In the Senate of the United States,
April 23, 1998.
Resolved, That the bill from the House of Representa-
tives (H.R. 2646) entitled ‘‘An Act to amend the Internal
Revenue Code of 1986 to allow tax-free expenditures from
education individual retirement accounts for elementary and
secondary school expenses, to increase the maximum annual
amount of contributions to such accounts, and for other pur-
poses.’’, do pass with the following
AMENDMENT:
Strike out all after the enacting clause and insert:
SECTION 1. SHORT TITLE; AMENDMENT TO 1986 CODE;
TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Parent and Student Savings Account PLUS Act’’.
(b) AMENDMENT TO 1986 CODE.—Except as otherwise
expressly provided, whenever in this Act an amendment or
repeal is expressed in terms of an amendment to, or repeal
of, a section or other provision, the reference shall be consid-
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ered to be made to a section or other provision of the Inter-
nal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title; amendment to 1986 Code; table of contents.
TITLE I—TAX INCENTIVES FOR EDUCATION
Sec. 101. Modifications to education individual retirement accounts.
Sec. 102. Prohibition on federally sponsored testing.
Sec. 103. Student improvement incentive awards.
Sec. 104. Exclusion from gross income of education distributions from qualified
State tuition programs.
Sec. 105. Extension of exclusion for employer-provided educational assistance.
Sec. 106. Additional increase in arbitrage rebate exception for governmental
bonds used to finance education facilities.
Sec. 107. Exclusion of certain amounts received under the National Health Corps
Scholarship program.
Sec. 108. Treatment of qualified public educational facility bonds as exempt facil-
ity bonds.
TITLE II—REVENUE
Sec. 201. Clarification of deduction for deferred compensation.
Sec. 202. Modification to foreign tax credit carryback and carryover periods.
TITLE III—MEASURES TO ENCOURAGE RESULTS IN TEACHING
Sec. 301. State incentives for teacher testing and merit pay.
TITLE IV—EQUAL EDUCATIONAL OPPORTUNITY
Sec. 401. Equal educational opportunity.
TITLE V—EDUCATION FUNDING
Sec. 501. Direct awards of certain education funding.
Sec. 502. Direct awards of part A of title I funding.
Sec. 503. Direct awards of bilingual education funding.
Sec. 504. Participation of children enrolled in private schools.
Sec. 505. Accountability.
Sec. 506. Definitions.
Sec. 507. Construction.
TITLE VI—SENSE OF CONGRESS
Sec. 601. Findings.
Sec. 602. Sense of Congress.
TITLE VII—READING EXCELLENCE
Sec. 701. Short title.
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Subtitle A—Reading Grants
Sec. 711. Amendment to ESEA for reading grants.
Subtitle B—Amendments to Even Start Family Literacy Programs
Sec. 721. Reservation for grants.
Sec. 722. Definitions.
Sec. 723. Evaluation.
Sec. 724. Indicators of program quality.
Sec. 725. Research.
TITLE VIII—DROPOUT PREVENTION AND STATE RESPONSIBILITIES
Sec. 801. Short title.
Subtitle A—Dropout Prevention
Sec. 811. Dropout prevention.
Sec. 812. Office of Dropout Prevention and Program Completion.
Subtitle B—State Responsibilities
Sec. 821. State responsibilities.
TITLE IX—MISCELLANEOUS PROVISIONS
Sec. 901. Multilingualism study.
Sec. 902. Safer schools.
TITLE I—TAX INCENTIVES FOR
EDUCATION
SEC. 101. MODIFICATIONS TO EDUCATION INDIVIDUAL RE-
TIREMENT ACCOUNTS.
(a) TAX-FREE EXPENDITURES FOR ELEMENTARY AND
SECONDARY SCHOOL EXPENSES.—
(1) IN
GENERAL.—Section 530(b)(2) (defining
qualified higher education expenses) is amended to
read as follows:
‘‘(2) QUALIFIED EDUCATION EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
education expenses’ means—
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‘‘(i) qualified higher education ex-
penses (as defined in section 529(e)(3)), and
‘‘(ii) qualified elementary and second-
ary education expenses (as defined in para-
graph (4)).
Such expenses shall be reduced as provided in
section 25A(g)(2).
