cause to be determined daily a credit rate which 
shall apply to the first day on which there is a bind-
ing, written contract for the sale or exchange of the 
bond. The credit rate for any day is the credit rate 
which the Secretary or the Secretary’s designee esti-
mates will permit the issuance of clean renewable 
water supply bonds with a specified maturity or re-
demption date without discount and without interest 
cost to the qualified issuer. 
‘‘(4) CREDIT ALLOWANCE DATE.—For purposes 
of this section, the term ‘credit allowance date’ 
means— 
‘‘(A) March 15, 
‘‘(B) June 15, 
‘‘(C) September 15, and 
‘‘(D) December 15. 
Such term also includes the last day on which the 
bond is outstanding. 
‘‘(5) 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- 
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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.—The 
credit allowed under subsection (a) for any taxable year 
shall not exceed the excess of— 
‘‘(1) the sum of the regular tax liability (as de-
fined in section 26(b)) plus the tax imposed by sec-
tion 55, over 
‘‘(2) the sum of the credits allowable under this 
part (other than subpart C, section 54, section 
1400N(l), and this section). 
‘‘(d) CLEAN RENEWABLE WATER SUPPLY BOND.— 
For purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘clean renewable 
water supply bond’ means any bond issued as part 
of an issue if— 
‘‘(A) the bond is issued by a qualified 
issuer, 
‘‘(B) 95 percent or more of the proceeds of 
such issue are to be used for capital expendi-
tures incurred by qualified borrowers for 1 or 
more qualified projects, 
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‘‘(C) the qualified issuer designates such 
bond for purposes of this section and the bond 
is in registered form, and 
‘‘(D) the issue meets the requirements of 
subsection (g). 
‘‘(2) 
QUALIFIED
PROJECT; 
SPECIAL
USE 
RULES.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
project’ means any— 
‘‘(i) qualified desalination facility, 
‘‘(ii) qualified recycled water facility, 
‘‘(iii) qualified groundwater remedi-
ation facility, or 
‘‘(iv) facility that is functionally re-
lated and subordinate to a facility de-
scribed in clause (i), (ii), or (iii), 
in each case, owned by a qualified borrower. 
‘‘(B) REFINANCING RULES.—For purposes 
of paragraph (1)(B), a qualified project may be 
refinanced with proceeds of a clean renewable 
water supply bond only if the indebtedness 
being refinanced (including any obligation di-
rectly or indirectly refinanced by such indebted-
ness) was originally incurred by a qualified bor-
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rower after the date of the enactment of this 
section. 
‘‘(C) REIMBURSEMENT.—For purposes of 
paragraph (1)(B), a clean renewable water sup-
ply bond may be issued to reimburse a qualified 
borrower for amounts paid after the date of the 
enactment of this section with respect to a 
qualified project, but only if— 
‘‘(i) prior to the payment of the origi-
nal expenditure, the qualified borrower de-
clared its intent to reimburse such expendi-
ture with the proceeds of a clean renewable 
water supply bond, 
‘‘(ii) not later than 60 days after pay-
ment of the original expenditure, the quali-
fied issuer adopts an official intent to re-
imburse 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. 
‘‘(D) TREATMENT OF CHANGES IN USE.— 
For purposes of paragraph (1)(B), the proceeds 
of an issue shall not be treated as used for a 
qualified project to the extent that a qualified 
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borrower or qualified issuer takes any action 
within its control which causes such proceeds 
not to be used for a qualified project. The Sec-
retary shall prescribe regulations specifying re-
medial actions that may be taken (including 
conditions to taking such remedial actions) to 
prevent an action described in the preceding 
sentence from causing a bond to fail to be a 
clean renewable water supply bond. 
‘‘(E) ENVIRONMENTAL IMPACT.—A project 
shall not be treated as a qualified project under 
subparagraph (A) unless such project is de-
signed to comply with regulations issued under 
subsection (m) relating to the minimization of 
the environmental impact of the project. 
‘‘(e) MATURITY LIMITATION.—A bond shall not be 
treated as a clean renewable water supply bond if the ma-
turity of such bond exceeds 20 years. 
‘‘(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) SPECIAL
RULES
RELATING
TO
EXPENDI-
TURES.— 
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‘‘(1) IN GENERAL.—An issue shall be treated as 
meeting the requirements of this subsection if, as of 
the date of issuance, the qualified issuer reasonably 
expects— 
‘‘(A) at least 95 percent of the proceeds of 
such issue are to be spent for 1 or more quali-
fied projects within the 5-year period beginning 
on the date of issuance of the clean renewable 
water supply bond, 
‘‘(B) a binding commitment with a third 
party to spend at least 10 percent of the pro-
ceeds of such issue will be incurred within the 
6-month period beginning on the date of 
issuance of the clean renewable water supply 
bond or, in the case of a clean renewable water 
supply bond the proceeds of which are to be 
loaned to 2 or more qualified borrowers, such 
binding commitment will be incurred within the 
6-month period beginning on the date of the 
loan of such proceeds to a qualified borrower, 
and 
‘‘(C) such projects will be completed with 
due diligence and the proceeds of such issue will 
be spent with due diligence. 
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‘‘(2) EXTENSION
OF
PERIOD.—Upon submis-
sion of a request prior to the expiration of the period 
described in paragraph (1)(A), the Secretary may 
extend such period if the qualified issuer establishes 
that the failure to satisfy the 5-year requirement is 
due to reasonable cause and the related projects will 
continue to proceed with due diligence. 
