[House Report 105-577]
[From the U.S. Government Publishing Office]
105th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 105-577
_______________________________________________________________________
EDUCATION SAVINGS AND SCHOOL EXCELLENCE ACT OF 1998
_______
June 15, 1998. Ordered to be printed
_______________________________________________________________________
Mr. Archer, from the committee of conference, submitted the following
CONFERENCE REPORT
[To accompany H.R. 2646 ]
The committee of conference on the disagreeing votes of the
two Houses on the amendment of the Senate to the bill (H.R.
2646), to amend the Internal Revenue Code of 1986 to allow tax-
free expenditures from education individual retirement accounts
for elementary and secondary school expenses, to increase the
maximum annual amount of contributions to such accounts, and
for other purposes, having met, after full and free conference,
have agreed to recommend and do recommend to their respective
Houses as follows:
That the House recede from its disagreement to the
amendment of the Senate and agree to the same with an amendment
as follows:
In lieu of the matter proposed to be inserted by the Senate
amendment, insert the following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Education Savings and School
Excellence Act of 1998''.
TITLE I--TAX INCENTIVES FOR EDUCATION
SEC. 100. AMENDMENT TO 1986 CODE.
Except as otherwise expressly provided, whenever in this
title an amendment or repeal is expressed in terms of an
amendment to, or repeal of, a section or other provision, the
reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
Subtitle A--Tax Incentives For Education
SEC. 101. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.
(a) Tax-Free Expenditures for Elementary and Secondary
School Expenses.--
(1) In general.--Section 530(b)(2) (defining
qualified higher education expenses) is amended to read
as follows:
``(2) Qualified education expenses.--
``(A) In general.--The term `qualified
education expenses' means--
``(i) qualified higher education
expenses (as defined in section
529(e)(3)), and
``(ii) qualified elementary and
secondary education expenses (as
defined in paragraph (4)).
Such expenses shall be reduced as provided in
section 25A(g)(2).
``(B) Qualified state tuition programs.--
Such term shall include amounts paid or
incurred to purchase tuition credits or
certificates, or to make contributions to an
account, under a qualified State tuition
program (as defined in section 529(b)) for the
benefit of the beneficiary of the account.''.
(2) Qualified elementary and secondary education
expenses.--Section 530(b) (relating to definitions and
special rules) is amended by adding at the end the
following new paragraph:
``(4) Qualified elementary and secondary education
expenses.--
``(A) In general.--The term `qualified
elementary and secondary education expenses'
means--
``(i) expenses for tuition, fees,
academic tutoring, special needs
services, books, supplies, computer
equipment (including related software
and services), and other equipment
which are incurred in connection with
the enrollment or attendance of the
designated beneficiary of the trust as
an elementary or secondary school
student at a public, private, or
religious school, or
``(ii) expenses for room and board,
uniforms, transportation, and
supplementary items and services
(including extended day programs) which
are required or provided by a public,
private, or religious school in
connection with such enrollment or
attendance.
``(B) Special rule for homeschooling.--Such
term shall include expenses described in
subparagraph (A)(i) in connection with
education provided by homeschooling if the
requirements of any applicable State or local
law are met with respect to such education.
``(C) School.--The term `school' means any
school which provides elementary education or
secondary education (kindergarten through grade
12), as determined under State law.''.
(3) Special rules for applying exclusion to
elementary and secondary expenses.--Section 530(d)(2)
(relating to distributions for qualified higher
education expenses), as amended by subsection (e), is
amended by adding at the end the following new
subparagraph:
``(E) Special rules for elementary and
secondary expenses.--
``(i) In general.--The aggregate
amount of qualified elementary and
secondary education expenses taken into
account for purposes of this paragraph
with respect to any education
individual retirement account for all
taxable years shall not exceed the sum
of the aggregate contributions to such
account for taxable years beginning
after December 31, 1998, and before
January 1, 2003, and earnings on such
contributions.