‘‘(B) QUALIFIED
STATE
TUITION
PRO-
GRAMS.—Such term shall include amounts paid
or incurred to purchase tuition credits or certifi-
cates, or to make contributions to an account,
under a qualified State tuition program (as de-
fined in section 529(b)) for the benefit of the ben-
eficiary of the account.’’.
(2) QUALIFIED
ELEMENTARY
AND
SECONDARY
EDUCATION EXPENSES.—Section 530(b) (relating to
definitions and special rules) is amended by adding
at the end the following new paragraph:
‘‘(4) QUALIFIED ELEMENTARY AND SECONDARY
EDUCATION EXPENSES.—
‘‘(A) IN GENERAL.—The term ‘qualified ele-
mentary and secondary education expenses’
means—
‘‘(i) expenses for tuition, fees, academic
tutoring, special needs services, books, sup-
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plies, computer equipment (including relat-
ed software and services), and other equip-
ment which are incurred in connection with
the enrollment or attendance of the des-
ignated beneficiary of the trust as an ele-
mentary or secondary school student at a
public, private, or religious school, or
‘‘(ii) expenses for room and board, uni-
forms, transportation, and supplementary
items and services (including extended day
programs) which are required or provided
by a public, private, or religious school in
connection with such enrollment or attend-
ance.
‘‘(B) 
SPECIAL
RULE
FOR
HOMESCHOOLING.—Such term shall include ex-
penses described in subparagraph (A)(i) in con-
nection 
with 
education 
provided 
by
homeschooling if the requirements of any appli-
cable State or local law are met with respect to
such education.
‘‘(C) SCHOOL.—The term ‘school’ means
any school which provides elementary education
or secondary education (kindergarten through
grade 12), as determined under State law.’’.
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(3) SPECIAL RULES FOR APPLYING EXCLUSION
TO ELEMENTARY AND SECONDARY EXPENSES.—Sec-
tion 530(d)(2) (relating to distributions for qualified
higher education expenses) is amended by adding at
the end the following new subparagraph:
‘‘(D) SPECIAL
RULES
FOR
ELEMENTARY
AND SECONDARY EXPENSES.—
‘‘(i) 
IN
GENERAL.—The 
aggregate
amount of qualified elementary and second-
ary education expenses taken into account
for purposes of this paragraph with respect
to any education individual retirement ac-
count for all taxable years shall not exceed
the sum of the aggregate contributions to
such account for taxable years beginning
after December 31, 1998, and before Janu-
ary 1, 2003, and earnings on such contribu-
tions.
‘‘(ii) SPECIAL
OPERATING
RULES.—
For purposes of clause (i)—
‘‘(I) the trustee of an education
individual retirement account shall
keep separate accounts with respect to
contributions and earnings described
in clause (i), and
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‘‘(II) if there are distributions in
excess of qualified elementary and sec-
ondary education expenses for any tax-
able year, such excess distributions
shall be allocated first to contributions
and earnings not described in clause
(i).’’.
(4) 
CONFORMING
AMENDMENTS.—Subsections
(b)(1) and (d)(2) of section 530 are each amended by
striking ‘‘higher’’ each place it appears in the text
and heading thereof.
(b) MAXIMUM ANNUAL CONTRIBUTIONS.—
(1) IN GENERAL.—Section 530(b)(1)(A)(iii) (de-
fining education individual retirement account) is
amended by striking ‘‘$500’’ and inserting ‘‘the con-
tribution limit for such taxable year’’.
(2) CONTRIBUTION LIMIT.—Section 530(b) (re-
lating to definitions and special rules), as amended
by subsection (a)(2), is amended by adding at the end
the following new paragraph:
‘‘(5) CONTRIBUTION LIMIT.—The term ‘contribu-
tion limit’ means $500 ($2,000 in the case of any
taxable year beginning after December 31, 1998, and
ending before January 1, 2003).’’.
(3) CONFORMING AMENDMENTS.—
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(A) Section 530(d)(4)(C) is amended by
striking ‘‘$500’’ and inserting ‘‘the contribution
limit for such taxable year’’.
(B) Section 4973(e)(1)(A) is amended by
striking ‘‘$500’’ and inserting ‘‘the contribution
limit (as defined in section 530(b)(5)) for such
taxable year’’.
