I 
110TH CONGRESS 
2D SESSION 
H. R. 5952 
To amend the Internal Revenue Code of 1986 to authorize tax credit bonds 
for capital improvements for police and fire departments. 
IN THE HOUSE OF REPRESENTATIVES 
MAY 1, 2008 
Ms. SCHWARTZ introduced the following bill; which was referred to the Com-
mittee on Ways and Means, and in addition to the Committee on Edu-
cation and Labor, for a period to be subsequently determined by the 
Speaker, in each case for consideration of such provisions as fall within 
the jurisdiction of the committee concerned 
A BILL 
To amend the Internal Revenue Code of 1986 to authorize 
tax credit bonds for capital improvements for police and 
fire departments. 
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 ‘‘Police and Fire Station 
Modernization Act of 2008’’. 
SEC. 2. POLICE AND FIRE DEPARTMENT BONDS. 
(a) IN GENERAL.—Part IV of subchapter A of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
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credits against tax) is amended by adding at the end the 
following new subpart: 
‘‘Subpart I—Qualified Tax Credit Bonds 
‘‘Sec. 54A. Credit to holders of qualified tax credit bonds. 
‘‘Sec. 54B. Police and fire department bonds. 
‘‘SEC. 54A. CREDIT TO HOLDERS OF QUALIFIED TAX CRED-
IT BONDS. 
‘‘(a) ALLOWANCE OF CREDIT.—If a taxpayer holds 
a qualified tax credit bond on one or more credit allowance 
dates of the bond during any taxable year, there shall be 
allowed as a credit against the tax imposed by this chapter 
for the taxable year an amount equal to the sum of the 
credits determined under subsection (b) with respect to 
such dates. 
‘‘(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 tax credit 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 tax credit 
bond is the product of— 
‘‘(A) the applicable credit rate, multiplied 
by 
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‘‘(B) the outstanding face amount of the 
bond. 
‘‘(3) APPLICABLE CREDIT RATE.—For purposes 
of paragraph (2), the applicable credit rate is the 
rate which the Secretary estimates will permit the 
issuance of qualified tax credit bonds with a speci-
fied maturity or redemption date without discount 
and without interest cost to the qualified issuer. The 
applicable credit rate with respect to any qualified 
tax credit bond shall be determined as of the first 
day on which there is a binding, written contract for 
the sale or exchange of the bond. 
‘‘(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 redeemed 
or matures. 
‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.— 
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‘‘(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 this part (other than subpart C and this 
subpart). 
‘‘(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 (determined be-
fore the application of paragraph (1) for such suc-
ceeding taxable year). 
‘‘(d) QUALIFIED TAX CREDIT BOND.—For purposes 
of this section— 
‘‘(1) QUALIFIED TAX CREDIT BOND.—The term 
‘qualified tax credit bond’ means a police and fire 
department bond which is part of an issue that 
meets the requirements of paragraphs (2), (3), (4), 
and (5). 
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‘‘(2) SPECIAL RULES RELATING TO EXPENDI-
TURES.— 
‘‘(A) IN
GENERAL.—An issue shall be 
treated as meeting the requirements of this 
paragraph if, as of the date of issuance, the 
issuer reasonably expects— 
‘‘(i) 100 percent or more of the avail-
able project proceeds to be spent for 1 or 
more qualified purposes within the 3-year 
period beginning on such date of issuance, 
and 
‘‘(ii) a binding commitment with a 
third party to spend at least 10 percent of 
such available project proceeds will be in-
curred within the 6-month period begin-
ning on such date of issuance. 
‘‘(B) 
FAILURE
TO
SPEND
REQUIRED 
AMOUNT
OF
BOND
PROCEEDS
WITHIN
YEARS.— 
‘‘(i) IN GENERAL.—To the extent that 
less than 100 percent of the available 
project proceeds of the issue are expended 
by the close of the expenditure period for 
1 or more qualified purposes, the issuer 
shall redeem all of the nonqualified bonds 
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within 90 days after the end of such pe-
riod. For purposes of this paragraph, the 
amount of the nonqualified bonds required 
to be redeemed shall be determined in the 
same manner as under section 142. 
