[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 1705 Introduced in Senate (IS)]







105th CONGRESS
  2d Session
                                S. 1705

To amend the Internal Revenue Code of 1986 to expand the incentives for 
           the construction and renovation of public schools.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 4, 1998

Ms. Moseley-Braun (for herself, Mr. Moynihan, Mrs. Murray, Mr. Kennedy, 
   Mr. Graham, Mr. Daschle, Mr. Reid, Mr. Glenn, Mr. Lautenberg, Mr. 
 Levin, Mr. Kerry, and Mr. Reed) 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 expand the incentives for 
           the construction and renovation of public schools.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Public School Modernization Act of 
1998''.

SEC. 2. EXPANSION OF INCENTIVES FOR PUBLIC SCHOOLS.

    (a) In General.--Part IV of subchapter U of chapter 1 of the 
Internal Revenue Code of 1986 (relating to incentives for education 
zones) is amended to read as follows:

 ``PART IV--INCENTIVES FOR QUALIFIED PUBLIC SCHOOL MODERNIZATION BONDS

                              ``Sec. 1397E. Credit to holders of 
                                        qualified public school 
                                        modernization bonds.
                              ``Sec. 1397F. Qualified zone academy 
                                        bonds.
                              ``Sec. 1397G. Qualified school 
                                        construction bonds.

``SEC. 1397E. CREDIT TO HOLDERS OF QUALIFIED PUBLIC SCHOOL 
              MODERNIZATION BONDS.

    ``(a) Allowance of Credit.--In the case of a taxpayer who holds a 
qualified public school modernization bond on the 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 the amount determined under subsection (b).
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit determined 
        under this subsection with respect to any qualified public 
        school modernization bond is the amount equal to the product 
        of--
                    ``(A) the credit rate determined by the Secretary 
                under paragraph (2) for the month in which such bond 
                was issued, multiplied by
                    ``(B) the face amount of the bond held by the 
                taxpayer on the credit allowance date.
            ``(2) Determination.--During each calendar month, the 
        Secretary shall determine a credit rate which shall apply to 
        bonds issued during the following calendar month. The credit 
        rate for any month is the percentage which the Secretary 
        estimates will on average permit the issuance of qualified 
        public school modernization bonds without discount and without 
        interest cost to the issuer.
    ``(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 imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under part 
                IV of subchapter A (other than subpart 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 modernization bond.--The term 
        `qualified public school modernization 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, with respect to any issue, the last day of the 1-
        year period beginning on the date of issuance of such issue and 
        the last day of each successive 1-year period thereafter.
    ``(e) Other Definitions.--For purposes of this part--
            ``(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 includes 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 obligation.
            ``(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 any stadium or other facility 
        primarily used for athletic contests or exhibitions or other 
        events for which admission is charged to the general public.
    ``(f) Credit Included in Gross Income.--Gross income includes the 
amount of the credit allowed to the taxpayer under this section and the 
amount so included shall be treated as interest income.
    ``(g) 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 shareholders of such company under procedures prescribed by 
the Secretary.

``SEC. 1397F. QUALIFIED ZONE ACADEMY BONDS.