(c) WAIVER
OF AGE LIMITATIONS
FOR CHILDREN
WITH SPECIAL NEEDS.—Section 530(b)(1) (defining edu-
cation individual retirement account) is amended by add-
ing at the end the following flush sentence:
‘‘The age limitations in the preceding sentence shall
not apply to any designated beneficiary with special
needs (as determined under regulations prescribed by
the Secretary).’’.
(d) CORPORATIONS PERMITTED TO CONTRIBUTE TO
ACCOUNTS.—Section 530(c)(1) (relating to reduction in
permitted contributions based on adjusted gross income) is
amended by striking ‘‘The maximum amount which a con-
tributor’’ and inserting ‘‘In the case of a contributor who
is an individual, the maximum amount the contributor’’.
(e) NO DOUBLE BENEFIT.—Section 530(d)(2) (relat-
ing to distributions for qualified education expenses), as
amended by subsection (a)(3), is amended by adding at the
end the following new subparagraph:
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close of the 30-day period referred to in such sub-
section for making such distribution shall be deemed
distributed at the close of such period.’’.
(2)(A) Section 530(d)(1) is amended by striking
‘‘section 72(b)’’ and inserting ‘‘section 72’’.
(B) Section 72(e) (relating to amounts not re-
ceived as annuities) is amended by inserting after
paragraph (8) the following new paragraph:
‘‘(9) EXTENSION OF PARAGRAPH (2)(B) TO QUALI-
FIED STATE TUITION PROGRAMS AND EDUCATIONAL
INDIVIDUAL RETIREMENT ACCOUNTS.—Notwithstand-
ing any other provision of this subsection, paragraph
(2)(B) shall apply to amounts received under a quali-
fied State tuition program (as defined in section
529(b)) or under an education individual retirement
account (as defined in section 530(b)). The rule of
paragraph (8)(B) shall apply for purposes of this
paragraph.’’.
(3) Section 530(d)(4)(B) (relating to exceptions)
is amended by striking ‘‘or’’ at the end of clause (ii),
by striking the period at the end of clause (iii) and
inserting ‘‘, or’’, and by adding at the end the follow-
ing new clause:
‘‘(iv) an amount which is includible in
gross income solely because the taxpayer
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elected under paragraph (2)(C) to waive the
application of paragraph (2) for the taxable
year.’’.
(g) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to taxable years beginning after December 31,
1998.
(2) TECHNICAL
CORRECTIONS.—The amend-
ments made by subsection (f) shall take effect as if in-
cluded in the amendments made by section 213 of the
Taxpayer Relief Act of 1997.
SEC. 102. PROHIBITION ON FEDERALLY SPONSORED TEST-
ING.
(a) FINDINGS.—Congress makes the following findings:
(1) High State and local standards in reading,
mathematics, and other core academic subjects are es-
sential to the future well-being of elementary and sec-
ondary education in the United States.
(2) State and local control of education is the
hallmark of education in the United States.
(3) Each of the 50 States already utilizes numer-
ous tests to measure student achievement, including
State and commercially available assessments. State
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assessments are based primarily upon State and lo-
cally developed academic standards.
(4) Public Law 105–78, the Departments of
Labor, Health and Human Services, and Education,
and Related Agencies Appropriations Act, 1998, en-
sures that Federal funds may not be used to field test,
pilot test, implement, administer, or distribute in any
way, any federally sponsored national test in fiscal
year 1998, requires the National Academy of Sciences
to conduct a study to determine whether an equiva-
lency scale can be developed that would allow existing
tests to be compared one to another, and permits very
limited test development activities in fourth grade
reading and eighth grade mathematics in fiscal year
1998.
(5) There is no specific or explicit authority in
current Federal law authorizing the proposed feder-
ally sponsored national tests in fourth grade reading
and eighth grade mathematics.
(6) The decision of whether or not the United
States implements, administers, disseminates, or oth-
erwise has federally sponsored national tests in fourth
grade reading and eighth grade mathematics or any
other subject, will be determined primarily through
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the normal legislative process involving Congress and
the respective authorizing committees.
(b) PROHIBITION ON FEDERALLY SPONSORED TEST-
ING.—Part C of the General Education Provisions Act (20
U.S.C. 1231 et seq.) is amended by adding at the end the
following:
‘‘SEC. 447. PROHIBITION ON FEDERALLY SPONSORED TEST-
ING.
