I
107TH CONGRESS
1ST SESSION
H. R. 1076
To amend the Internal Revenue Code of 1986 to expand the incentives
for the construction and renovation of public schools.
IN THE HOUSE OF REPRESENTATIVES
MARCH 15, 2001
Mrs. JOHNSON of Connecticut (for herself, Mr. RANGEL, Mr. HOUGHTON, Mr.
STARK, Mr. RAMSTAD, Mr. MATSUI, Mr. ENGLISH, Mr. COYNE, Mrs.
MORELLA, Mr. LEVIN, Mr. LEACH, Mr. CARDIN, Mrs. KELLY, Mr.
MCDERMOTT, Mr. GILMAN, Mr. KLECZKA, Mr. BOEHLERT, Mr. LEWIS
of Georgia, Mr. LATOURETTE, Mr. NEAL of Massachusetts, Mr. KING,
Mr. MCNULTY, Ms. ROS-LEHTINEN, Mr. JEFFERSON, Mr. NEY, Mr.
BECERRA, Mr. FERGUSON, Mrs. THURMAN, Mr. HORN, Mr. POMEROY,
Mr. QUINN, Mr. GEPHARDT, Mr. SMITH of New Jersey, Mr. GEORGE
MILLER of California, Mr. MCHUGH, Mr. ETHERIDGE, Mr. WALSH, Mr.
CONYERS, Mr. MOAKLEY, Mr. HOEFFEL, Ms. SCHAKOWSKY, Mrs.
TAUSCHER, Mr. MALONEY of Connecticut, Mr. ENGEL, Ms. DELAURO,
Mr. KILDEE, Mr. BERRY, and Mr. LARSEN of Washington) introduced
the following bill; which was referred to the Committee on Ways and
Means, and in addition to the Committee on Education and the Work-
force, for a period to be subsequently determined by the Speaker, in each
case for consideration of such provisions as fall within the jurisdiction of
the committee concerned
A BILL
To amend the Internal Revenue Code of 1986 to expand
the incentives for the construction and renovation of
public schools.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘America’s Better
Classroom Act of 2001’’.
SEC. 2. EXPANSION OF INCENTIVES FOR PUBLIC SCHOOLS.
(a) IN GENERAL.—Chapter 1 of the Internal Rev-
enue Code of 1986 is amended by adding at the end the
following new subchapter:
‘‘Subchapter Y—Public School Modernization
Provisions
‘‘Sec. 1400K. Credit to holders of qualified public school mod-
ernization bonds.
‘‘Sec. 1400L. Qualified school construction bonds.
‘‘Sec. 1400M. Qualified zone academy bonds.
‘‘SEC. 1400K. CREDIT TO HOLDERS OF QUALIFIED PUBLIC
SCHOOL MODERNIZATION BONDS.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of a tax-
payer 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 de-
termined 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 re-
spect 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 cor-
porate debt obligations (determined under regula-
tions prescribed by the Secretary).
‘‘(4) SPECIAL RULE FOR ISSUANCE AND RE-
DEMPTION.—In the case of a bond which is issued
during the 3-month period ending on a credit allow-
ance date, the amount of the credit determined
under this subsection with respect to such credit al-
lowance 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 re-
deemed.
‘‘(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 im-
posed by section 55, over
‘‘(B) the sum of the credits allowable
under part IV of subchapter A (other than sub-
part 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 MODERNIZA-
TION BOND.—The term ‘qualified public school mod-
ernization bond’ means—
‘‘(A) a qualified zone academy bond, and
‘‘(B) a qualified school construction 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 in-
cludes 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 ob-
ligation.
‘‘(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—
‘‘(A) any stadium or other facility pri-
marily used for athletic contests or exhibitions
or other events for which admission is charged
to the general public, or
‘‘(B) any facility which is not owned by a
State or local government or any agency or in-
strumentality 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 treat-
ed as interest income.
‘‘(g) RECAPTURE OF PORTION OF CREDIT WHERE
CESSATION OF COMPLIANCE.—
‘‘(1) IN GENERAL.—If any bond which when
issued purported to be a qualified public school mod-
ernization bond ceases to be a qualified public school
modernization bond, the issuer shall pay to the
United States (at the time required by the Sec-
retary) an amount equal to the sum of—
‘‘(A) the aggregate of the credits allowable
under this section with respect to such bond
(determined without regard to subsection (c))
for taxable years ending during the calendar
year in which such cessation occurs and the 2
preceding calendar years, and
‘‘(B) interest at the underpayment rate
under section 6621 on the amount determined
under subparagraph (A) for each calendar year
for the period beginning on the first day of
such calendar year.
‘‘(2) FAILURE TO PAY.—If the issuer fails to
timely pay the amount required by paragraph (1)
with respect to such bond, the tax imposed by this
chapter on each holder of any such bond which is
part of such issue shall be increased (for the taxable
year of the holder in which such cessation occurs) by
the aggregate decrease in the credits allowed under
this section to such holder for taxable years begin-
ning in such 3 calendar years which would have re-
sulted solely from denying any credit under this sec-
tion with respect to such issue for such taxable
years.