    ``(a) Qualified Zone Academy Bond.--For purposes of this part--
            ``(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 purpose 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 
                        assurances that the private business 
                        contribution 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
                    ``(D) the term of each bond which is part of such 
                issue does not exceed 15 years.
            ``(2) Private business contribution requirement.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the private business contribution requirement of this 
                paragraph is met with respect to any issue if the local 
                educational agency that established the qualified zone 
                academy has written commitments from private entities 
                to make qualified contributions having a present value 
                (as of the date of issuance of the issue) of not less 
                than 10 percent of the proceeds of the issue.
                    ``(B) Qualified contributions.--For purposes of 
                subparagraph (A), the term `qualified contribution' 
                means any contribution (of a type and quality 
                acceptable to the local educational agency) of--
                            ``(i) equipment for use in the qualified 
                        zone academy (including state-of-the-art 
                        technology and vocational equipment),
                            ``(ii) technical assistance in developing 
                        curriculum or in training teachers in order to 
                        promote appropriate market driven technology in 
                        the classroom,
                            ``(iii) services of employees as volunteer 
                        mentors,
                            ``(iv) internships, field trips, or other 
                        educational opportunities outside the academy 
                        for students, or
                            ``(v) any other property or service 
                        specified by the local educational agency.
            ``(3) Qualified zone academy.--The term `qualified zone 
        academy' means any public school (or academic program within a 
        public school) which is established by and operated under the 
        supervision of a local educational agency to provide education 
        or training below the postsecondary level if--
                    ``(A) such public school or program (as the case 
                may be) is designed in cooperation with business to 
                enhance the academic curriculum, increase graduation 
                and employment rates, and better prepare students for 
                the rigors of college and the increasingly complex 
                workforce,
                    ``(B) students in such public school or program (as 
                the case may be) will be subject to the same academic 
                standards and assessments as other students educated by 
                the local educational agency,
                    ``(C) the comprehensive education plan of such 
                public school or program is approved by the local 
                educational agency, and
                    ``(D)(i) such public school is located in an 
                empowerment zone or enterprise community (including any 
                such zone or community designated after the date of the 
                enactment of this section), or
                    ``(ii) there is a reasonable expectation (as of the 
                date of issuance of the bonds) that at least 35 percent 
                of the students attending such school or participating 
                in such program (as the case may be) will be eligible 
for free or reduced-cost lunches under the school lunch program 
established under the National School Lunch Act.
            ``(4) Qualified purpose.--The term `qualified purpose' 
        means, with respect to any qualified zone academy--
                    ``(A) constructing, rehabilitating, or repairing 
                the public school facility in which the academy is 
                established,
                    ``(B) providing equipment for use at such academy,
                    ``(C) developing course materials for education to 
                be provided at such academy, and
                    ``(D) training teachers and other school personnel 
                in such academy.
            ``(5) Temporary period exception.--A bond shall not be 
        treated as failing to meet the requirement of paragraph (1)(A) 
        solely by reason of the fact that the proceeds of the issue of 
        which such bond is a part are invested for a reasonable 
        temporary period (but not more than 36 months) until such 
        proceeds are needed for the purpose for which such issue was 
        issued. Any earnings on such proceeds during such period shall 
        be treated as proceeds of the issue for purposes of applying 
        paragraph (1)(A).
    ``(b) Limitations on Amount of Bonds Designated.--
            ``(1) In general.--There is a national zone academy bond 
        limitation for each calendar year. Such limitation is--
                    ``(A) $400,000,000 for 1998,
                    ``(B) $1,400,000,000 for 1999,
                    ``(C) $1,400,000,000 for 2000, and
                    ``(D) except as provided in paragraph (3), zero 
                after 2000.
            ``(2) Allocation of limitation.--
                    ``(A) Allocation among states.--
                            ``(i) 1998 limitation.--The national zone 
                        academy bond limitation for calendar year 1998 
                        shall be allocated by the Secretary among the 
                        States on the basis of their respective 
                        populations of individuals below the poverty 
                        line (as defined by the Office of Management 
                        and Budget).
                            ``(ii) Limitation after 1998.--The national 
                        zone academy bond limitation for any calendar 
                        year after 1998 shall be allocated by the 
                        Secretary among the States in the manner 
                        prescribed by section 1397G(d); except that, in 
                        making the allocation under this clause, the 
                        Secretary shall take into account Basic Grants 
                        attributable to large local educational 
                        agencies (as defined in section 1397G(e)).
                    ``(B) Allocation to local educational agencies.--
                The limitation amount allocated to a State under 
                subparagraph (A) shall be allocated by the State 
                education agency to qualified zone academies within 
                such State.
                    ``(C) Designation subject to limitation amount.--
                The maximum aggregate face amount of bonds issued 
                during any calendar year which may be designated under 
                subsection (a) with respect to any qualified zone 
                academy shall not exceed the limitation amount 
                allocated to such academy under subparagraph (B) for 
                such calendar year.
            ``(3) Carryover of unused limitation.--If for any calendar 
        year--
                    ``(A) the limitation amount under this subsection 
                for any State, exceeds
                    ``(B) the amount of bonds issued during such year 
                which are designated under subsection (a) with respect 
                to qualified zone academies within such State,
        the limitation amount under this subsection for such State for 
        the following calendar year shall be increased by the amount of 
        such excess. The preceding sentence shall not apply if such 
        following calendar year is after 2002.

