SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Public School Construction 
Partnership Act''.

SEC. 2. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL FACILITY BONDS AS 
              EXEMPT FACILITY BONDS.

    (a) Treatment as Exempt Facility Bond.--Subsection (a) of section 
142 of the Internal Revenue Code of 1986 (relating to exempt facility 
bond) is amended by striking ``or'' at the end of paragraph (11), by 
striking the period at the end of paragraph (12) and inserting ``, 
or'', and by adding at the end the following:
            ``(13) qualified public educational facilities.''
    (b) Qualified Public Educational Facilities.--Section 142 of the 
Internal Revenue Code of 1986 (relating to exempt facility bond) is 
amended by adding at the end the following new subsection:
    ``(k) Qualified Public Educational Facilities.--
            ``(1) In general.--For purposes of subsection (a)(13), the 
        term `qualified public educational facility' means any school 
        facility which is--
                    ``(A) part of a public elementary school or a 
                public secondary school, and
                    ``(B) owned by a private, for-profit corporation 
                pursuant to a public-private partnership agreement with 
                a State or local educational agency described in 
                paragraph (2).
            ``(2) Public-private partnership agreement described.--A 
        public-private partnership agreement is described in this 
        paragraph if it is an agreement--
                    ``(A) under which the corporation agrees--
                            ``(i) to do 1 or more of the following: 
                        construct, rehabilitate, refurbish, or equip a 
                        school facility, and
                            ``(ii) at the end of the term of the 
                        agreement, to transfer the school facility to 
                        such agency for no additional consideration, 
                        and
                    ``(B) the term of which does not exceed the term of 
                the issue to be used to provide the school facility.
            ``(3) School facility.--For purposes of this subsection, 
        the term `school facility' means--
                    ``(A) school buildings,
                    ``(B) functionally related and subordinate 
                facilities and land with respect to such buildings, 
                including any stadium or other facility primarily used 
                for school events, and
                    ``(C) any property, to which section 168 applies 
                (or would apply but for section 179), for use in the 
                facility.
            ``(4) Public schools.--For purposes of this subsection, the 
        terms `elementary school' and `secondary school' have the 
        meanings given such terms by section 14101 of the Elementary 
        and Secondary Education Act of 1965 (20 U.S.C. 8801), as in 
        effect on the date of the enactment of this subsection.
            ``(5) Annual aggregate face amount of tax-exempt 
        financing.--
                    ``(A) In general.--An issue shall not be treated as 
                an issue described in subsection (a)(13) if the 
                aggregate face amount of bonds issued by the State 
                pursuant thereto (when added to the aggregate face 
                amount of bonds previously so issued during the 
                calendar year) exceeds an amount equal to the greater 
                of--
                            ``(i) $10 multiplied by the State 
                        population, or
                            ``(ii) $5,000,000.
                    ``(B) Allocation rules.--
                            ``(i) In general.--Except as otherwise 
                        provided in this subparagraph, the State may 
                        allocate in a calendar year the amount 
                        described in subparagraph (A) for such year in 
                        such manner as the State determines 
                        appropriate.
                            ``(ii) Rules for carryforward of unused 
                        amount.--With respect to any calendar year, a 
                        State may make an election under rules similar 
                        to the rules of section 146(f), except that the 
                        sole carryforward purpose with respect to such 
                        election is the issuance of exempt facility 
                        bonds described in section 142(a)(13).''
    (c) Exemption From General State Volume Caps.--Paragraph (3) of 
section 146(g) of the Internal Revenue Code of 1986 (relating to 
exception for certain bonds) is amended--
            (1) by striking ``or (12)'' and inserting ``(12), or 
        (13)'', and
            (2) by striking ``and environmental enhancements of 
        hydroelectric generating facilities'' and inserting 
        ``environmental enhancements of hydroelectric generating 
        facilities, and qualified public educational facilities''.
    (d) Exemption From Limitation on Use for Land Acquisition.--Section 
147(h) of the Internal Revenue Code of 1986 (relating to certain rules 
not to apply to mortgage revenue bonds, qualified student loan bonds, 
and qualified 501(c)(3) bonds) is amended by adding at the end the 
following new paragraph:
            ``(3) Exempt facility bonds for qualified public-private 
        schools.--Subsection (c) shall not apply to any exempt facility 
        bond issued as part of an issue described in section 142(a)(13) 
        (relating to qualified public-private schools).''
    (e) Conforming Amendment.--The heading of section 147(h) of the 
Internal Revenue Code of 1986 is amended by striking ``Mortgage Revenue 
Bonds, Qualified Student Loan Bonds, and Qualified 501(c)(3) Bonds'' in 
the heading and inserting ``Certain Bonds''.
    (f) Effective Date.--The amendments made by this section shall 
apply to bonds issued after December 31, 2001.

