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[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1454 Introduced in Senate (IS)]

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.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Public School Modernization and 
Overcrowding Relief Act of 1999''.

SEC. 2. FINDINGS.

    Congress makes the following findings:
            (1) Record numbers of students are enrolled in our Nation's 
        elementary and secondary schools and that record is expected to 
        be broken every year through 2007. The record numbers are 
        straining many school facilities. Addressing that growth will 
        require an increasing commitment of resources to build and 
        modernize schools, and to hire and train new teachers. In 
        addition, the increasing use of technology in the workplace is 
        creating new demands to incorporate computers and other high-
        technology equipment into the classroom and into curricula.
            (2) The General Accounting Office (in this section referred 
        to as the ``GAO'') has performed a comprehensive survey of the 
        Nation's public elementary and secondary school facilities and 
        has found severe levels of disrepair in all areas of the United 
        States. The GAO report concluded that more than 14,000,000 
        children attend schools in need of extensive repair or 
        replacement, 7,000,000 children attend schools with life safety 
        code violations, and 12,000,000 children attend schools with 
        leaky roofs.
            (3) The General Accounting Office has found the problem of 
        crumbling schools transcends demographic and geographic 
        boundaries. At 38 percent of urban schools, 30 percent of rural 
        schools, and 29 percent of suburban schools, at least one 
        building is in need of extensive repair or should be completely 
        replaced.
            (4) The condition of school facilities has a direct effect 
        on the safety of students and teachers and on the ability of 
        students to learn. Academic research has provided a direct 
        correlation between the condition of school facilities and 
        student achievement. At Georgetown University, researchers have 
        found the test scores of students assigned to schools in poor 
        condition can be expected to fall 10.9 percentage points below 
        the test scores of students in buildings in excellent 
        condition. Similar studies have demonstrated up to a 20 percent 
        improvement in test scores when students were moved from a poor 
        facility to a new facility.
            (5) Furthermore, a recent study by the Environmental 
        Working Group concluded that portable trailers, utilized by 
        many school districts to accommodate school over-crowding, can 
        ``expose children to toxic chemicals at levels that pose an 
        unacceptable risk of cancer or other serious illnesses.'' 
        Because ventilation in portable trailers is poor, the pollution 
        through the build-up of toxins can be significant. This is 
        particularly hazardous to those children who have asthma. The 
        prevalence of asthma in children increased by 160 percent 
        between 1980 and 1994. The report also stated, ``Schools are 
        facing two epidemics: an epidemic of deteriorating facilities 
        and an epidemic of asthma among children.''
            (6) The General Accounting Office has found most schools 
        are not prepared to incorporate modern technology in the 
        classroom. Forty-six percent of schools lack adequate 
        electrical wiring to support the full-scale use of technology. 
        More than a third of schools lack the requisite electrical 
        power. Fifty-six percent of schools have insufficient phone 
        lines for modems.
            (7) The Department of Education has reported that 
        elementary and secondary school enrollment, already at a record 
        high level, will continue to grow over the next 10 years, and 
        that in order to accommodate this growth, the United States 
        will need to build an additional 2,400 schools.
            (8) The General Accounting Office has determined the cost 
        of bringing schools up to good, overall condition to be 
        $112,000,000,000, not including the cost of modernizing schools 
        to accommodate technology, or the cost of building additional 
        facilities needed to meet record enrollment levels.
            (9) Schools run by the Bureau of Indian Affairs (in this 
        section referred to as the ``BIA'') for Native American 
        children are also in dire need of repair and renovation. The 
        General Accounting Office has reported that the cost of total 
        inventory repairs needed for BIA facilities is $754,000,000. 
        The December 1997 report by the Comptroller General of the 
        United States states that, ``Compared with other schools 
        nationally, BIA schools are generally in poorer physical 
        condition, have more unsatisfactory environmental factors, more 
        often lack key facilities requirements for education reform, 
        and are less able to support computer and communications 
        technology.''
            (10) Across the Nation, schools will need to recruit and 
        hire an additional 2,000,000 teachers during the period from 
        1998 through 2008. More than 200,000 teachers will be needed 
        annually, yet current teacher development programs produce only 
        100,000 to 150,000 teachers per year. This level of recruitment 
        is simply the level needed to maintain existing student-teacher 
        ratios.
            (11) The rapid growth in the student population, in 
        addition to the imminent shortage of qualified teachers and 
        recent efforts by Congress to help States reduce class size, 
        present urgent infrastructure needs across the Nation.
            (12) State and local financing mechanisms have proven 
        inadequate to meet the challenges facing today's aging school 
        facilities. Large numbers of local educational agencies have 
        difficulties securing financing for school facility 
        improvement.
            (13) The Federal Government has provided resources for 
        school construction in the past. For example, between 1933 and 
        1939, the Federal Government assisted in 70 percent of all new 
        school construction.
            (14) The Federal Government can support elementary and 
        secondary school facilities without interfering in issues of 
        local control, and should help communities leverage additional 
        funds for the improvement of elementary and secondary school 
        facilities.

