLO4 CATED AMONG LARGEST SCHOOL DISTRICTS.—

5 ‘‘(1) IN GENERAL.—Thirty-five percent of the

6 limitation applicable under subsection (c) for any

7 calendar year shall be allocated under paragraph (2)

8 by the Secretary among local educational agencies

9 which are large local educational agencies for such

10 year. No qualified school construction bond may be

11 issued by reason of an allocation to a large local

12 educational agency under the preceding sentence un13 less such agency has an approved local application.

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

15 be allocated under paragraph (1) for any calendar

16 year shall be allocated among large local educational

17 agencies in proportion to the respective amounts

18 each such agency received for Basic Grants under

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

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

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

22 such calendar year.

23 ‘‘(3) ALLOCATION OF UNUSED LIMITATION TO

24 STATE.—The amount allocated under this subsection

25 to a large local educational agency for any calendar
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1 year may be reallocated by such agency to the State

2 in which such agency is located for such calendar

3 year. Any amount reallocated to a State under the

4 preceding sentence may be allocated as provided in

5 subsection (d)(1).

6 ‘‘(4) LARGE LOCAL EDUCATIONAL AGENCY.—

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

8 educational agency’ means, with respect to a cal9 endar year, any local educational agency if such

10 agency is—

11 ‘‘(A) among the 100 local educational

12 agencies with the largest numbers of children

13 aged 5 through 17 from families living below

14 the poverty level, as determined by the Sec15 retary using the most recent data available

16 from the Department of Commerce that are

17 satisfactory to the Secretary, or

18 ‘‘(B) 1 of not more than 25 local edu19 cational agencies (other than those described in

20 subparagraph (A)) that the Secretary of Edu21 cation determines (based on the most recent

22 data available satisfactory to the Secretary) are

23 in particular need of assistance, based on a low

24 level of resources for school construction, a high
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1 level of enrollment growth, or such other factors

2 as the Secretary deems appropriate.

3 ‘‘(5) APPROVED LOCAL APPLICATION.—For

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

5 application’ means an application which is approved

6 by the Secretary of Education and which includes—

7 ‘‘(A) the results of a recent publicly-avail8 able survey (undertaken by the local educational

9 agency or the State with the involvement of

10 school officials, members of the public, and ex11 perts in school construction and management)

12 of such agency’s needs for public school facili13 ties, including descriptions of—

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

15 educational agency’s school facilities, in16 cluding health and safety problems,

17 ‘‘(ii) the overcrowded conditions of the

18 agency’s schools and the capacity of such

19 schools to house projected enrollments, and

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

21 schools offer the physical infrastructure

22 needed to provide a high-quality education

23 to all students,

24 ‘‘(B) a description of how the local edu25 cational agency will use its allocation under this
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1 subsection to address the needs identified under

2 subparagraph (A), including a description of

3 how the agency will—

4 ‘‘(i) give high priority to localities

5 with the greatest needs, as demonstrated

6 by inadequate school facilities coupled with

7 a low level of resources to meet those

8 needs,

9 ‘‘(ii) use its allocation under this sub10 section to assist localities that lack the fis11 cal capacity to issue bonds on their own,

12 ‘‘(iii) ensure that its allocation under

13 this subsection is used only to supplement,

14 and not supplant, the amount of school

15 construction, rehabilitation, and repair in

16 the State that would have occurred in the

17 absence of such allocation, and

18 ‘‘(iv) ensure that the needs of both

19 rural and urban areas are recognized, and

20 ‘‘(C) a description of how the local edu21 cational agency will ensure that its allocation

22 under this subsection is used only to supple23 ment, and not supplant, the amount of school

24 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)(6) 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 (d)(5) or (e).