‘‘(a) GENERAL PROHIBITION.—Notwithstanding any
other provision of Federal law and, except as provided in
sections 305 through 311 of Public Law 105–78, the Depart-
ments of Labor, Health and Human Services, and Edu-
cation, and Related Agencies Appropriations Act, 1998,
funds provided to the Department of Education or to an
applicable program under this Act or any other Act, may
not be used to develop, plan, implement (including pilot
testing or field testing), or administer any federally spon-
sored national test in reading, mathematics, or any other
subject that is not specifically and explicitly provided for
in authorizing legislation enacted into law.
‘‘(b) EXCEPTIONS.—Subsection (a) shall not apply to
the Third International Mathematics and Science Study or
other international comparative assessments developed
under the authority of section 404(a)(6) of the National
Education Statistics Act of 1994 (20 U.S.C. 9003(a)(6) et
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seq.), and administered to only a representative sample of
pupils in the United States and in foreign nations.’’.
SEC. 103. STUDENT IMPROVEMENT INCENTIVE AWARDS.
Section 6201 of the Elementary and Secondary Edu-
cation Act of 1965 (20 U.S.C. 7331) is amended—
(1) in subsection (a)—
(A) in paragraph (1)(C), by striking ‘‘and’’
after the semicolon;
(B) in paragraph (2), by striking the period
and inserting ‘‘; and’’; and
(C) by adding at the end the following:
‘‘(3) student improvement incentive awards de-
scribed in subsection (c).’’; and
(2) by adding at the end the following:
‘‘(c) STUDENT IMPROVEMENT INCENTIVE AWARDS.—
‘‘(1) AWARDS.—A State educational agency may
use funds made available for State use under this title
to make awards to public schools in the State that are
determined to be outstanding schools pursuant to a
statewide assessment described in paragraph (2).
‘‘(2) STATEWIDE
ASSESSMENT.—The statewide
assessment referred to in paragraph (1)—
‘‘(A) shall—
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‘‘(i) determine the educational progress
of students attending public schools within
the State; and
‘‘(ii) allow for an objective analysis of
the assessment on a school-by-school basis;
and
‘‘(B) may involve exit exams.’’.
SEC. 104. EXCLUSION FROM GROSS INCOME OF EDUCATION
DISTRIBUTIONS FROM QUALIFIED STATE TUI-
TION PROGRAMS.
(a) IN GENERAL.—Section 529(c)(3)(B) (relating to
distributions) is amended to read as follows:
‘‘(B) DISTRIBUTIONS FOR QUALIFIED HIGH-
ER EDUCATION EXPENSES.—
‘‘(i) IN GENERAL.—No amount shall be
includible in gross income under subpara-
graph (A) if the qualified higher education
expenses of the designated beneficiary dur-
ing the taxable year are not less than the
aggregate distributions during the taxable
year.
‘‘(ii) DISTRIBUTIONS
IN
EXCESS
OF
EXPENSES.—If such aggregate distributions
exceed such expenses during the taxable
year, the amount otherwise includible in
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gross income under subparagraph (A) shall
be reduced by the amount which bears the
same ratio to the amount so includible
(without regard to this subparagraph) as
such expenses bear to such aggregate dis-
tributions.
‘‘(iii) ELECTION
TO
WAIVE
EXCLU-
SION.—A taxpayer may elect to waive the
application of this subparagraph for any
taxable year.
‘‘(iv) IN-KIND
DISTRIBUTIONS.—Any
benefit furnished to a designated beneficiary
under a qualified State tuition program
shall be treated as a distribution to the ben-
eficiary for purposes of this paragraph.
‘‘(v) DISALLOWANCE
OF
EXCLUDED
AMOUNTS AS CREDIT OR DEDUCTION.—No
deduction or credit shall be allowed to the
taxpayer under any other section of this
chapter for any qualified higher education
expenses to the extent taken into account in
determining the amount of the exclusion
under this paragraph.’’.