‘‘(3) FAILURE TO SPEND REQUIRED AMOUNT 
OF BOND PROCEEDS WITHIN 5 YEARS.—To the ex-
tent that less than 95 percent of the proceeds of 
such issue are expended by the close of the 5-year 
period beginning on the date of issuance (or if an 
extension has been obtained under paragraph (2), by 
the close of the extended period), the qualified issuer 
shall redeem all of the nonqualified bonds within 90 
days after the end of such period. 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. 
‘‘(h) SPECIAL RULES RELATING TO ARBITRAGE.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), a bond which is part of an issue shall not 
be treated as a clean renewable water supply bond 
unless, with respect to the issue of which the bond 
is a part, the qualified issuer satisfies the arbitrage 
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requirements of section 148 with respect to proceeds 
of the issue. 
‘‘(2) EXCEPTIONS.— 
‘‘(A) IN GENERAL.—For purposes of para-
graph (1)— 
‘‘(i) the proceeds of an issue qualify 
for a temporary period of 5 years begin-
ning on the date of issuance of the issue 
(or, if a longer period is approved by the 
Secretary under subsection (g)(2), such 
longer period), 
‘‘(ii) the credit allowed under sub-
section (a) shall be disregarded for pur-
poses of computing the yield on the issue, 
‘‘(iii) section 148(b)(3) (relating to ex-
ception to definition of ‘investment prop-
erty’ for certain tax-exempt bonds) shall 
not apply, 
‘‘(iv) the bonds shall not be treated as 
private activity bonds for purposes of sec-
tion 148(f)(4)(A) (relating to rebate excep-
tion for amounts in a bona fide debt serv-
ice fund), 
‘‘(v) section 148(f)(4)(C) (relating to 
exception from rebate for certain proceeds 
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to be used to finance construction expendi-
tures) shall apply to the available construc-
tion proceeds of an issue, and 
‘‘(vi) section 148(f)(4)(D) (relating to 
exception from rebate for certain small 
issuers) shall not apply. 
‘‘(B) ADDITIONAL REBATE SPENDING EX-
CEPTION.—For purposes of paragraph (1), an 
issue of clean renewable water supply bonds 
shall be treated as meeting the requirements of 
section 148(f)(2) (relating to payment of rebate 
amounts) if the proceeds of the issue are used 
to pay capital expenditures for one or more 
qualified projects in accordance with the fol-
lowing schedule— 
‘‘(i) 10 percent within 6 months, 
‘‘(ii) 30 percent within 1 year, 
‘‘(iii) 60 percent within 2 years, and 
‘‘(iv) 100 percent within 3 years. 
‘‘(3) REGULATORY AUTHORITY.—The Secretary 
may prescribe such regulations as are necessary or 
appropriate to carry out the purposes of this sub-
section, including regulations which specify addi-
tional exceptions to the requirements of section 148 
for clean renewable water supply bonds. 
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‘‘(i) DEFINITIONS.—For purposes of this section— 
‘‘(1) BOND.—The term ‘bond’ includes any ob-
ligation. 
‘‘(2) GOVERNMENTAL BODY.—The term ‘gov-
ernmental body’ means any State, territory, posses-
sion of the United States, the District of Columbia, 
Indian tribal government, and any political subdivi-
sion thereof. 
‘‘(3) LOCAL WATER COMPANY.—The term ‘local 
water company’ means any entity responsible for 
providing water service to the general public (includ-
ing electric utility, industrial, agricultural, commer-
cial, or residential users) pursuant to State or tribal 
law. 
‘‘(4) POOLED
FINANCING
BOND.—The term 
‘pooled financing bond’ shall have the meaning given 
such term by section 149(f)(6)(A). 
‘‘(5) QUALIFIED BORROWER.—The term ‘quali-
fied borrower’ means a governmental body or a local 
water company. 
‘‘(6) QUALIFIED
DESALINATION
FACILITY.— 
The term ‘qualified desalination facility’ means any 
facility that is used to produce new water supplies 
by desalinating seawater, groundwater, or surface 
water if the facility’s source water includes chlorides 
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or total dissolved solids that, either continuously or 
seasonally, exceed maximum permitted levels for pri-
mary or secondary drinking water under Federal or 
State law (as in effect on the date of issuance of the 
issue). 
‘‘(7) QUALIFIED GROUNDWATER REMEDIATION 
FACILITY.—The term ‘qualified groundwater remedi-
ation facility’ means any facility that is used to re-
claim contaminated or naturally impaired ground-
water for potable use if the facility’s source water in-
cludes constituents that exceed maximum contami-
nant levels regulated under the Safe Drinking Water 
Act (as in effect on the date of enactment of this 
Act). 
‘‘(8) QUALIFIED ISSUER.—The term ‘qualified 
issuer’ means— 
‘‘(A) a governmental body, or 
‘‘(B) in the case of a State or political sub-
division thereof (as defined for purposes of sec-
tion 103), any entity qualified to issue tax-ex-
empt bonds under section 103 on behalf of such 
State or political subdivision. 
‘‘(9) QUALIFIED RECYCLED WATER FACILITY.— 
The term ‘qualified recycled water facility’ means 
any facility that is used to reclaim wastewater pro-
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