II 116th CONGRESS 1st Session S. 2866 IN THE SENATE OF THE UNITED STATES November 14, 2019 Mrs. Capito (for herself and Ms. Hassan ) introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To amend the Internal Revenue Code of 1986 to allow private activity bonds to be used for qualified broadband projects and to provide for tax credit payments to issuers of tax-exempt bonds used to finance broadband infrastructure projects.

1. Short title This Act may be cited as the Rural Broadband Financial Flexibility Act . 2. Private activity bonds for qualified broadband projects (a) In general Section 142(a) of the Internal Revenue Code of 1986 is amended by striking or at the end of paragraph (14), by striking the period at the end of paragraph (15) and inserting , or , and by adding at the end the following new paragraph: (16) qualified broadband projects. . (b) Qualified broadband projects Section 142 of such Code is amended by adding at the end the following new subsection: (n) Qualified broadband project (1) In general For purposes of subsection (a)(16), the term qualified broadband project means any project which— (A) is designed solely to provide broadband service to 1 or more areas— (i) which are rural areas (as defined in section 343(a)(13) of the Consolidated Farm and Rural Development Act ( 7 U.S.C. 1991(a)(13) without regard to subparagraph (B) or (C) thereof), and (ii) in which more than 50 percent of residential households do not have access to fixed, terrestrial broadband service which delivers at least 10 megabits per second downstream and at least 1 megabit service upstream, and (B) results in gigabit capable Internet access to residential or commercial locations but only if at least 90 percent of the residential or commercial locations provided such access under the project are locations where, before the project, a broadband service provider— (i) did not provide service, or (ii) did not provide service which meets the minimum speed requirements described in subparagraph (A)(ii). (2) Notice to broadband providers A project shall not be treated as a qualified broadband project unless, before the issue date of any issue the proceeds of which are to be used to fund the project, the issuer— (A) notifies each broadband service provider providing broadband service in the area within which broadband services are to be provided under the project of the project and its intended scope, (B) includes in such notice a request for information from each such provider with respect to the provider's ability to deploy, manage, and maintain a broadband network capable of providing gigabit capable Internet access to residential or commercial locations, and (C) allows each such provider at least 90 days to respond to such notice and request. . (c) Partial exception from volume cap (1) In general Section 146(g) of the Internal Revenue Code of 1986 is amended by striking and at the end of paragraph (3), by striking the period at the end of paragraph (4) and inserting , and , and by inserting immediately after paragraph (4) the following new paragraph: (5) 75 percent of any exempt facility bond issued as part of an issue described in paragraph (16) of section 142(a) (relating to qualified broadband projects). . (2) Government-owned projects The last sentence of section 146(g) of such Code is amended by striking Paragraph (4) and inserting Paragraphs (4) and (5) . (d) Effective date The amendments made by this section shall apply to obligations issued in calendar years beginning after the date of the enactment of this Act. 3. Credit for broadband infrastructure bonds allowed to issuers (a) In general Subchapter B of chapter 65 of the Internal Revenue Code of 1986 is amended by inserting after section 6430 the following new section: 6431. Credit for broadband infrastructure bonds allowed to issuer (a) In General In the case of a broadband infrastructure bond, the issuer of such bond shall be allowed a credit with respect to each interest payment under such bond which shall be payable by the Secretary as provided in subsection (b). (b) Payment of Credit The Secretary shall pay (contemporaneously with each interest payment date under such bond) to the issuer of such bond (or to any person who makes such interest payments on behalf of the issuer) 35 percent of the interest payable under such bond on such date. (c) Broadband infrastructure bond For purposes of this section— (1) In general The term broadband infrastructure bond means any obligation (other than a private activity bond)— (A) the interest on which would (but for this section) be excludable from gross income under section 103, (B) which is issued by a qualified issuer, (C) which is issued as part of an issue with respect to which— (i) the requirements of paragraph (2) are met, (ii) all of the property to be financed by the net proceeds of the issue is to be owned by a governmental unit (within the meaning of section 142(b)(1)), and (iii) the aggregate face amount of bonds issued pursuant to the issue, when added to the aggregate face amount of broadband infrastructure bonds previously issued by the issuing authority during the calendar year, does not exceed such issuing authority's allocation of its State's volume cap under subsection (d) for such year, and (D) which the issuer designates (at such time and in such manner as the Secretary may prescribe) as an obligation to which this section applies. (2) Special rules relating to expenditures (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 of the available project proceeds to be spent in connection with 1 or more qualified broadband projects 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 incurred within the 6-month period beginning on such date of issuance. (B) Failure to spend required amount of bond proceeds within 3 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, the 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. (ii) Expenditure period For purposes of this section, the term expenditure 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 expiration of the expenditure period (determined without regard to any extension under this clause), the Secretary may extend such period if the issuer establishes that the failure to expend the proceeds within the original expenditure period is due to reasonable cause and the expenditures in connection with 1 or more qualified broadband projects will continue to proceed with due diligence. (C) Reimbursement For purposes of this subtitle, available project proceeds of an issue shall be treated as spent in connection with 1 or more qualified broadband projects if such proceeds are used to reimburse the issuer for amounts paid in connection with such projects after the date that an allocation of a State's volume cap under subsection (d) has been made with respect to such issue, but only if- (i) prior to the payment of the original expenditure, the issuer declared its intent to reimburse such expenditure with the proceeds of such issue, (ii) not later than 60 days after payment 