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(b) DEFINITION OF QUALIFIED HIGHER EDUCATION
EXPENSES.—Section 529(e)(3)(A) (defining qualified high-
er education expenses) is amended to read as follows:
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ means expenses for
tuition, fees, academic tutoring, special needs
services, books, supplies, computer equipment
(including related software and services), and
other equipment which are incurred in connec-
tion with the enrollment or attendance of the des-
ignated beneficiary at an eligible educational in-
stitution.’’.
(c) COORDINATION WITH EDUCATION CREDITS.—Sec-
tion 25A(e)(2) (relating to coordination with exclusions) is
amended—
(1) by inserting ‘‘a qualified State tuition pro-
gram or’’ before ‘‘an education individual retirement
account’’, and
(2) by striking ‘‘section 530(d)(2)’’ and inserting
‘‘section 529(c)(3)(B) or 530(d)(2)’’.
(d) TECHNICAL CORRECTION.—Section 529(c)(3)(A) is
amended by striking ‘‘section 72(b)’’ and inserting ‘‘section
72’’.
(e) EFFECTIVE DATES.—
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(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to taxable years beginning after December 31,
1998.
(2) TECHNICAL CORRECTION.—The amendment
made by subsection (d) shall take effect as if included
in the amendments made by section 211 of the Tax-
payer Relief Act of 1997.
SEC. 105. EXTENSION OF EXCLUSION FOR EMPLOYER-PRO-
VIDED EDUCATIONAL ASSISTANCE.
(a) IN GENERAL.—Section 127(d) (relating to termi-
nation of exclusion for educational assistance programs) is
amended by striking ‘‘May 31, 2000’’ and inserting ‘‘De-
cember 31, 2002’’.
(b) REPEAL
OF LIMITATION
ON GRADUATE EDU-
CATION.—The last sentence of section 127(c)(1) (defining
educational assistance) is amended by striking ‘‘, and such
term also does not include any payment for, or the provi-
sion of any benefits with respect to, any graduate level
course of a kind normally taken by an individual pursuing
a program leading to a law, business, medical, or other ad-
vanced academic or professional degree’’.
(c) EFFECTIVE DATES.—
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(1) EXTENSION.—The amendment made by sub-
section (a) shall apply to expenses paid with respect
to courses beginning after May 31, 2000.
(2) GRADUATE
EDUCATION.—The amendment
made by subsection (b) shall apply to expenses paid
with respect to courses beginning after December 31,
1997.
SEC. 106. ADDITIONAL INCREASE IN ARBITRAGE REBATE
EXCEPTION 
FOR 
GOVERNMENTAL 
BONDS
USED TO FINANCE EDUCATION FACILITIES.
(a) IN GENERAL.—Section 148(f)(4)(D)(vii) (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 sub-
section (a) shall apply to obligations issued after December
31, 1998.
SEC. 107. EXCLUSION OF CERTAIN AMOUNTS RECEIVED
UNDER 
THE 
NATIONAL 
HEALTH 
CORPS
SCHOLARSHIP PROGRAM.
(a) IN GENERAL.—Section 117(c) (relating to the ex-
clusion from gross income amounts received as a qualified
scholarship) is amended—
(1) by striking ‘‘Subsections (a)’’ and inserting
the following:
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‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), subsections (a)’’; and
(2) by adding at the end the following new para-
graph:
‘‘(2) NATIONAL
HEALTH
CORPS
SCHOLARSHIP
PROGRAM.—Paragraph (1) shall not apply to any
amount received by an individual under the National
Health Corps Scholarship Program under section
338A(g)(1)(A) of the Public Health Service Act.’’.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to amounts received in taxable years
beginning after December 31, 1993.
SEC. 
108. 
TREATMENT 
OF 
QUALIFIED 
PUBLIC 
EDU-
CATIONAL FACILITY BONDS AS EXEMPT FA-
CILITY BONDS.
(a) TREATMENT AS EXEMPT FACILITY BOND.—Sub-
section (a) of section 142 (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 is amended by adding at the end the following:
‘‘(k) QUALIFIED PUBLIC EDUCATIONAL FACILITIES.—
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‘‘(1) IN GENERAL.—For purposes of subsection
(a)(13), the term ‘qualified public educational facil-
ity’ means any school facility which is—
‘‘(A) part of a public elementary school or
a public secondary school,
‘‘(B) except as provided in paragraph
(6)(B)(iii), located in a high-growth school dis-
trict, and
‘‘(C) owned by a private, for-profit corpora-
tion pursuant to a public-private partnership
agreement with a State or local educational
agency described in paragraph (2).