17 ‘‘(g) SPECIAL RULES RELATING TO ARBITRAGE.—

18 ‘‘(1) IN GENERAL.—A bond shall not be treated

19 as failing to meet the requirement of subsection

20 (a)(1) solely by reason of the fact that the proceeds

21 of the issue of which such bond is a part are in22 vested for a temporary period (but not more than 36

23 months) until such proceeds are needed for the pur24 pose for which such issue was issued.
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1 ‘‘(2) BINDING COMMITMENT REQUIREMENT.—

2 Paragraph (1) shall apply to an issue only if, as of

3 the date of issuance, there is a reasonable expecta4 tion that—

5 ‘‘(A) at least 10 percent of the proceeds of

6 the issue will be spent within the 6-month pe7 riod beginning on such date for the purpose for

8 which such issue was issued, and

9 ‘‘(B) the remaining proceeds of the issue

10 will be spent with due diligence for such pur11 pose.

12 ‘‘(3) EARNINGS ON PROCEEDS.—Any earnings

13 on proceeds during the temporary period shall be

14 treated as proceeds of the issue for purposes of ap15 plying subsection (a)(1) and paragraph (1) of this

16 subsection.

17 ‘‘PART III—INCENTIVES FOR EDUCATION ZONES

‘‘Sec. 1400H. Qualified zone academy bonds.

18 ‘‘SEC. 1400H. QUALIFIED ZONE ACADEMY BONDS.

19 ‘‘(a) QUALIFIED ZONE ACADEMY BOND.—For pur20 poses of this subchapter—

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

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

23 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 Rules similar to the rules of section 1400G(g) shall

21 apply for purposes of paragraph (1).

22 ‘‘(2) PRIVATE BUSINESS CONTRIBUTION RE23 QUIREMENT.—

24 ‘‘(A) IN GENERAL.—For purposes of para25 graph (1), the private business contribution re-
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1 quirement of this paragraph is met with respect

2 to any issue if the local educational agency that

3 established the qualified zone academy has writ4 ten commitments from private entities to make

5 qualified contributions having a present value

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

7 less than 10 percent of the proceeds of the

8 issue.

9 ‘‘(B) QUALIFIED CONTRIBUTIONS.—For

10 purposes of subparagraph (A), the term ‘quali11 fied contribution’ means any contribution (of a

12 type and quality acceptable to the local edu13 cational agency) of—

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

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

16 technology and vocational equipment),

17 ‘‘(ii) technical assistance in developing

18 curriculum or in training teachers in order

19 to promote appropriate market driven tech20 nology in the classroom,

21 ‘‘(iii) services of employees as volun22 teer mentors,

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

24 educational opportunities outside the acad25 emy for students, or
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1 ‘‘(v) any other property or service

2 specified by the local educational agency.

3 ‘‘(3) QUALIFIED ZONE ACADEMY.—The term

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

5 academic program within a public school) which is

6 established by and operated under the supervision of

7 a local educational agency to provide education or

8 training below the postsecondary level if—

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

10 case may be) is designed in cooperation with

11 business to enhance the academic curriculum,

12 increase graduation and employment rates, and

13 better prepare students for the rigors of college

14 and the increasingly complex workforce,

15 ‘‘(B) students in such public school or pro16 gram (as the case may be) will be subject to the

17 same academic standards and assessments as

18 other students educated by the local educational

19 agency,

20 ‘‘(C) the comprehensive education plan of

21 such public school or program is approved by

22 the local educational agency, and

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

24 empowerment zone or enterprise community

25 (including any such zone or community des-
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•S 1454 IS

1 ignated after the date of the enactment of this

2 section), or

3 ‘‘(ii) there is a reasonable expectation (as

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

5 least 35 percent of the students attending such

6 school or participating in such program (as the

7 case may be) will be eligible for free or reduced8 cost lunches under the school lunch program es9 tablished under the National School Lunch Act.