``(ii) Special operating rules.--
For purposes of clause (i)--
``(I) the trustee of an
education individual retirement
account shall keep separate
accounts with respect to
contributions and earnings
described in clause (i), and
``(II) if there are
distributions in excess of
qualified elementary and
secondary education expenses
for any taxable year, such
excess distributions shall be
allocated first to
contributions and earnings not
described in clause (i).''.
(4) Conforming amendments.--Subsections (b)(1) and
(d)(2) of section 530 are each amended by striking
``higher'' each place it appears in the text and
heading thereof.
(b) Maximum Annual Contributions.--
(1) In general.--Section 530(b)(1)(A)(iii)
(defining education individual retirement account) is
amended by striking ``$500'' and inserting ``the
contribution limit for such taxable year''.
(2) Contribution limit.--Section 530(b) (relating
to definitions and special rules), as amended by
subsection (a)(2), is amended by adding at the end the
following new paragraph:
``(5) Contribution limit.--The term `contribution
limit' means $500 ($2,000 in the case of any taxable
year beginning after December 31, 1998, and ending
before January 1, 2003).''.
(3) Conforming amendment.--Section 4973(e)(1)(A) is
amended by striking ``$500'' and inserting ``the
contribution limit (as defined in section 530(b)(5))
for such taxable year''.
(c) Waiver of Age Limitations for Children With Special
Needs.--Section 530(b)(1) (defining education individual
retirement account) is amended by adding at the end the
following flush sentence:
``The age limitations in the preceding sentence shall
not apply to any designated beneficiary with special
needs (as determined under regulations prescribed by
the Secretary).''.
(d) Corporations Permitted To Contribute to Accounts.--
Section 530(c)(1) (relating to reduction in permitted
contributions based on adjusted gross income) is amended by
striking ``The maximum amount which a contributor'' and
inserting ``In the case of a contributor who is an individual,
the maximum amount the contributor''.
(e) Technical Corrections.--
(1) Section 530(b)(1) is amended by inserting ``an
individual who is'' before ``the designated
beneficiary'' in the material preceding subparagraph
(A).
(2)(A) Section 530(b)(1)(E) is amended to read as
follows:
``(E) Except as provided in subsection
(d)(7), any balance to the credit of the
designated beneficiary on the date on which the
beneficiary attains age 30 shall be distributed
within 30 days after such date to the
beneficiary or, if the beneficiary dies before
attaining age 30, shall be distributed within
30 days after the date of death of such
beneficiary.''.
(B) Section 530(d)(7) is amended by inserting at
the end the following new sentence: ``In applying the
preceding sentence, members of the family of the
designated beneficiary shall be treated in the same
manner as the spouse under such paragraph (8).''.
(C) Section 530(d) is amended by adding at the end
the following new paragraph:
``(8) Deemed distribution on required distribution
date.--In any case in which a distribution is required
under subsection (b)(1)(E), any balance to the credit
of a designated beneficiary as of the close of the 30-
day period referred to in such subsection for making
such distribution shall be deemed distributed at the
close of such period.''.
(3)(A) Section 530(d)(1) is amended by striking
``section 72(b)'' and inserting ``section 72''.
(B) Section 72(e) is amended by inserting after
paragraph (8) the following new paragraph:
``(9) Extension of paragraph (2)(b) to qualified
state tuition programs and educational individual
retirement accounts.--Notwithstanding any other
provision of this subsection, paragraph (2)(B) shall
apply to amounts received under a qualified State
tuition program (as defined in section 529(b)) or under
an education individual retirement account (as defined
in section 530(b)). The rule of paragraph (8)(B) shall
apply for purposes of this paragraph.''.
(4) Section 135(d)(2) is amended to read as
follows:
``(2) Coordination with other higher education
benefits.--The amount of the qualified higher education
expenses otherwise taken into account under subsection
(a) with respect to the education of an individual
shall be reduced (before the application of subsection
(b)) by--
``(A) the amount of such expenses which are
taken into account in determining the credit
allowable to the taxpayer or any other person
under section 25A with respect to such
expenses, and
``(B) the amount of such expenses which are
taken into account in determining the exclusion
under section 530(d)(2).''.