SEC. 3. EXPANSION OF INCENTIVES FOR PUBLIC SCHOOLS.

    (a) In General.--Chapter 1 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new subchapter:

         ``Subchapter X--Public School Modernization Provisions

                              ``Part I. Credit to holders of qualified 
                                        public school modernization 
                                        bonds.
                              ``Part II. Qualified school construction 
                                        bonds.
                              ``Part III. Incentives for education 
                                        zones.

 ``PART I--CREDIT TO HOLDERS OF QUALIFIED PUBLIC SCHOOL MODERNIZATION 
                                 BONDS

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

``SEC. 1400F. CREDIT TO HOLDERS OF QUALIFIED PUBLIC SCHOOL 
              MODERNIZATION BONDS.

    ``(a) Allowance of Credit.--In the case of a taxpayer who holds a 
qualified public school modernization bond on a credit allowance date 
of such bond which occurs during the taxable year, there shall be 
allowed as a credit against the tax imposed by this chapter for such 
taxable year an amount equal to the sum of the credits determined under 
subsection (b) with respect to credit allowance dates during such year 
on which the taxpayer holds such bond.
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit determined 
        under this subsection with respect to any credit allowance date 
        for a qualified public school modernization bond is 25 percent 
        of the annual credit determined with respect to such bond.
            ``(2) Annual credit.--The annual credit determined with 
        respect to any qualified public school modernization bond is 
        the product of--
                    ``(A) the applicable credit rate, multiplied by
                    ``(B) the outstanding face amount of the bond.
            ``(3) Applicable credit rate.--For purposes of paragraph 
        (1), the applicable credit rate with respect to an issue is the 
        rate equal to an average market yield (as of the day before the 
        date of issuance of the issue) on outstanding long-term 
        corporate debt obligations (determined under regulations 
        prescribed by the Secretary).
            ``(4) Special rule for issuance and redemption.--In the 
        case of a bond which is issued during the 3-month period ending 
        on a credit allowance date, the amount of the credit determined 
        under this subsection with respect to such credit allowance 
        date shall be a ratable portion of the credit otherwise 
        determined based on the portion of the 3-month period during 
        which the bond is outstanding. A similar rule shall apply when 
        the bond is redeemed.
    ``(c) Limitation Based on Amount of Tax.--
            ``(1) In general.--The credit allowed under subsection (a) 
        for any taxable year shall not exceed the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under part 
                IV of subchapter A (other than subpart C thereof, 
                relating to refundable credits).
            ``(2) Carryover of unused credit.--If the credit allowable 
        under subsection (a) exceeds the limitation imposed by 
        paragraph (1) for such taxable year, such excess shall be 
        carried to the succeeding taxable year and added to the credit 
        allowable under subsection (a) for such taxable year.
    ``(d) Qualified Public School Modernization Bond; Credit Allowance 
Date.--For purposes of this section--
            ``(1) Qualified public school modernization bond.--The term 
        `qualified public school modernization bond' means--
                    ``(A) a qualified school construction bond, and
                    ``(B) a qualified zone academy bond.
            ``(2) Credit allowance date.--The term `credit allowance 
        date' means--
                    ``(A) March 15,
                    ``(B) June 15,
                    ``(C) September 15, and
                    ``(D) December 15.
        Such term includes the last day on which the bond is 
        outstanding.
    ``(e) Other Definitions.--For purposes of this subchapter--
            ``(1) Local educational agency.--The term `local 
        educational agency' has the meaning given to such term by 
        section 14101 of the Elementary and Secondary Education Act of 
        1965. Such term includes the local educational agency that 
        serves the District of Columbia but does not include any other 
        State agency.
            ``(2) Bond.--The term `bond' includes any obligation.
            ``(3) State.--The term `State' includes the District of 
        Columbia and any possession of the United States.
            ``(4) Public school facility.--The term `public school 
        facility' shall not include any facility which is not owned by 
        a State or local government or any agency or instrumentality of 
        a State or local government.
    ``(f) Credit Included in Gross Income.--Gross income includes the 
amount of the credit allowed to the taxpayer under this section 
(determined without regard to subsection (c)) and the amount so 
included shall be treated as interest income.
    ``(g) Bonds Held by Regulated Investment Companies.--If any 
qualified public school modernization bond is held by a regulated 
investment company, the credit determined under subsection (a) shall be 
allowed to shareholders of such company under procedures prescribed by 
the Secretary.
    ``(h) Credits May Be Stripped.--Under regulations prescribed by the 
Secretary--
            ``(1) In general.--There may be a separation (including at 
        issuance) of the ownership of a qualified public school 
        modernization bond and the entitlement to the credit under this 
        section with respect to such bond. In case of any such 
        separation, the credit under this section shall be allowed to 
        the person who on the credit allowance date holds the 
        instrument evidencing the entitlement to the credit and not to 
        the holder of the bond.
            ``(2) Certain rules to apply.--In the case of a separation 
        described in paragraph (1), the rules of section 1286 shall 
        apply to the qualified public school modernization bond as if 
        it were a stripped bond and to the credit under this section as 
        if it were a stripped coupon.
    ``(i) Treatment for Estimated Tax Purposes.--Solely for purposes of 
sections 6654 and 6655, the credit allowed by this section to a 
taxpayer by reason of holding qualified public school modernization 
bonds on a credit allowance date shall be treated as if it were a 
payment of estimated tax made by the taxpayer on such date.
    ``(j) Credit May Be Transferred.--Nothing in any law or rule of law 
shall be construed to limit the transferability of the credit allowed 
by this section through sale and repurchase agreements.
    ``(k) Reporting.--Issuers of qualified public school modernization 
bonds shall submit reports similar to the reports required under 
section 149(e).
    ``(l) Termination.--This section shall not apply to any bond issued 
after September 30, 2005.