10 ‘‘(4) QUALIFIED PURPOSE.—The term ‘quali11 fied purpose’ means, with respect to any qualified

12 zone academy—

13 ‘‘(A) constructing, rehabilitating, or repair14 ing the public school facility in which the acad15 emy is established,

16 ‘‘(B) acquiring the land on which such fa17 cility is to be constructed with part of the pro18 ceeds of such issue,

19 ‘‘(C) providing equipment for use at such

20 academy,

21 ‘‘(D) developing course materials for edu22 cation to be provided at such academy, and

23 ‘‘(E) training teachers and other school

24 personnel in such academy.
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1 ‘‘(b) LIMITATIONS ON AMOUNT OF BONDS DES2 IGNATED.—

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

4 academy bond limitation for each calendar year.

5 Such limitation is—

6 ‘‘(A) $400,000,000 for 1998,

7 ‘‘(B) $400,000,000 for 1999,

8 ‘‘(C) $400,000,000 for 2000,

9 ‘‘(D) $400,000,000 for 2001, and

10 ‘‘(C) except as provided in paragraph (3),

11 zero after 1999.

12 ‘‘(2) ALLOCATION OF LIMITATION.—

13 ‘‘(A) ALLOCATION AMONG STATES.—

14 ‘‘(i) 1998 AND 1999 LIMITATIONS.—

15 The national zone academy bond limita16 tions for calendar years 1998 and 1999

17 shall be allocated by the Secretary among

18 the States on the basis of their respective

19 populations of individuals below the pov20 erty line (as defined by the Office of Man21 agement and Budget).

22 ‘‘(ii) LIMITATION AFTER 1999.—The

23 national zone academy bond limitation for

24 any calendar year after 1999 shall be allo25 cated by the Secretary among the States in
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•S 1454 IS

1 the manner prescribed by section

2 1400G(d); except that in making the allo3 cation under this clause, the Secretary

4 shall take into account—

5 ‘‘(I) Basic Grants attributable to

6 large local educational agencies (as

7 defined in section 1400G(e)(4)).

8 ‘‘(II) the national zone academy

9 bond limitation.

10 ‘‘(B) ALLOCATION TO LOCAL EDU11 CATIONAL AGENCIES.—The limitation amount

12 allocated to a State under subparagraph (A)

13 shall be allocated by the State education agency

14 to qualified zone academies within such State.

15 ‘‘(C) DESIGNATION SUBJECT TO LIMITA16 TION AMOUNT.—The maximum aggregate face

17 amount of bonds issued during any calendar

18 year which may be designated under subsection

19 (a) with respect to any qualified zone academy

20 shall not exceed the limitation amount allocated

21 to such academy under subparagraph (B) for

22 such calendar year.

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

24 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) (or the corresponding provisions of

6 prior law) with respect to qualified zone acad7 emies within such State,

8 the limitation amount under this subsection for such

9 State for the following calendar year shall be in10 creased by the amount of such excess.’’

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

12 the Internal Revenue Code of 1986 (relating to returns

13 regarding payments of interest) is amended by adding at

14 the end the following new paragraph:

15 ‘‘(8) REPORTING OF CREDIT ON QUALIFIED

16 PUBLIC SCHOOL MODERNIZATION BONDS.—

17 ‘‘(A) IN GENERAL.—For purposes of sub18 section (a), the term ‘interest’ includes amounts

19 includible in gross income under section

20 1400F(f) and such amounts shall be treated as

21 paid on the credit allowance date (as defined in

22 section 1400F(d)(2)).

23 ‘‘(B) REPORTING TO CORPORATIONS,

24 ETC.—Except as otherwise provided in regula25 tions, in the case of any interest described in
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•S 1454 IS

1 subparagraph (A) of this paragraph, subsection

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

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

4 and (L)(i).

5 ‘‘(C) REGULATORY AUTHORITY.—The Sec6 retary may prescribe such regulations as are

7 necessary or appropriate to carry out the pur8 poses of this paragraph, including regulations

9 which require more frequent or more detailed

10 reporting.’’

11 (c) CONFORMING AMENDMENTS.—

12 (1) Subchapter U of chapter 1 of the Internal

13 Revenue Code of 1986 is amended by striking part

14 IV, by redesignating part V as part IV, and by re15 designating section 1397F as section 1397E.

16 (2) The table of subchapters for chapter 1 of

17 such Code is amended by adding at the end the fol18 lowing new item:

‘‘Subchapter X. Public school modernization provisions.’’