‘‘(ii) 
EXPENDITURE
PERIOD.—For 
purposes of this subpart, the term ‘expend-
iture period’ means, with respect to any 
issue, the 3-year period beginning on the 
date of issuance. Such term shall include 
any extension of such period under clause 
(iii). 
‘‘(iii) EXTENSION OF PERIOD.—Upon 
submission of a request prior to the expira-
tion of the expenditure period (determined 
without regard to any extension under this 
clause), the Secretary may extend such pe-
riod if the issuer establishes that the fail-
ure to expend the proceeds within the 
original expenditure period is due to rea-
sonable cause and the expenditures for 
qualified purposes will continue to proceed 
with due diligence. 
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‘‘(C) QUALIFIED PURPOSE.—For purposes 
of this paragraph, the term ‘qualified purpose’ 
means a purpose specified in section 54B(a)(1). 
‘‘(D) REIMBURSEMENT.—For purposes of 
this subtitle, available project proceeds of an 
issue shall be treated as spent for a qualified 
purpose if such proceeds are used to reimburse 
the issuer for amounts paid for a qualified pur-
pose after the date that the Secretary makes an 
allocation of bond limitation with respect to 
such issue, but only if— 
‘‘(i) prior to the payment of the origi-
nal expenditure, the issuer declared its in-
tent to reimburse such expenditure with 
the proceeds of a qualified tax credit bond, 
‘‘(ii) not later than 60 days after pay-
ment of the original expenditure, the issuer 
adopts an official intent to reimburse the 
original expenditure with such proceeds, 
and 
‘‘(iii) the reimbursement is made not 
later than 18 months after the date the 
original expenditure is paid. 
‘‘(3) REPORTING.—An issue shall be treated as 
meeting the requirements of this paragraph if the 
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issuer of qualified tax credit bonds submits reports 
similar to the reports required under section 149(e). 
‘‘(4) SPECIAL
RULES
RELATING
TO
ARBI-
TRAGE.— 
‘‘(A) IN
GENERAL.—An issue shall be 
treated as meeting the requirements of this 
paragraph if the issuer satisfies the require-
ments of section 148 with respect to the pro-
ceeds of the issue. 
‘‘(B) SPECIAL
RULE
FOR
INVESTMENTS 
DURING EXPENDITURE PERIOD.—An issue shall 
not be treated as failing to meet the require-
ments of subparagraph (A) by reason of any in-
vestment of available project proceeds during 
the expenditure period. 
‘‘(C) 
SPECIAL
RULE
FOR
RESERVE 
FUNDS.—An issue shall not be treated as fail-
ing to meet the requirements of subparagraph 
(A) by reason of any fund which is expected to 
be used to repay such issue if— 
‘‘(i) such fund is funded at a rate not 
more rapid than equal annual installments, 
‘‘(ii) such fund is funded in a manner 
reasonably expected to result in an amount 
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not greater than an amount necessary to 
repay the issue, and 
‘‘(iii) the yield on such fund is not 
greater than the discount rate determined 
under paragraph (5)(B) with respect to the 
issue. 
‘‘(5) MATURITY LIMITATION.— 
‘‘(A) IN GENERAL.—An issue shall not be 
treated as meeting the requirements of this 
paragraph if the maturity of any bond which is 
part of such issue exceeds the maximum term 
determined by the Secretary under subpara-
graph (B). 
‘‘(B) MAXIMUM TERM.—During each cal-
endar month, the Secretary shall determine the 
maximum term permitted under this paragraph 
for bonds issued during the following calendar 
month. Such maximum term shall be the term 
which the Secretary estimates will result in the 
present value of the obligation to repay the 
principal on the bond being equal to 50 percent 
of the face amount of such bond. Such present 
value shall be determined using as a discount 
rate the average annual interest rate of tax-ex-
empt obligations having a term of 10 years or 
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more which are issued during the month. If the 
term as so determined is not a multiple of a 
whole year, such term shall be rounded to the 
next highest whole year. 
‘‘(e) OTHER DEFINITIONS.—For purposes of this 
subchapter— 
‘‘(1) 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. 