             ``PART II--QUALIFIED SCHOOL CONSTRUCTION BONDS

                              ``Sec. 1400G. Qualified school 
                                        construction bonds.

``SEC. 1400G. QUALIFIED SCHOOL CONSTRUCTION BONDS.

    ``(a) Qualified School Construction Bond.--For purposes of this 
subchapter, the term `qualified school construction bond' means any 
bond issued as part of an issue if--
            ``(1) 95 percent or more of the proceeds of such issue are 
        to be used for the construction, rehabilitation, or repair of a 
        public school facility or for the acquisition of land on which 
        such a facility is to be constructed with part of the proceeds 
        of such issue,
            ``(2) the bond is issued by a State or local government 
        within the jurisdiction of which such school is located,
            ``(3) the issuer designates such bond for purposes of this 
        section, and
            ``(4) the term of each bond which is part of such issue 
        does not exceed 15 years.
    ``(b) Limitation on Amount of Bonds Designated.--The maximum 
aggregate face amount of bonds issued during any calendar year which 
may be designated under subsection (a) by any issuer shall not exceed 
the sum of--
            ``(1) the limitation amount allocated under subsection (d) 
        for such calendar year to such issuer, and
            ``(2) if such issuer is a large local educational agency 
        (as defined in subsection (e)(4)) or is issuing on behalf of 
        such an agency, the limitation amount allocated under 
        subsection (e) for such calendar year to such agency.
    ``(c) National Limitation on Amount of Bonds Designated.--There is 
a national qualified school construction bond limitation for each 
calendar year. Such limitation is--
            ``(1) $11,800,000,000 for 2001,
            ``(2) $11,800,000,000 for 2005, and
            ``(3) except as provided in subsection (f), zero after 2001 
        and before 2005, and after 2005.
    ``(d) Sixty-Five Percent of Limitation Allocated Among States.--
            ``(1) In general.--Sixty-five percent of the limitation 
        applicable under subsection (c) for any calendar year shall be 
        allocated among the States under paragraph (2) by the 
        Secretary. The limitation amount allocated to a State under the 
        preceding sentence shall be allocated by the State to issuers 
        within such State and such allocations may be made only if 
        there is an approved State application.
            ``(2) Allocation formula.--The amount to be allocated under 
        paragraph (1) for any calendar year shall be allocated among 
        the States in proportion to the respective amounts each such 
        State received for Basic Grants under subpart 2 of part A of 
        title I of the Elementary and Secondary Education Act of 1965 
        (20 U.S.C. 6331 et seq.) for the most recent fiscal year ending 
before such calendar year. For purposes of the preceding sentence, 
Basic Grants attributable to large local educational agencies (as 
defined in subsection (e)) shall be disregarded.
            ``(3) Minimum allocations to states.--
                    ``(A) In general.--The Secretary shall adjust the 
                allocations under this subsection for any calendar year 
                for each State to the extent necessary to ensure that 
                the sum of--
                            ``(i) the amount allocated to such State 
                        under this subsection for such year, and
                            ``(ii) the aggregate amounts allocated 
                        under subsection (e) to large local educational 
                        agencies in such State for such year,
                is not less than an amount equal to such State's 
                minimum percentage of the amount to be allocated under 
                paragraph (1) for the calendar year.
                    ``(B) Minimum percentage.--A State's minimum 
                percentage for any calendar year is the minimum 
                percentage described in section 1124(d) of the 
                Elementary and Secondary Education Act of 1965 (20 
                U.S.C. 6334(d)) for such State for the most recent 
                fiscal year ending before such calendar year.
            ``(4) Allocations to certain possessions.--The amount to be 
        allocated under paragraph (1) to any possession of the United 
        States other than Puerto Rico shall be the amount which would 
        have been allocated if all allocations under paragraph (1) were 
        made on the basis of respective populations of individuals 
        below the poverty line (as defined by the Office of Management 
        and Budget). In making other allocations, the amount to be 
        allocated under paragraph (1) shall be reduced by the aggregate 
        amount allocated under this paragraph to possessions of the 
        United States.
            ``(5) Allocations for indian schools.--In addition to the 
        amounts otherwise allocated under this subsection, $200,000,000 
        for calendar year 2001, and $200,000,000 for calendar year 
        2005, shall be allocated by the Secretary of the Interior for 
        purposes of the construction, rehabilitation, and repair of 
        schools funded by the Bureau of Indian Affairs. In the case of 
        amounts allocated under the preceding sentence, Indian tribal 
        governments (as defined in section 7871) shall be treated as 
        qualified issuers for purposes of this subchapter.
            ``(6) Approved state application.--For purposes of 
        paragraph (1), the term `approved State application' means an 
        application which is approved by the Secretary of Education and 
        which includes--
                    ``(A) the results of a recent publicly-available 
                survey (undertaken by the State with the involvement of 
                local education officials, members of the public, and 
                experts in school construction and management) of such 
                State's needs for public school facilities, including 
                descriptions of--
                            ``(i) health and safety problems at such 
                        facilities,
                            ``(ii) the capacity of public schools in 
                        the State to house projected enrollments, and
                            ``(iii) the extent to which the public 
                        schools in the State offer the physical 
                        infrastructure needed to provide a high-quality 
                        education to all students, and
                    ``(B) a description of how the State will allocate 
                to local educational agencies, or otherwise use, its 
                allocation under this subsection to address the needs 
                identified under subparagraph (A), including a 
                description of how it will--
                            ``(i) give highest priority to localities 
                        with the greatest needs, as demonstrated by 
                        inadequate school facilities coupled with a low 
                        level of resources to meet those needs,
                            ``(ii) use its allocation under this 
                        subsection to assist localities that lack the 
                        fiscal capacity to issue bonds on their own, 
                        and
                            ``(iii) ensure that its allocation under 
                        this subsection is used only to supplement, and 
                        not supplant, the amount of school 
                        construction, rehabilitation, and repair in the 