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) Limitation on issue price An obligation shall not be treated as a broadband infrastructure bond if the issue price has more than a de minimis amount (determined under rules similar to the rules of section 1273(a)(3)) of premium over the stated principal amount of the obligation. (4) Available project proceeds For purposes of this subsection, the term available project proceeds means, with respect to any issue, the sum of— (A) the excess of— (i) the proceeds from the sale of an issue, over (ii) the issuance costs financed by the issue (to the extent that such costs do not exceed 2 percent of such proceeds), plus (B) the proceeds from any investment of the excess described in subparagraph (A). (5) Qualified broadband project For purposes of this subsection, the term qualified broadband project has the meaning given such term by section 142(n). (d) Limitation on amount of bonds designated (1) National limitation There is a national broadband infrastructure bond limitation for each calendar year of $2,500,000,000. (2) State volume cap; allocation For purposes of this subsection, the broadband infrastructure bonds volume cap of a State for any calendar year is the portion of the national broadband infrastructure bond limitation under paragraph (1) equal to the sum of— (A) $25,000,000, plus (B) the amount which bears the same ratio to $1,250,000,000 as the— (i) number of individuals in such State who reside in rural areas (as defined in section 343(a)(13) of the Consolidated Farm and Rural Development Act ( 7 U.S.C. 1991(a)(13) without regard to subparagraph (B) or (C) thereof), bears to (ii) the total number of individuals living in such rural areas in all States. (3) Allocation of volume cap (A) In general For purposes of this section— (i) except as provided in subparagraph (C), 50 percent of the State broadband infrastructure bonds volume cap of a State for any calendar year shall be allocated to qualified issuers that are not agencies of the State in the amount determined under subparagraph (B), and (ii) the remaining 50 percent of such volume cap shall be allocated to qualified issuers in such manner as the State provides. (B) Amount of allocation (i) In general The amount of the State broadband infrastructure bonds volume cap for any calendar year allocated under this subparagraph to any qualified issuer described in subparagraph (A)(i) shall be equal to the amount which bears the same ratio to the amount described in subparagraph (A)(i) for such calendar year as— (I) the number of individuals in such State who reside in rural areas (as defined in section 343(a)(13) of the Consolidated Farm and Rural Development Act ( 7 U.S.C. 1991(a)(13) without regard to subparagraph (B) or (C) thereof) within the jurisdiction of such qualified issuer, bears to (II) the total number of individuals living in such rural areas in the State. (ii) Special rule for overlapping jurisdictions For purposes of clause (i)(I), if an area is within the jurisdiction of 2 or more governmental units, such area shall be treated as only within the jurisdiction of the unit having jurisdiction over the smallest geographical area unless such unit agrees to surrender all or part of such jurisdiction for such calendar year to the unit with overlapping jurisdiction which has the next smallest geographical area. (C) Reallocation The amount allocated under this paragraph to any qualified issuer may be reallocated by such issuer to the State for reallocation to other qualified issuers (including agencies of the State). (4) Carryover of unused limitation (A) In general If, for any calendar year, a State's broadband infrastructure bonds volume cap exceeds the amount of bonds issued during such year which are designated as broadband infrastructure bonds under subsection (c)(1)(D) with respect to broadband projects within such State, the broadband infrastructure bonds volume cap for such State for the following calendar year shall be increased by the amount of such excess. (B) Limitation on carryover Any carryforward of an excess amount may be carried only to the first 2 years following the unused volume cap year. For purposes of the preceding sentence, a volume cap amount shall be treated as used on a first-in first-out basis. (e) Other rules and definitions (1) Interest includible in income For purposes of this title, interest on any broadband infrastructure bond shall be includible in gross income. (2) Credit not a Federal guarantee For purposes of section 149(b), a broadband infrastructure bond shall not be treated as Federally guaranteed by reason of the credit allowed under this section. (3) Coordination with section 148 (A) Yield reduced by credit For purposes of section 148, the yield on a broadband infrastructure bond shall be determined by reducing the otherwise effective yield by the amount of the credit allowed to the issuer under this section. (B) Investment during extension period An issue shall not be treated as failing to meet the requirements of section 148 by reason of any investment of available project proceeds during the expenditure period. (4) Rural populations For purposes of this section, the determination of the number of individuals living in rural areas shall be made in consultation with the Secretary of Agriculture. (5) Definitions For purposes of this section— (A) Qualified issuer The term qualified issuer means a State or any political subdivision or instrumentality thereof having authority to issue private activity bonds. (B) State Notwithstanding section 7701(a)(10), the term State only includes the 50 States. (f) Regulations The Secretary may prescribe such regulations and other guidance as may be necessary or appropriate to carry out this section. . (b) Conforming amendments (1) Section 6401(b)(1) of the Internal Revenue Code of 1986 is amended by striking under subparts A, B, D, and G of such part IV and inserting under all subparts of such part IV other than such subpart C . (2) The table of sections for subchapter B of chapter 65 of such Code is amended by inserting after the item related to section 6430 the following new section: Sec. 6431. Credit for broadband infrastructure bonds allowed to issuer. . (c) Gross-Up of payment to issuers in case of sequestration The amount of any payment under section 6431(b) of the Internal Revenue Code of 1986 made after the date of the enactment of this Act to which sequestration applies shall be increased by the amount necessary to preserve the full amount of such payment payable to the issuer before sequestration. For purposes of this subsection, the term sequestration means any reduction in direct spending ordered in accordance with a sequestration report prepared by the Director of the Office and Management and Budget pursuant to the Balanced Budget and Emergency Deficit Control Act of 1985 or the Statutory Pay-As-You-Go Act of 2010. (d) Effective date The amendments made by this section shall apply to bonds issued in calendar years beginning after the date of the enactment of this Act.