‘‘(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 contract term, 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 underlying issue.
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‘‘(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,
including any stadium or other facility pri-
marily used for school events, and
‘‘(C) any property, to which section 168 ap-
plies (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 ‘second-
ary school’ have the meanings given such terms by
section 14101 of the Elementary and Secondary Edu-
cation Act of 1965 (20 U.S.C. 8801), as in effect on
the date of the enactment of this subsection.
‘‘(5) HIGH-GROWTH
SCHOOL
DISTRICT.—For
purposes of this subsection, the term ‘high-growth
school district’ means a school district established
under State law which had an enrollment of at least
5,000 students in the second academic year preceding
the date of the issuance of the bond and an increase
in student enrollment of at least 20 percent during
the 5-year period ending with such academic year.
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‘‘(6) 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 pre-
viously so issued during the calendar year) ex-
ceeds an amount equal to the greater of—
‘‘(i) $10 multiplied by the State popu-
lation, 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 ap-
propriate.
‘‘(ii) RULES FOR CARRYFORWARD OF
UNUSED AMOUNT.—With respect to any cal-
endar 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
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issuance of exempt facility bonds described
in section 142(a)(13).
‘‘(iii) SPECIAL ALLOCATION RULE FOR
SCHOOLS OUTSIDE HIGH-GROWTH SCHOOL
DISTRICTS.—A State may elect to allocate
an aggregate face amount of bonds not to
exceed $5,000,000 from the amount de-
scribed in subparagraph (A) for each cal-
endar year for qualified public educational
facilities without regard to the requirement
under paragraph (1)(A).’’.
(c) EXEMPTION FROM GENERAL STATE VOLUME
CAPS.—Paragraph (3) of section 146(g) (relating to excep-
tion for certain bonds) is amended—
(1) by striking ‘‘or (12)’’ and inserting ‘‘(12), or
(13)’’, and
(2) by striking ‘‘and environmental enhance-
ments of hydroelectric generating facilities’’ and in-
serting ‘‘environmental enhancements of hydroelectric
generating facilities, and qualified public educational
facilities’’.
(d) EXEMPTION FROM LIMITATION ON USE FOR LAND
ACQUISITION.—Section 147(h) (relating to certain rules not
apply) is amended—
(1) by adding at the end the following:
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‘‘(3) EXEMPT FACILITY BONDS FOR QUALIFIED
PUBLIC
EDUCATIONAL
FACILITIES.—Subsection (c)
shall not apply to any exempt facility bond issued as
part of an issue described in section 142(a)(13) (relat-
ing to qualified public educational facilities).’’, and
(2) by striking ‘‘MORTGAGE REVENUE BONDS,
QUALIFIED STUDENT LOAN BONDS, AND QUALIFIED
501(c)(3) BONDS’’ in the heading and inserting ‘‘CER-
TAIN BONDS’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to bonds issued after December 31, 1998.
TITLE II—REVENUE
SEC. 201. CLARIFICATION OF DEDUCTION FOR DEFERRED
COMPENSATION.
(a) IN GENERAL.—Section 404(a) (relating to deduc-
tion for contributions of an employer to an employee’s trust
or annuity plan and compensation under a deferred-pay-
ment plan) is amended by adding at the end the following
new paragraph:
‘‘(11) DETERMINATIONS RELATING TO DEFERRED
COMPENSATION.—
‘‘(A) IN GENERAL.—For purposes of deter-
mining under this section—
‘‘(i) whether compensation of an em-
ployee is deferred compensation, and
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‘‘(ii) when deferred compensation is
paid,
no amount shall be treated as received by the em-
ployee, or paid, until it is actually received by
the employee.
‘‘(B) EXCEPTION.—Subparagraph (A) shall
not apply to severance pay.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by sub-
section (a) shall apply to taxable years ending after
the date of the enactment of this Act.