19 (3) The table of parts of subchapter U of chap20 ter 1 of such Code is amended by striking the last

21 2 items and inserting the following item:

‘‘Part IV. Regulations.’’

22 (d) EFFECTIVE DATE.—

23 (1) IN GENERAL.—Except as provided in para24 graph (2), the amendments made by this section
33

•S 1454 IS

1 shall apply to obligations issued after December 31,

2 1999.

3 (2) REPEAL OF RESTRICTION ON ZONE ACAD4 EMY BOND HOLDERS.—In the case of bonds to

5 which section 1397E of the Internal Revenue Code

6 of 1986 (as in effect before the date of the enact7 ment of this Act) applies, the limitation of such sec8 tion to eligible taxpayers (as defined in subsection

9 (d)(6) of such section) shall not apply after the date

10 of the enactment of this Act.

11 SEC. 4. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL

12 FACILITY BONDS AS EXEMPT FACILITY

13 BONDS.

14 (a) TREATMENT AS EXEMPT FACILITY BOND.—Sub15 section (a) of section 142 of the Internal Revenue Code

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

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

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

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

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

21 (b) QUALIFIED PUBLIC EDUCATIONAL FACILI22 TIES.—Section 142 of the Internal Revenue Code of 1986

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

24 at the end the following new subsection:
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•S 1454 IS

1 ‘‘(k) QUALIFIED PUBLIC EDUCATIONAL FACILI2 TIES.—

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

4 (a)(13), the term ‘qualified public educational facil5 ity’ means any school facility which is—

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

7 a public secondary school,

8 ‘‘(B) owned by a private, for-profit cor9 poration pursuant to a public-private partner10 ship agreement with a State or local edu11 cational agency described in paragraph (2), and

12 ‘‘(C) operated as if such facility was owned

13 by such agency.

14 ‘‘(2) PUBLIC-PRIVATE PARTNERSHIP AGREE15 MENT DESCRIBED.—A public-private partnership

16 agreement is described in this paragraph if it is an

17 agreement—

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

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

20 construct, rehabilitate, refurbish, or equip

21 a school facility, and

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

23 agreement, to transfer the school facility to

24 such agency for no additional consider25 ation, and
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•S 1454 IS

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

2 term of the issue to be used to provide the

3 school facility.

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

5 subsection, the term ‘school facility’ means—

6 ‘‘(A) school buildings,

7 ‘‘(B) functionally related and subordinate

8 facilities and land with respect to such build9 ings, and

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

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

12 use in the facility.

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

14 subsection, the terms ‘elementary school’ and ‘sec15 ondary school’ have the meanings given such terms

16 by section 14101 of the Elementary and Secondary

17 Education Act of 1965 (20 U.S.C. 8801), as in ef18 fect on the date of the enactment of this subsection.

19 ‘‘(5) ANNUAL AGGREGATE FACE AMOUNT OF

20 TAX-EXEMPT FINANCING.—

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

22 treated as an issue described in subsection

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

24 issued by the State pursuant thereto (when

25 added to the aggregate face amount of bonds
36

•S 1454 IS

1 previously so issued during the calendar year)

2 exceeds an amount equal to the greater of—

3 ‘‘(i) $10 multiplied by the State popu4 lation, or

5 ‘‘(ii) $5,000,000.

6 ‘‘(B) ALLOCATION RULES.—

7 ‘‘(i) IN GENERAL.—Except as other8 wise provided in this subparagraph, the

9 State may allocate in a calendar year the

10 amount described in subparagraph (A) for

11 such year in such manner as the State de12 termines appropriate.

