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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.
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.