‘‘(3) SPECIAL RULES.—
‘‘(A) TAX
BENEFIT
RULE.—The tax for
the taxable year shall be increased under para-
graph (2) only with respect to credits allowed
by reason of this section which were used to re-
duce tax liability. In the case of credits not so
used to reduce tax liability, the carryforwards
and carrybacks under section 39 shall be appro-
priately adjusted.
‘‘(B) NO CREDITS AGAINST TAX.—Any in-
crease in tax under paragraph (2) shall not be
treated as a tax imposed by this chapter for
purposes of determining—
‘‘(i) the amount of any credit allow-
able under this part, or
‘‘(ii) the amount of the tax imposed
by section 55.
‘‘(h) 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 share-
holders of such company under procedures prescribed by
the Secretary.
‘‘(i) CREDITS MAY BE STRIPPED.—Under regula-
tions prescribed by the Secretary—
‘‘(1) IN GENERAL.—There may be a separation
(including at issuance) of the ownership of a quali-
fied public school modernization bond and the enti-
tlement 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 per-
son who on the credit allowance date holds the in-
strument 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.
‘‘(j) 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
a 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.
‘‘(k) CREDIT MAY BE TRANSFERRED.—Nothing in
any law or rule of law shall be construed to limit the trans-
ferability of the credit allowed by this section through sale
and repurchase agreements.
‘‘(l) REPORTING.—Issuers of qualified public school
modernization bonds shall submit reports similar to the
reports required under section 149(e).
‘‘(m) TERMINATION.—This section shall not apply to
any bond issued after September 30, 2006.
‘‘SEC. 1400L. 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, rehabilita-
tion, 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 gov-
ernment within the jurisdiction of which such school
is located,
‘‘(3) the issuer designates such bond for pur-
poses 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 DES-
IGNATED.—The maximum aggregate face amount of
bonds issued during any calendar year which may be des-
ignated under subsection (a) by any issuer shall not exceed
the sum of—
‘‘(1) the limitation amount allocated under sub-
section (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 con-
struction bond limitation for each calendar year. Such lim-
itation is—
‘‘(1) $11,000,000,000 for 2002,
‘‘(2) $11,000,000,000 for 2003, and
‘‘(3) except as provided in subsection (f), zero
after 2003.
‘‘(d) 60 PERCENT
OF
LIMITATION
ALLOCATED
AMONG STATES.—
‘‘(1) IN GENERAL.—60 percent of the limitation
applicable under subsection (c) for any calendar year
shall be allocated by the Secretary among the States
in proportion to the respective numbers of children
in each State who have attained age 5 but not age
18 for the most recent fiscal year ending before such
calendar year. The limitation amount allocated to a
State under the preceding sentence shall be allocated
by the State to issuers within such State.
‘‘(2) 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 edu-
cational 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 cal-
endar 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 Edu-
cation Act of 1965 (20 U.S.C. 6334(d)) for
such State for the most recent fiscal year end-
ing before such calendar year.
‘‘(3) 
ALLOCATIONS
TO
CERTAIN
POSSES-
SIONS.—The amount to be allocated under para-
graph (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 allo-
cated under paragraph (1) shall be reduced by the
aggregate amount allocated under this paragraph to
possessions of the United States.
‘‘(4) ALLOCATIONS FOR INDIAN SCHOOLS.—In
addition to the amounts otherwise allocated under
this subsection, $200,000,000 for calendar year
2002, and $200,000,000 for calendar year 2003,
shall be allocated by the Secretary of the Interior for
purposes of the construction, rehabilitation, and re-
pair of schools funded by the Bureau of Indian Af-
fairs. 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.
‘‘(e) 40 PERCENT
OF
LIMITATION
ALLOCATED
AMONG LARGEST SCHOOL DISTRICTS.—
‘‘(1) IN GENERAL.—40 percent of the limitation
applicable under subsection (c) for any calendar year
shall be allocated under paragraph (2) by the Sec-
retary among local educational agencies which are
large local educational agencies for such year.
‘‘(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 cal-
endar 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 Sec-
retary 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 edu-
cational agencies (other than those described in
subparagraph (A)) that the Secretary of Edu-
cation 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.
‘‘(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) pur-
suant 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)(4) 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 in-
vested for a temporary period (but not more than 36
months) until such proceeds are needed for the pur-
pose 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 expecta-
tion that—
‘‘(A) at least 10 percent of the proceeds of
the issue will be spent within the 6-month pe-
riod 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 pur-
pose.
‘‘(3) EARNINGS ON PROCEEDS.—Any earnings
on proceeds during the temporary period shall be
treated as proceeds of the issue for purposes of ap-