13 ‘‘(ii) RULES FOR CARRYFORWARD OF

14 UNUSED AMOUNT.—With respect to any

15 calendar year, a State may make an elec16 tion under rules similar to the rules of sec17 tion 146(f), except that the sole

18 carryforward purpose with respect to such

19 election is the issuance of exempt facility

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

21 (c) EXEMPTION FROM GENERAL STATE VOLUME

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

23 Revenue Code of 1986 (relating to exception for certain

24 bonds) is amended—
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•S 1454 IS

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

2 or (13)’’, and

3 (2) by striking ‘‘and environmental enhance4 ments of hydroelectric generating facilities’’ and in5 serting ‘‘environmental enhancements of hydro6 electric generating facilities, and qualified public

7 educational facilities’’.

8 (d) EXEMPTION FROM LIMITATION ON USE FOR

9 LAND ACQUISITION.—Section 147(h) of the Internal Rev10 enue Code of 1986 (relating to certain rules not to apply

11 to mortgage revenue bonds, qualified student loan bonds,

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

13 the end the following new paragraph:

14 ‘‘(3) EXEMPT FACILITY BONDS FOR QUALIFIED

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

16 apply to any exempt facility bond issued as part of

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

18 qualified public educational facility bonds).’’

19 (e) CONFORMING AMENDMENT.—The heading of sec20 tion 147(h) of the Internal Revenue Code of 1986 is

21 amended by striking ‘‘MORTGAGE REVENUE BONDS,

22 QUALIFIED STUDENT LOAN BONDS, AND QUALIFIED

23 501(c)(3) BONDS’’ in the heading and inserting ‘‘CERTAIN

24 BONDS’’.
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1 (f) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to bonds issued after December

3 31, 1999.

4 SEC. 5. ADDITIONAL INCREASE IN ARBITRAGE REBATE EX5 CEPTION FOR GOVERNMENTAL BONDS USED

6 TO FINANCE EDUCATIONAL FACILITIES.

7 (a) IN GENERAL.—Section 148(f)(4)(D)(vii) of the

8 Internal Revenue Code of 1986 (relating to increase in

9 exception for bonds financing public school capital expend10 itures) is amended by striking ‘‘$5,000,000’’ the second

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

12 (b) EFFECTIVE DATE.—The amendment made by

13 subsection (a) shall apply to obligations issued in calendar

14 years beginning after December 31, 1999.

15 SEC. 6. AMENDMENTS TO ENCOURAGE ADDITIONAL

16 SCHOOL CONSTRUCTION.

17 (a) IN GENERAL.—Clause (i) of section 149(d)(3)(A)

18 of the Internal Revenue Code of 1986 (relating to other

19 bonds) is amended—

20 (1) by striking ‘‘or’’ at the end of subclause (I),

21 (2) by adding ‘‘or’’ at the end of subclause (II),

22 and

23 (3) by inserting after subclause (II) the fol24 lowing:
39

•S 1454 IS

1 ‘‘(III) the 2d advance refunding

2 of the original bond if the original

3 bond was issued after 1985 or the 3d

4 advance refunding of the original

5 bond if the original bond was issued

6 before 1986 if, in either case, at least

7 25 percent of the proceeds of the

8 original bond were used, directly or

9 indirectly, for the construction, recon10 struction, or rehabilitation of public

11 elementary and secondary school fa12 cilities or for the acquisition of land

13 which is functionally related and sub14 ordinate to such facilities,’’.

15 (b) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to refunding obligations issued

17 after December 31, 1999.

18 SEC. 7. USE OF NET PROCEEDS.

19 Notwithstanding any other provision of law—

20 (1) section 439(a) of the General Education

21 Provisions Act shall apply with respect to the con22 struction, reconstruction, rehabilitation, or repair of

23 any school facility to the extent funded by net pro24 ceeds obtained through any provision enacted or

25 amended by this Act,
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1 (2) such net proceeds may not be used to fund

2 the construction, reconstruction, rehabilitation, or

3 repair of any stadium or other facility primarily

4 used for athletic or non-academic events, and

5 (3) such net proceeds may be used to build

6 small schools or create smaller learning environ7 ments within existing public school facilities.

Æ