``SEC. 1397G. QUALIFIED SCHOOL CONSTRUCTION BONDS.

    ``(a) Qualified School Construction Bond.--For purposes of this 
part, 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, rehabilitation, or repair of a 
        public school facility,
            ``(2) the bond is issued by a State or local government 
        within the jurisdiction of which such school is located,
            ``(3) the issuer designates such bond for purposes of this 
        section, and
            ``(4) the term of each bond which is part of such issue 
        does not exceed 15 years.
Rules similar to the rules of section 1397F(a)(5) shall apply for 
purposes of paragraph (1).
    ``(b) Limitation on Amount of Bonds Designated.--The maximum 
aggregate face amount of bonds issued during any calendar year which 
may be designated under subsection (a) by any issuer shall not exceed 
the sum of--
            ``(1) the limitation amount allocated under subsection (d) 
        for such calendar year to such issuer, and
            ``(2) if such issuer is a large local educational agency 
        (as defined in subsection (e)) 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 construction bond limitation for each 
calendar year. Such limitation is--
            ``(1) $9,700,000,000 for 1999,
            ``(2) $9,700,000,000 for 2000, and
            ``(3) except as provided in subsection (f), zero after 
        2000.
    ``(d) Half of Limitation Allocated Among States.--
            ``(1) In general.--One-half of the limitation applicable 
        under subsection (c) for any calendar year shall be allocated 
        among the States under paragraph (2) by the Secretary. The 
        limitation amount allocated to a State under the preceding 
        sentence shall be allocated by the State education agency to 
        issuers within such State and such allocations may be made only 
        if there is an approved State application.
            ``(2) Allocation formula.--The amount to be allocated under 
        paragraph (1) for any calendar year shall be allocated among 
        the States in proportion to the respective amounts each such 
        State 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. For purposes of the preceding 
        sentence, Basic Grants attributable to large local educational 
        agencies (as defined in subsection (e)) shall be disregarded.
            ``(3) 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 educational 
                        agencies in such State for such year,
                is not less than an amount equal to such State's 
                minimum percentage of one-half of the national 
                qualified school construction bond limitation under 
                subsection (c) for the calendar 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 Education Act of 1965 (20 
                U.S.C. 6334(d)) for such State for the most recent 
                fiscal year ending before such calendar year.
            ``(4) Allocations to certain possessions.--The amount to be 
        allocated under paragraph (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 allocated under 
paragraph (1) shall be reduced by the aggregate amount allocated under 
this paragraph to possessions of the United States.
            ``(5) Approved state application.--For purposes of 
        paragraph (1), the term `approved State application' means an 
        application which is approved by the Secretary of Education and 
        which includes--
                    ``(A) the results of a recent publicly-available 
                survey (undertaken by the State with the involvement of 
                local education officials, members of the public, and 
experts in school construction and management) of such State's needs 
for public school facilities, including descriptions of--
                            ``(i) health and safety problems at such 
                        facilities,
                            ``(ii) the capacity of public schools in 
                        the State to house projected enrollments, and
                            ``(iii) the extent to which the public 
                        schools in the State offer the physical 
                        infrastructure needed to provide a high-quality 
                        education to all students, and
                    ``(B) a description of how the State will allocate 
                to local educational agencies, or otherwise use, its 
                allocation under this subsection to address the needs 
                identified under subparagraph (A), including a 
                description of how it will--
                            ``(i) give highest priority to localities 
                        with the greatest needs, as demonstrated by 
                        inadequate school facilities coupled with a low 
                        level of resources to meet those needs,
                            ``(ii) use its allocation under this 
                        subsection to assist localities that lack the 
                        fiscal capacity to issue bonds on their own, 
                        and
                            ``(iii) ensure that its allocation under 
                        this subsection is used only to supplement, and 
                        not supplant, the amount of school 
                        construction, rehabilitation, and repair in the 
                        State that would have occurred in the absence 
                        of such allocation.
        Any allocation under paragraph (1) by a State education agency 
        shall be binding if such agency reasonably determined that the 
        allocation was in accordance with the plan approved under this 