(2) CHANGE IN METHOD OF ACCOUNTING.—In
the case of any taxpayer required by the amendment
made by subsection (a) to change its method of ac-
counting for its first taxable year ending after the
date of the enactment of this Act—
(A) such change shall be treated as initiated
by the taxpayer,
(B) such change shall be treated as made
with the consent of the Secretary of the Treasury,
and
(C) the net amount of the adjustments re-
quired to be taken into account by the taxpayer
under section 481 of the Internal Revenue Code
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of 1986 shall be taken into account in such first
taxable year.
SEC. 
202. 
MODIFICATION 
TO 
FOREIGN 
TAX 
CREDIT
CARRYBACK AND CARRYOVER PERIODS.
(a) IN GENERAL.—Section 904(c) (relating to limita-
tion on credit) is amended—
(1) by striking ‘‘in the second preceding taxable
year,’’, and
(2) by striking ‘‘or fifth’’ and inserting ‘‘fifth,
sixth, or seventh’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to credits arising in taxable years
beginning after December 31, 2000.
TITLE 
III—MEASURES 
TO 
EN-
COURAGE 
RESULTS 
IN
TEACHING
SEC. 301. STATE INCENTIVES FOR TEACHER TESTING AND
MERIT PAY.
(a) SHORT TITLE.—This section may be cited as the
‘‘Measures to Encourage Results in Teaching Act of 1998’’.
(b) FINDINGS.—Congress makes the following findings:
(1) All students deserve to be taught by well-edu-
cated, competent, and qualified teachers.
(2) More than ever before, education has and will
continue to become the ticket not only to economic
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success but to basic survival. Students will not suc-
ceed in meeting the demands of a knowledge-based,
21st century society and economy if the students do
not encounter more challenging work in school. For
future generations to have the opportunities to achieve
success the future generations will need to have an
education and a teacher workforce second to none.
(3) No other intervention can make the difference
that a knowledgeable, skillful teacher can make in the
learning process. At the same time, nothing can fully
compensate for weak teaching that, despite good in-
tentions, can result from a teacher’s lack of oppor-
tunity to acquire the knowledge and skill needed to
help students master the curriculum.
(4) The Federal Government established the
Dwight D. Eisenhower Professional Development Pro-
gram in 1985 to ensure that teachers and other edu-
cational staff have access to sustained and high-qual-
ity professional development. This ongoing develop-
ment must include the ability to demonstrate and
judge the performance of teachers and other instruc-
tional staff.
(5) States should evaluate their teachers on the
basis of demonstrated ability, including tests of sub-
ject matter knowledge, teaching knowledge, and teach-
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ing skill. States should develop a test for their teach-
ers and other instructional staff with respect to the
subjects taught by the teachers and staff, and should
administer the test every 3 to 5 years.
(6) Evaluating and rewarding teachers with a
compensation system that supports teachers who be-
come increasingly expert in a subject area, are pro-
ficient in meeting the needs of students and schools,
and demonstrate high levels of performance measured
against professional teaching standards, will encour-
age teachers to continue to learn needed skills and
broaden teachers’ expertise, thereby enhancing edu-
cation for all students.
(c) PURPOSES.—The purposes of this section are as fol-
lows:
(1) To provide incentives for States to establish
and administer periodic teacher testing and merit
pay programs for elementary school and secondary
school teachers.
(2) To encourage States to establish merit pay
programs that have a significant impact on teacher
salary scales.
(3) To encourage programs that recognize and
reward the best teachers, and encourage those teachers
that need to do better.
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(d) STATE INCENTIVES FOR TEACHER TESTING AND
MERIT PAY.—
(1) AMENDMENTS.—Title II of the Elementary
and Secondary Education Act of 1965 (20 U.S.C.
6601 et seq.) is amended—
(A) by redesignating part D as part E;
(B) by redesignating sections 2401 and
2402 as sections 2501 and 2502, respectively;
and
(C) by inserting after part C the following:
‘‘PART D—STATE INCENTIVES FOR TEACHER
TESTING AND MERIT PAY
‘‘SEC. 2401. STATE INCENTIVES FOR TEACHER TESTING AND
MERIT PAY.
‘‘(a) STATE AWARDS.—Notwithstanding any other
provision of this title, from funds described in subsection
(b) that are made available for a fiscal year, the Secretary
shall make an award to each State that—
‘‘(1) administers a test to each elementary school
and secondary school teacher in the State, with re-
spect to the subjects taught by the teacher, every 3 to
5 years; and
‘‘(2) has an elementary school and secondary
school teacher compensation system that is based on
merit.