‘‘(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) AVAILABLE
PROJECT
PROCEEDS.—The 
term ‘available project proceeds’ means— 
‘‘(A) the excess of— 
‘‘(i) the proceeds from the sale of an 
issue, over 
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‘‘(ii) the issuance costs financed by 
the issue (to the extent that such costs do 
not exceed 2 percent of such proceeds), 
and 
‘‘(B) the proceeds from any investment of 
the excess described in subparagraph (A). 
‘‘(f) CREDIT TREATED AS INTEREST.—For purposes 
of this subtitle, the credit determined under subsection (a) 
shall be treated as interest which is includible in gross in-
come. 
‘‘(g) S CORPORATIONS AND PARTNERSHIPS.—In the 
case of a tax credit bond held by an S corporation or part-
nership, the allocation of the credit allowed by this section 
to the shareholders of such corporation or partners of such 
partnership shall be treated as a distribution. 
‘‘(h) BONDS HELD
BY REGULATED INVESTMENT 
COMPANIES AND REAL ESTATE INVESTMENT TRUSTS.— 
If any qualified tax credit bond is held by a regulated in-
vestment company or a real estate investment trust, the 
credit determined under subsection (a) shall be allowed to 
shareholders of such company or beneficiaries of such 
trust (and any gross income included under subsection (f) 
with respect to such credit shall be treated as distributed 
to such shareholders or beneficiaries) under procedures 
prescribed by the Secretary. 
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‘‘(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 tax credit 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 al-
lowance date holds the instrument evidencing the en-
titlement 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 tax credit 
bond as if it were a stripped bond and to the credit 
under this section as if it were a stripped coupon. 
‘‘(j) TERMINATION.—This section shall not apply to 
bonds issued after December 31, 2014. 
‘‘SEC. 54B. POLICE AND FIRE DEPARTMENT BONDS. 
‘‘(a) IN GENERAL.—For purposes of this subpart, the 
term ‘police and fire department bond’ means any bond 
issued as part of an issue if— 
‘‘(1) 100 percent of the available project pro-
ceeds of such issue are to be used for capital expend-
itures incurred by a State or local government for 
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one or more police or fire departments of the State 
or local government (as the case may be), 
‘‘(2) the bond is issued by a State or local gov-
ernment, and 
‘‘(3) the issuer designates such bond for pur-
poses of this section. 
‘‘(b) LIMITATION
ON AMOUNT
OF BONDS DES-
IGNATED.—The maximum aggregate face amount of 
bonds which may be designated under subsection (a) by 
any issuer shall not exceed the limitation amount allocated 
to such issuer under subsection (d). 
‘‘(c) NATIONAL LIMITATION ON AMOUNT OF BONDS 
DESIGNATED.—There is a national police and fire depart-
ment bond limitation of $3,000,000,000. 
‘‘(d) ALLOCATIONS.— 
‘‘(1) IN
GENERAL.—The limitation applicable 
under subsection (c) shall be allocated by the Sec-
retary among the States in proportion to the popu-
lation of the States. 
‘‘(2) ALLOCATIONS
TO
LARGEST
LOCAL
GOV-
ERNMENTS.— 
‘‘(A) IN
GENERAL.—In the case of any 
State in which there is a large local govern-
ment, each such local government shall be allo-
cated a portion of such State’s allocation which 
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bears the same ratio to the State’s allocation 
(determined without regard to this subpara-
graph) as the population of such large local 
government bears to the population of such 
State. 
‘‘(B) ALLOCATION OF UNUSED LIMITATION 
TO STATE.—The amount allocated under this 
subsection to a large local government may be 
reallocated by such local government to the 
State in which such local government is located. 
‘‘(C) LARGE
LOCAL
GOVERNMENT.—For 
purposes of this section, the term ‘large local 
government’ means any municipality or county 
if such municipality or county has a population 
of 500,000 or more. 
‘‘(e) POPULATION.— 
‘‘(1) IN
GENERAL.—The population of any 
State or local government shall be determined for 
purposes of this section as provided in section 146(j) 
for the calendar year which includes the date of the 
enactment of this section. 
‘‘(2) SPECIAL RULE FOR COUNTIES.—In deter-
mining the population of any county for purposes of 
this section, any population of such county which is 
taken into account in determining the population of 
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