        paragraph.
    ``(e) Half of Limitation Allocated Among Largest School 
Districts.--
            ``(1) In general.--One-half of the limitation applicable 
        under subsection (c) for any calendar year shall be allocated 
        under paragraph (2) by the Secretary among local educational 
        agencies which are large local educational agencies for such 
        year. No qualified school construction bond may be issued by 
        reason of an allocation to a large local educational agency 
        under the preceding sentence unless such agency has an approved 
        local application.
            ``(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) Large local educational agency.--For purposes of this 
        section, the term `large local educational agency' means, with 
        respect to a calendar 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 Secretary 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 educational 
                agencies (other than those described in clause (i)) 
                that the Secretary of Education 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.
            ``(4) Approved local application.--For purposes of 
        paragraph (1), the term `approved local application' means an 
        application which is approved by the Secretary of Education and 
        which includes--
                    ``(A) the results of a recent publicly-available 
                survey (undertaken by the local educational agency with 
                the involvement of school officials, members of the 
                public, and experts in school construction and 
                management) of such agency's needs for public school 
                facilities, including descriptions of--
                            ``(i) the overall condition of the local 
                        educational agency's school facilities, 
                        including health and safety problems,
                            ``(ii) the capacity of the agency's schools 
                        to house projected enrollments, and
                            ``(iii) the extent to which the agency's 
                        schools offer the physical infrastructure 
                        needed to provide a high-quality education to 
                        all students,
                    ``(B) a description of how the local educational 
                agency will use its allocation under this subsection to 
                address the needs identified under subparagraph (A), 
                and
                    ``(C) a description of how the local educational 
                agency will ensure that its allocation under this 
                subsection is used only to supplement, and not 
                supplant, the amount of school construction, 
                rehabilitation, or repair in the locality that would 
                have occurred in the absence of such allocation.
        A rule similar to the rule of the last sentence of subsection 
        (d)(5) shall apply for purposes of this paragraph.
    ``(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) pursuant 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 (e). The subsection shall not apply if such following 
calendar year is after 2002.''.
    (b) Reporting.--Subsection (d) of section 6049 of such Code 
(relating to returns regarding payments of interest) is amended by 
adding at the end the following new paragraph:
            ``(8) Reporting of credit on qualified public school 
        modernization bonds.--
                    ``(A) In general.--For purposes of subsection (a), 
                the term `interest' includes amounts includible in 
                gross income under section 1397E(f) and such amounts 
                shall be treated as paid on the credit allowance date 
                (as defined in section 1397E(d)(2)).
                    ``(B) Reporting to corporations, etc.--Except as 
                otherwise provided in regulations, in the case of any 
                interest described in subparagraph (A) of this 
                paragraph, subsection (b)(4) of this section shall be 
                applied without regard to subparagraphs (A), (H), (I), 
                (J), (K), and (L)(i).
                    ``(C) Regulatory authority.--The Secretary may 
                prescribe such regulations as are necessary or 
                appropriate to carry out the purposes of this 
                paragraph, including regulations which require more 
                frequent or more detailed reporting.''
    (c) Clerical Amendments.--
            (1) The table of parts for subchapter U of chapter 1 of 
        such Code is amended by striking the item relating to part IV 
        and inserting the following new item:

                              ``Part IV. Incentives for qualified 
                                        public school modernization 
                                        bonds.''.
            (2) Part V of subchapter U of chapter 1 of such Code is 
        amended by redesignating both section 1397F and the item 
        relating thereto in the table of sections for such part as 
        section 1397H.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to obligations 
        issued after December 31, 1998.
            (2) Repeal of restriction on zone academy bond holders.--
        The repeal of the limitation of section 1397E of the Internal 
        Revenue Code of 1986 (as in effect on the day before the date 
        of the enactment of this Act) to eligible taxpayers (as defined 
        in subsection (d)(6) of such section) shall apply to 
        obligations issued after December 31, 1997.
                                 <all>