                        State that would have occurred in the absence 
                        of such allocation.
        Any allocation under paragraph (1) by a State shall be binding 
        if such State reasonably determined that the allocation was in 
        accordance with the plan approved under this paragraph.
    ``(e) Thirty-Five Percent of Limitation Allocated Among Largest 
School Districts.--
            ``(1) In general.--Thirty-five percent of the limitation 
        applicable under subsection (c) for any calendar year shall be 
        allocated under paragraph (2) by the Secretary among local 
        educational agencies which are large local educational agencies 
        for such year. No qualified school construction bond may be 
        issued by reason of an allocation to a large local educational 
        agency under the preceding sentence unless such agency has an 
        approved local application.
            ``(2) Allocation formula.--The amount to be allocated under 
        paragraph (1) for any calendar year shall be allocated among 
        large local educational agencies in proportion to the 
        respective amounts each such agency received for Basic Grants 
        under subpart 2 of part A of title I of the Elementary and 
        Secondary Education Act of 1965 (20 U.S.C. 6331 et seq.) for 
        the most recent fiscal year ending before such calendar year.
            ``(3) Allocation of unused limitation to state.--The amount 
        allocated under this subsection to a large local educational 
        agency for any calendar year may be reallocated by such agency 
        to the State in which such agency is located for such calendar 
        year. Any amount reallocated to a State under the preceding 
sentence may be allocated as provided in subsection (d)(1).
            ``(4) Large local educational agency.--For purposes of this 
        section, the term `large local educational agency' means, with 
        respect to a calendar year, any local educational agency if 
        such agency is--
                    ``(A) among the 100 local educational agencies with 
                the largest numbers of children aged 5 through 17 from 
                families living below the poverty level, as determined 
                by the Secretary using the most recent data available 
                from the Department of Commerce that are satisfactory 
                to the Secretary, or
                    ``(B) 1 of not more than 25 local educational 
                agencies (other than those described in subparagraph 
                (A)) that the Secretary of Education determines (based 
                on the most recent data available satisfactory to the 
                Secretary) are in particular need of assistance, based 
                on a low level of resources for school construction, a 
                high level of enrollment growth, or such other factors 
                as the Secretary deems appropriate.
            ``(5) Approved local application.--For purposes of 
        paragraph (1), the term `approved local application' means an 
        application which is approved by the Secretary of Education and 
        which includes--
                    ``(A) the results of a recent publicly-available 
                survey (undertaken by the local educational agency or 
                the State with the involvement of school officials, 
                members of the public, and experts in school 
                construction and management) of such agency's needs for 
                public school facilities, including descriptions of--
                            ``(i) the overall condition of the local 
                        educational agency's school facilities, 
                        including health and safety problems,
                            ``(ii) the overcrowded conditions of the 
                        agency's schools and the capacity of such 
                        schools to house projected enrollments, and
                            ``(iii) the extent to which the agency's 
                        schools offer the physical infrastructure 
                        needed to provide a high-quality education to 
                        all students,
                    ``(B) a description of how the local educational 
                agency will use its allocation under this subsection to 
                address the needs identified under subparagraph (A), 
                including a description of how the agency will--
                            ``(i) give high priority to localities with 
                        the greatest needs, as demonstrated by 
                        inadequate school facilities coupled with a low 
                        level of resources to meet those needs,
                            ``(ii) use its allocation under this 
                        subsection to assist localities that lack the 
                        fiscal capacity to issue bonds on their own,
                            ``(iii) ensure that its allocation under 
                        this subsection is used only to supplement, and 
                        not supplant, the amount of school 
                        construction, rehabilitation, and repair in the 
                        State that would have occurred in the absence 
                        of such allocation, and
                            ``(iv) ensure that the needs of both rural 
                        and urban areas are recognized, and
                    ``(C) a description of how the local educational 
                agency will ensure that its allocation under this 
                subsection is used only to supplement, and not 
                supplant, the amount of school construction, 
                rehabilitation, or repair in the locality that would 
                have occurred in the absence of such allocation.
        A rule similar to the rule of the last sentence of subsection 
        (d)(6) shall apply for purposes of this paragraph.
    ``(f) Carryover of Unused Limitation.--If for any calendar year--
            ``(1) the amount allocated under subsection (d) to any 
        State, exceeds
            ``(2) the amount of bonds issued during such year which are 
        designated under subsection (a) pursuant to such allocation,
the limitation amount under such subsection for such State for the 
following calendar year shall be increased by the amount of such 
excess. A similar rule shall apply to the amounts allocated under 
subsection (d)(5) or (e).
    ``(g) Special Rules Relating to Arbitrage.--
            ``(1) In general.--A bond shall not be treated as failing 
        to meet the requirement of subsection (a)(1) solely by reason 
        of the fact that the proceeds of the issue of which such bond 
        is a part are invested for a temporary period (but not more 
        than 36 months) until such proceeds are needed for the purpose 
        for which such issue was issued.
            ``(2) Binding commitment requirement.--Paragraph (1) shall 
        apply to an issue only if, as of the date of issuance, there is 
a reasonable expectation that--
                    ``(A) at least 10 percent of the proceeds of the 
                issue will be spent within the 6-month period beginning 
                on such date for the purpose for which such issue was 
                issued, and
                    ``(B) the remaining proceeds of the issue will be 
                spent with due diligence for such purpose.
            ``(3) Earnings on proceeds.--Any earnings on proceeds 
        during the temporary period shall be treated as proceeds of the 
        issue for purposes of applying subsection (a)(1) and paragraph 
        (1) of this subsection.

