I 
109TH CONGRESS 
1ST SESSION H. R. 1742 
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 
APRIL 20, 2005 
Mr. RANGEL 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 the Workforce, for a period to be subsequently determined by 
the Speaker, in each case for consideration of such provisions as fall with-
in 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 2005’’.
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 Z—Public School Modernization 
Provisions 
‘‘Sec. 1400N. Credit to holders of qualified public school modernization bonds. 
‘‘Sec. 1400O. Qualified school construction bonds. 
‘‘Sec. 1400P. Qualified zone academy bonds. 
‘‘SEC. 1400N. 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 bond 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, 2010.
‘‘SEC. 1400O. 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 2006, 
‘‘(2) $11,000,000,000 for 2007, and 
‘‘(3) except as provided in subsection (f), zero 
after 2007. 
‘‘(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 
2006, and $200,000,000 for calendar year 2007, 
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-
plying subsection (a)(1) and paragraph (1) of this 
subsection. 
‘‘SEC. 1400P. QUALIFIED ZONE ACADEMY BONDS. 
‘‘(a) QUALIFIED ZONE ACADEMY BOND.—For pur-
poses 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 pur-
pose 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 as-
surances that the private business con-
tribution 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