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‘‘(b) AVAILABLE FUNDING.—The amount of funds re-
ferred to in subsection (a) that are available to carry out
this section for a fiscal year is 50 percent of the amount
of funds appropriated to carry out this title that are in
excess of the amount so appropriated for fiscal year 1999,
except that no funds shall be available to carry out this
section for any fiscal year for which—
‘‘(1) the amount appropriated to carry out this
title exceeds $600,000,000; or
‘‘(2) each of the several States is eligible to re-
ceive an award under this section.
‘‘(c) AWARD AMOUNT.—A State shall receive an award
under this section in an amount that bears the same rela-
tion to the total amount available for awards under this
section for a fiscal year as the number of States that are
eligible to receive such an award for the fiscal year bears
to the total number of all States so eligible for the fiscal
year.
‘‘(d) USE OF FUNDS.—Funds provided under this sec-
tion may be used by States to carry out the activities de-
scribed in section 2207.
‘‘(e) DEFINITION OF STATE.—For the purpose of this
section, the term ‘State’ means each of the 50 States and
the District of Columbia.’’.
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(2) EFFECTIVE DATE.—The amendments made
by paragraph (1) shall take effect on October 2, 1999.
(e) TEACHER TESTING AND MERIT PAY.—
(1) IN GENERAL.—Notwithstanding any other
provision of law, a State may use Federal education
funds—
(A) to carry out a test of each elementary
school or secondary school teacher in the State
with respect to the subjects taught by the teacher;
or
(B) to establish a merit pay program for
the teachers.
(2) DEFINITIONS.—In this subsection, the terms
‘‘elementary school’’ and ‘‘secondary school’’ have the
meanings given the terms in section 14101 of the Ele-
mentary and Secondary Education Act of 1965 (20
U.S.C. 8801).
TITLE IV—EQUAL EDUCATIONAL
OPPORTUNITY
SEC. 401. EQUAL EDUCATIONAL OPPORTUNITY.
Subsection (b) of section 6301 of the Elementary and
Secondary Education Act of 1965 (20 U.S.C. 7351) is
amended—
(1) in paragraph (7), by striking ‘‘and’’ after the
semicolon;
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(2) in paragraph (8), by striking the period and
inserting ‘‘; and’’; and
(3) by adding at the end the following:
‘‘(9) education reform projects that provide same
gender schools and classrooms, as long as comparable
educational opportunities are offered for students of
both sexes.’’.
TITLE V—EDUCATION FUNDING
SEC. 501. DIRECT AWARDS OF CERTAIN EDUCATION FUND-
ING.
(a) STATE OPTIONS.—
(1) IN
GENERAL.—Notwithstanding any other
provision of law and subject to subsection (b)(2), each
State shall notify the Secretary regarding the State’s
election to receive the State’s portion of the applicable
funding described in subsection (e) according to one
of the following options:
(A) STATE
BLOCK
GRANT
OPTION.—The
State may receive the funding pursuant to a
State allotment described in subsection (c)(1)(A).
(B) LOCAL
BLOCK
GRANT
OPTION.—The
State may direct the Secretary to send the fund-
ing directly to local educational agencies in the
State pursuant to a local allotment described in
subsection (c)(1)(B).
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(C) FEDERAL STATUTE OPTION.—The State
may receive the funding according to the provi-
sions of law described in subsection (e).
(2) OPTION REQUIREMENTS.—
(A) IN GENERAL.—A State shall select an
option described in paragraph (1)—
(i) within 1 year of the date of enact-
ment of this Act;
(ii) pursuant to a majority vote of the
State legislature; and
(iii) with the concurrence of the Gov-
ernor.
(B) FAILURE TO SELECT AN OPTION.—
(i) IN GENERAL.—If a State legislature
meets within 1 year of the date of enact-
ment of this Act and fails to select an op-
tion in accordance with this subsection, the
Secretary shall award the applicable fund-
ing pursuant to paragraph (1)(B).
(ii) LEGISLATURE
WHICH
DOES
NOT
MEET.—If a State does not select an option
described in paragraph (1) in accordance
with this subsection because the State legis-
lature does not meet within 1 year of the
date of enactment of this Act, the State may