               ``PART III--INCENTIVES FOR EDUCATION ZONES

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

``SEC. 1400H. QUALIFIED ZONE ACADEMY BONDS.

    ``(a) Qualified Zone Academy Bond.--For purposes of this 
subchapter--
            ``(1) In general.--The term `qualified zone academy bond' 
        means any bond issued as part of an issue if--
                    ``(A) 95 percent or more of the proceeds of such 
                issue are to be used for a qualified purpose with 
                respect to a qualified zone academy established by a 
                local educational agency,
                    ``(B) the bond is issued by a State or local 
                government within the jurisdiction of which such 
                academy is located,
                    ``(C) the issuer--
                            ``(i) designates such bond for purposes of 
                        this section,
                            ``(ii) certifies that it has written 
                        assurances that the private business 
                        contribution requirement of paragraph (2) will 
                        be met with respect to such academy, and
                            ``(iii) certifies that it has the written 
                        approval of the local educational agency for 
                        such bond issuance, and
                    ``(D) the term of each bond which is part of such 
                issue does not exceed 15 years.
        Rules similar to the rules of section 1400G(g) shall apply for 
        purposes of paragraph (1).
            ``(2) Private business contribution requirement.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the private business contribution requirement of this 
                paragraph is met with respect to any issue if the local 
                educational agency that established the qualified zone 
                academy has written commitments from private entities 
                to make qualified contributions having a present value 
                (as of the date of issuance of the issue) of not less 
                than 10 percent of the proceeds of the issue.
                    ``(B) Qualified contributions.--For purposes of 
                subparagraph (A), the term `qualified contribution' 
                means any contribution (of a type and quality 
                acceptable to the local educational agency) of--
                            ``(i) equipment for use in the qualified 
                        zone academy (including state-of-the-art 
                        technology and vocational equipment),
                            ``(ii) technical assistance in developing 
                        curriculum or in training teachers in order to 
                        promote appropriate market driven technology in 
                        the classroom,
                            ``(iii) services of employees as volunteer 
                        mentors,
                            ``(iv) internships, field trips, or other 
                        educational opportunities outside the academy 
                        for students, or
                            ``(v) any other property or service 
                        specified by the local educational agency.
            ``(3) Qualified zone academy.--The term `qualified zone 
        academy' means any public school (or academic program within a 
        public school) which is established by and operated under the 
        supervision of a local educational agency to provide education 
        or training below the postsecondary level if--
                    ``(A) such public school or program (as the case 
                may be) is designed in cooperation with business to 
                enhance the academic curriculum, increase graduation 
                and employment rates, and better prepare students for 
                the rigors of college and the increasingly complex 
                workforce,
                    ``(B) students in such public school or program (as 
                the case may be) will be subject to the same academic 
                standards and assessments as other students educated by 
                the local educational agency,
                    ``(C) the comprehensive education plan of such 
                public school or program is approved by the local 
                educational agency, and
                    ``(D)(i) such public school is located in an 
                empowerment zone or enterprise community (including any 
                such zone or community designated after the date of the 
                enactment of this section), or
                    ``(ii) there is a reasonable expectation (as of the 
                date of issuance of the bonds) that at least 35 percent 
                of the students attending such school or participating 
                in such program (as the case may be) will be eligible 
                for free or reduced-cost lunches under the school lunch 
                program established under the National School Lunch 
                Act.
            ``(4) Qualified purpose.--The term `qualified purpose' 
        means, with respect to any qualified zone academy--
                    ``(A) constructing, rehabilitating, or repairing 
                the public school facility in which the academy is 