SEC. 3. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION FOR 
              GOVERNMENTAL BONDS USED TO FINANCE EDUCATION FACILITIES.

    (a) Spending Requirement for Public School Construction Issue.--
Paragraph (4)(C) of section 148(f) of the Internal Revenue Code of 1986 
(relating to required rebate to the United States) is amended by adding 
at the end the following new clause:
                            ``(xviii) 4-year spending requirement for 
                        public school construction issue.--
                                    ``(I) In general.--In the case of a 
                                public school construction issue, the 
                                spending requirements of clause (ii) 
                                shall be treated as met if at least 10 
                                percent of the available construction 
                                proceeds of the construction issue are 
                                spent for the governmental purposes of 
                                the issue within the 1-year period 
                                beginning on the date the bonds are 
                                issued, 30 percent of such proceeds are 
                                spent for such purposes within the 2-
                                year period beginning on such date, 50 
                                percent of such proceeds are spent for 
                                such purposes within the 3-year period 
                                beginning on such date, and 100 percent 
                                of such proceeds are spent for such 
                                purposes within the 4-year period 
                                beginning on such date.
                                    ``(II) Public school construction 
                                issue.--For purposes of this clause, 
                                the term `public school construction 
                                issue' means any construction issue if 
                                no bond which is part of such issue is 
                                a private activity bond and all of the 
                                available construction proceeds of such 
                                issue are to be used for the 
                                construction (as defined in clause 
                                (iv)) of public school facilities to 
                                provide education or training below the 
                                postsecondary level or for the 
                                acquisition of land that is 
                                functionally related and subordinate to 
                                such facilities.
                                    ``(III) Other rules to apply.--
                                Rules similar to the rules of the 
                                preceding provisions of this 
                                subparagraph which apply to clause (ii) 
                                shall apply to this clause.''
    (b) Increase in Arbitrage Rebate Exception for Governmental Bonds 
Used To Finance Education Facilities.--Section 148(f)(4)(D)(vii) of the 
Internal Revenue Code of 1986 (relating to increase in exception for 
bonds financing public school capital expenditures) is amended by 
striking ``$5,000,000'' the second place it appears and inserting 
``$10,000,000''.
    (c) Effective Date.--The amendment made by this section shall apply 
to obligations issued after December 31, 2001.

SEC. 4. TREATMENT OF PUBLIC SCHOOL CONSTRUCTION BONDS AS QUALIFIED TAX-
              EXEMPT OBLIGATIONS.

    (a) In General.--Clause (i) of subsection (b)(3)(B) of section 265 
of the Internal Revenue Code of 1986 (relating to expenses and interest 
relating to tax-exempt income) is amended to read as follows:
                            ``(i) In general.--For purposes of 
                        subparagraph (A), the term `qualified tax-
                        exempt obligation' means a tax-exempt 
                        obligation--
                                    ``(I) which is issued after August 
                                7, 1986, by a qualified small issuer, 
                                is not a private activity bond (as 
                                defined in section 141), and is 
                                designated by the issuer for purposes 
                                of this paragraph, or
                                    ``(II) which is a public school 
                                construction bond (within the meaning 
                                of section 148(f)(4)(C)(xviii)) issued 
                                by a qualified small education bond 
                                issuer (as defined in subparagraph 
                                (G)).''
    (b) Definition of Qualified Small Education Bond Issuer.--
Subsection (b)(3) of section 265 of the Internal Revenue Code of 1986 
is amended by adding at the end the following new subparagraph:
                    ``(G) Qualified small education bond issuer.--For 
                purposes of subparagraph (B)(i)(II), the term 
                `qualified small education bond issuer' means, with 
                respect to bonds issued during any calendar year, any 
                issuer if the reasonably anticipated amount of public 
                school construction bonds which will be issued by such 
                issuer during such calendar year does not exceed 
                $25,000,000.''
    (c) Conforming Amendment.--Section 265(b)(3)(B)(ii) of such Code is 
amended by striking ``(i)(II)'' in the matter preceding subclause (I) 
and inserting ``(i)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to obligations issued after December 31, 2001.
Output: Public School Construction Partnership Act - Amends the Internal Revenue Code to provide for the treatment of qualified public educational facility bonds as exempt facility bonds. Defines a "qualified public educational facility" as any school facility which is: (1) part of a public elementary school or a public secondary school; and (2) owned by a private, for-profit corporation pursuant to a public-private partnership agreement with a State or local educational agency. Provides for an exception from the State volume cap.Sets forth provisions concerning: (1) time-related spending requirements for public school construction bonds and doubling the arbitrage rebate exception for governmental bonds used to finance education facilities; and (2) the treatment of public school construction bonds as qualified tax-exempt obligations.