[Congressional Record Volume 147, Number 13 (Wednesday, January 31, 2001)]
[Extensions of Remarks]
[Pages E79-E80]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     INTRODUCTION OF THE PUBLIC SCHOOL CONSTRUCTION PARTNERSHIP ACT

                                 ______
                                 

                         HON. E. CLAY SHAW, JR.

                               of florida

                    in the house of representatives

                      Wednesday, January 31, 2001

  Mr. SHAW. Mr. Speaker, today, along with my colleagues Congressmen 
Paul and Petri, I am introducing the Public School Construction 
Partnership Act, to help our public schools meet the need for school 
modernization, new classrooms and the repair of old and aging 
facilities.
  I represent three of the fifteen largest school districts in the 
country--the Miami-Dade County Public School District is the nation's 
fourth largest school district, the Broward County School District is 
the nation's fifth largest, and the Palm Beach County School District 
is the fifteenth largest. Public school children attend classes in 296 
elementary, middle and senior high schools in Miami-Dade County, 178 in 
Broward County, and 137 in Palm Beach County. Many classes are held in 
temporary classrooms, many of the buildings are in need of repairs, and 
the student population in the state of Florida is expected to grow 25 
percent faster than the overall population. This makes the need for new 
school construction and renovation of old ones critical.
  Public schools need new ways to raise revenue to meet the problems 
caused by growth and overcrowding. The financing needs faced by an 
urban school district may not be of the same nature or scope as those 
of a rural district. At the same time we need to reduce construction 
costs and promote school construction efficiencies to ensure that 
dollars are spent wisely and effectively. This bill is a meaningful 
step in those directions. Four different approaches to financing new 
public school construction and repairing older schools are provided for 
in this legislation.
  First, in order to encourage private-sector participation and avoid 
debt capacity problems for states and localities, the bill would allow 
school districts to make use of public-private partnerships in issuing 
private activity bonds for the construction or improvement of public 
educational facilities. Private activity bonds can now be issued to 
finance 12 types of activities such as airports, docks and wharves, 
qualified residential rental projects, and qualified hazardous waste 
facilities. It makes sense to be able to issue them for the 
construction and rehabilitation of public schools.
  In order to qualify for the bonds, public-private partnerships would 
build school facilities and lease them to the school district. At the 
end of the lease term the facilities would revert back to the school 
district of no additional consideration. Alternatively, a school 
district could sell their old facilities to such a partnership, which 
would then refurbish them, and lease the refurbished facilities back to 
the school district. The proceeds from the sale could then be used by 
the district to build new classrooms. This allows the school district 
to leverage investment in school facilities without having to borrow by 
issuing tax-exempt bonds.
  The bonds would be exempt from the annual state volume caps on 
private activity bonds, but would be subject to their own annual per-
state caps equal to the greater of $10 per capita or $5 million. This 
bill leaves to the states the manner in which the per-state amount is 
to be allocated.
  Second, the bill provides for a 4-year safe harbor for exemption from 
the arbitrage rules. To prevent state and local governments from 
issuing tax-exempt bonds and using the proceeds to invest in higher 
yielding investments to earn investment income (thereby earning 
arbitrage profits), arbitrage restrictions are placed on the use of tax 
exempt bonds. In the case of tax-exempt bonds use to finance school 
construction and renovation, the bond proceeds must be spent at certain 
rates on construction within 24 months of being issued. The bill would 
extend the 24-month period to 4 years for school bonds as long as the 
proceeds were spent at certain rates within this period. It is 
difficult for school districts to comply with the present 24-month 
period when funding different projects from a single issuance of bonds. 
The increase in the time period would give school districts greater 
flexibility in planning construction projects and more money with which 
to build and repair schools.
  Tax exempt bonds issued by small governments are not subject to the 
arbitrage restrictions as long as no more than $10 million of bonds are 
issued in any year. In order to provide relief to small and rural 
school districts undertaking school construction and rehabilitation 
activities, the third approach undertaken by the bill is to raise the 
exemption to $15 million as long as at least $10 million of the bonds 
were used for public school construction.
  Fourth, the bill would permit banks to invest in up to $25 million of 
tax exempt bonds issued by school districts for public school 
construction without disallowance of a deduction for interest expense. 
Currently, banks are allowed to purchase only $10 million without

[[Page E80]]

being subject to disallowance of interest expense. Banks traditionally 
have been an important purchaser of last resort of tax exempt bonds. 
Increasing the amount of bonds that can be purchased by banks without 
penalty will allow school districts to sell their bonds to banks, 
thereby avoiding having to incur the expense of accessing the capital 
markets.
  This legislation offers an innovative approach to help finance the 
building and rehabilitation of our public schools, which is so vital to 
improving our education system. The creation of the public/private 
partnerships would speed up the construction of new public schools that 
are urgently needed. The bill gives our school districts the 
flexibility they need to tailor their financing needs to their 
individual situations.
  This legislation can help our public schools to construct and repair 
needed facilities to educate our children, and I urge my colleagues to 
join me in seeking its enactment.

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