                established,
                    ``(B) acquiring the land on which such facility is 
                to be constructed with part of the proceeds of such 
                issue,
                    ``(C) providing equipment for use at such academy,
                    ``(D) developing course materials for education to 
                be provided at such academy, and
                    ``(E) training teachers and other school personnel 
                in such academy.
    ``(b) Limitations on Amount of Bonds Designated.--
            ``(1) In general.--There is a national zone academy bond 
        limitation for each calendar year. Such limitation is--
                    ``(A) $400,000,000 for 1998,
                    ``(B) $400,000,000 for 1999,
                    ``(C) $400,000,000 for 2000,
                    ``(D) $400,000,000 for 2001, and
                    ``(C) except as provided in paragraph (3), zero 
                after 1999.
            ``(2) Allocation of limitation.--
                    ``(A) Allocation among states.--
                            ``(i) 1998 and 1999 limitations.--The 
                        national zone academy bond limitations for 
                        calendar years 1998 and 1999 shall be allocated 
                        by the Secretary among the States on the basis 
                        of their respective populations of individuals 
                        below the poverty line (as defined by the 
                        Office of Management and Budget).
                            ``(ii) Limitation after 1999.--The national 
                        zone academy bond limitation for any calendar 
                        year after 1999 shall be allocated by the 
                        Secretary among the States in the manner 
                        prescribed by section 1400G(d); except that in 
                        making the allocation under this clause, the 
                        Secretary shall take into account--
                                    ``(I) Basic Grants attributable to 
                                large local educational agencies (as 
                                defined in section 1400G(e)(4)).
                                    ``(II) the national zone academy 
                                bond limitation.
                    ``(B) Allocation to local educational agencies.--
                The limitation amount allocated to a State under 
                subparagraph (A) shall be allocated by the State 
                education agency to qualified zone academies within 
                such State.
                    ``(C) Designation subject to limitation amount.--
                The maximum aggregate face amount of bonds issued 
                during any calendar year which may be designated under 
                subsection (a) with respect to any qualified zone 
                academy shall not exceed the limitation amount 
                allocated to such academy under subparagraph (B) for 
                such calendar year.
            ``(3) Carryover of unused limitation.--If for any calendar 
        year--
                    ``(A) the limitation amount under this subsection 
                for any State, exceeds
                    ``(B) the amount of bonds issued during such year 
                which are designated under subsection (a) (or the 
                corresponding provisions of prior law) with respect to 
                qualified zone academies within such State,
        the limitation amount under this subsection for such State for 
        the following calendar year shall be increased by the amount of 
        such excess.''
    (b) Reporting.--Subsection (d) of section 6049 of the Internal 
Revenue Code of 1986 (relating to returns regarding payments of 
interest) is amended by adding at the end the following new paragraph:
            ``(8) Reporting of credit on qualified public school 
        modernization bonds.--
                    ``(A) In general.--For purposes of subsection (a), 
                the term `interest' includes amounts includible in 
                gross income under section 1400F(f) and such amounts 
                shall be treated as paid on the credit allowance date 
                (as defined in section 1400F(d)(2)).
                    ``(B) Reporting to corporations, etc.--Except as 
                otherwise provided in regulations, in the case of any 
                interest described in subparagraph (A) of this 
                paragraph, subsection (b)(4) of this section shall be 
                applied without regard to subparagraphs (A), (H), (I), 
                (J), (K), and (L)(i).
                    ``(C) Regulatory authority.--The Secretary may 
                prescribe such regulations as are necessary or 
                appropriate to carry out the purposes of this 
                paragraph, including regulations which require more 
                frequent or more detailed reporting.''
    (c) Conforming Amendments.--
            (1) Subchapter U of chapter 1 of the Internal Revenue Code 
        of 1986 is amended by striking part IV, by redesignating part V 
        as part IV, and by redesignating section 1397F as section 
        1397E.
            (2) The table of subchapters for chapter 1 of such Code is 
        amended by adding at the end the following new item:

                              ``Subchapter X. Public school 
                                        modernization provisions.''
            (3) The table of parts of subchapter U of chapter 1 of such 
        Code is amended by striking the last 2 items and inserting the 
        following item:

                              ``Part IV. Regulations.''
    (d) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to obligations 
        issued after December 31, 1999.
            (2) Repeal of restriction on zone academy bond holders.--In 
        the case of bonds to which section 1397E of the Internal 
        Revenue Code of 1986 (as in effect before the date of the 
        enactment of this Act) applies, the limitation of such section 
        to eligible taxpayers (as defined in subsection (d)(6) of such 
        section) shall not apply after the date of the enactment of 
        this Act.

SEC. 4. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL FACILITY BONDS AS 
              EXEMPT FACILITY BONDS.

    (a) Treatment as Exempt Facility Bond.--Subsection (a) of section 
142 of the Internal Revenue Code of 1986 (relating to exempt facility 
bond) is amended by striking ``or'' at the end of paragraph (11), by 
striking the period at the end of paragraph (12) and inserting ``, 
or'', and by adding at the end the following:
            ``(13) qualified public educational facilities.''
    (b) Qualified Public Educational Facilities.--Section 142 of the 
Internal Revenue Code of 1986 (relating to exempt facility bond) is 
amended by adding at the end the following new subsection:
    ``(k) Qualified Public Educational Facilities.--
            ``(1) In general.--For purposes of subsection (a)(13), the 
        term `qualified public educational facility' means any school 
        facility which is--
                    ``(A) part of a public elementary school or a 
                public secondary school,
                    ``(B) owned by a private, for-profit corporation 
                pursuant to a public-private partnership agreement with 
                a State or local educational agency described in 
                paragraph (2), and
                    ``(C) operated as if such facility was owned by 
                such agency.
            ``(2) Public-private partnership agreement described.--A 
        public-private partnership agreement is described in this 
        paragraph if it is an agreement--
                    ``(A) under which the corporation agrees--
                            ``(i) to do 1 or more of the following: 
                        construct, rehabilitate, refurbish, or equip a 
                        school facility, and
                            ``(ii) at the end of the term of the 
                        agreement, to transfer the school facility to 
                        such agency for no additional consideration, 
                        and
                    ``(B) the term of which does not exceed the term of 
                the issue to be used to provide the school facility.
            ``(3) School facility.--For purposes of this subsection, 
        the term `school facility' means--
                    ``(A) school buildings,
                    ``(B) functionally related and subordinate 
                facilities and land with respect to such buildings, and
                    ``(C) any property, to which section 168 applies 
                (or would apply but for section 179), for use in the 
                facility.
            ``(4) Public schools.--For purposes of this subsection, the 
        terms `elementary school' and `secondary school' have the 
        meanings given such terms by section 14101 of the Elementary 
        and Secondary Education Act of 1965 (20 U.S.C. 8801), as in 
        effect on the date of the enactment of this subsection.
            ``(5) Annual aggregate face amount of tax-exempt 
        financing.--
                    ``(A) In general.--An issue shall not be treated as 
                an issue described in subsection (a)(13) if the 
                aggregate face amount of bonds issued by the State 
                pursuant thereto (when added to the aggregate face 
                amount of bonds previously so issued during the 
                calendar year) exceeds an amount equal to the greater 
                of--
                            ``(i) $10 multiplied by the State 
                        population, or
                            ``(ii) $5,000,000.
                    ``(B) Allocation rules.--
                            ``(i) In general.--Except as otherwise 
                        provided in this subparagraph, the State may 
                        allocate in a calendar year the amount 
                        described in subparagraph (A) for such year in 
                        such manner as the State determines 
                        appropriate.
                            ``(ii) Rules for carryforward of unused 
                        amount.--With respect to any calendar year, a 
                        State may make an election under rules similar 
                        to the rules of section 146(f), except that the 
                        sole carryforward purpose with respect to such 
                        election is the issuance of exempt facility 
                        bonds described in section 142(a)(13).''
    (c) Exemption From General State Volume Caps.--Paragraph (3) of 
section 146(g) of the Internal Revenue Code of 1986 (relating to 
exception for certain bonds) is amended--
            (1) by striking ``or (12)'' and inserting ``(12), or 
        (13)'', and
            (2) by striking ``and environmental enhancements of 
        hydroelectric generating facilities'' and inserting 
        ``environmental enhancements of hydroelectric generating 
        facilities, and qualified public educational facilities''.
    (d) Exemption From Limitation on Use for Land Acquisition.--Section 
147(h) of the Internal Revenue Code of 1986 (relating to certain rules 
not to apply to mortgage revenue bonds, qualified student loan bonds, 
and qualified 501(c)(3) bonds) is amended by adding at the end the 
following new paragraph:
            ``(3) Exempt facility bonds for qualified public-private 
        schools.--Subsection (c) shall not apply to any exempt facility 
        bond issued as part of an issue described in section 142(a)(13) 
        (relating to qualified public educational facility bonds).''
    (e) Conforming Amendment.--The heading of section 147(h) of the 
Internal Revenue Code of 1986 is amended by striking ``Mortgage Revenue 
Bonds, Qualified Student Loan Bonds, and Qualified 501(c)(3) Bonds'' in 
the heading and inserting ``Certain Bonds''.
    (f) Effective Date.--The amendments made by this section shall 
apply to bonds issued after December 31, 1999.

SEC. 5. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION FOR 
              GOVERNMENTAL BONDS USED TO FINANCE EDUCATIONAL 
              FACILITIES.

    (a) In General.--Section 148(f)(4)(D)(vii) of the Internal Revenue 
Code of 1986 (relating to increase in exception for bonds financing 
public school capital expenditures) is amended by striking 
``$5,000,000'' the second place it appears and inserting 
``$10,000,000''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to obligations issued in calendar years beginning after December 
31, 1999.

SEC. 6. AMENDMENTS TO ENCOURAGE ADDITIONAL SCHOOL CONSTRUCTION.

    (a) In General.--Clause (i) of section 149(d)(3)(A) of the Internal 
Revenue Code of 1986 (relating to other bonds) is amended--
            (1) by striking ``or'' at the end of subclause (I),
            (2) by adding ``or'' at the end of subclause (II), and
            (3) by inserting after subclause (II) the following:
                                    ``(III) the 2d advance refunding of 
                                the original bond if the original bond 
                                was issued after 1985 or the 3d advance 
                                refunding of the original bond if the 
                                original bond was issued before 1986 
                                if, in either case, at least 25 percent 
                                of the proceeds of the original bond 
                                were used, directly or indirectly, for 
                                the construction, reconstruction, or 
                                rehabilitation of public elementary and 
                                secondary school facilities or for the 
                                acquisition of land which is 
                                functionally related and subordinate to 
                                such facilities,''.
    (b) Effective Date.--The amendments made by this section shall 
apply to refunding obligations issued after December 31, 1999.

SEC. 7. USE OF NET PROCEEDS.

    Notwithstanding any other provision of law--
            (1) section 439(a) of the General Education Provisions Act 
        shall apply with respect to the construction, reconstruction, 
        rehabilitation, or repair of any school facility to the extent 
        funded by net proceeds obtained through any provision enacted 
        or amended by this Act,
            (2) such net proceeds may not be used to fund the 
        construction, reconstruction, rehabilitation, or repair of any 
        stadium or other facility primarily used for athletic or non-
        academic events, and
            (3) such net proceeds may be used to build small schools or 
        create smaller learning environments within existing public 
        school facilities.
                                 <all>
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