(5) Section 530(d)(2) is amended by adding at the
end the following new subparagraph:
``(D) Disallowance of excluded amounts as
credit or deduction.--No deduction or credit
shall be allowed to the taxpayer under any
other section of this chapter for any qualified
education expenses to the extent taken into
account in determining the amount of the
exclusion under this paragraph.''.
(6) Section 530(d)(4)(B) is amended by striking
``or'' at the end of clause (ii), by striking the
period at the end of clause (iii) and inserting ``,
or'', and by adding at the end the following new
clause:
``(iv) an amount which is
includible in gross income solely
because the taxpayer elected under
paragraph (2)(C) to waive the
application of paragraph (2) for the
taxable year.''.
(7) So much of section 530(d)(4)(C) as precedes
clause (ii) thereof is amended to read as follows:
``(C) Contributions returned before due
date of return.--Subparagraph (A) shall not
apply to the distribution of any contribution
made during a taxable year on behalf of the
designated beneficiary if--
``(i) such distribution is made on
or before the day prescribed by law
(including extensions of time) for
filing the beneficiary's return of tax
for the taxable year or, if the
beneficiary is not required to file
such a return, the 15th day of the 4th
month of the taxable year following the
taxable year, and''.
(8) Section 135(c)(2)(C) is amended--
(A) by inserting ``and education individual
retirement accounts'' in the heading after
``program'', and
(B) by striking ``section 529(c)(3)(A)''
and inserting ``section 72''.
(9) Section 4973(e)(1) is amended to read as
follows:
``(1) In general.--In the case of education
individual retirement accounts maintained for the
benefit of any 1 beneficiary, the term `excess
contributions' means the sum of--
``(A) the amount by which the amount
contributed for the taxable year to such
accounts exceeds $500 (or, if less, the sum of
the maximum amounts permitted to be contributed
under section 530(c) by the contributors to
such accounts for such year),
``(B) if any amount is contributed during
such year to a qualified State tuition program
for the benefit of such beneficiary, any amount
contributed to such accounts for such taxable
year, and
``(C) the amount determined under this
subsection for the preceding taxable year,
reduced by the sum of--
``(i) the distributions out of the
accounts for the taxable year which are
included in gross income, and
``(ii) the excess (if any) of the
maximum amount which may be contributed
to the accounts for the taxable year
over the amount contributed to the
accounts for the taxable year.''.
(10)(A) Paragraph (5) of section 530(d) is amended
by striking the first sentence and inserting the
following new sentence: ``Paragraph (1) shall not apply
to any amount paid or distributed from an education
individual retirement account to the extent that the
amount received is paid, not later than the 60th day
after the date of such payment or distribution, into
another education individual retirement account for the
benefit of the same beneficiary or a member of the
family (within the meaning of section 529(e)(2) of such
beneficiary who has not attained age 30 as of such
date.''
(B) Paragraph (6) of section 530(d) is amended by
inserting before the period ``and has not attained age
30 as of the date of such change''.
(f) Effective Dates.--
(1) In general.--Except as provided in paragraph
(2), the amendments made by this section shall apply to
taxable years beginning after December 31, 1998.
(2) Technical corrections.--The amendments made by
subsection (e) shall take effect as if included in the
amendments made by section 213 of the Taxpayer Relief
Act of 1997.
SEC. 102. EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBUTIONS FROM
QUALIFIED STATE TUITION PROGRAMS.
(a) In General.--Section 529(c)(3)(B) (relating to
distributions) is amended to read as follows:
``(B) Distributions for qualified higher
education expenses.--
``(i) In general.--No amount shall
be includible in gross income under
subparagraph (A) if the qualified
higher education expenses of the
designated beneficiary during the
taxable year are not less than the
aggregate distributions during the
taxable year.
``(ii) Distributions in excess of
expenses.--If such aggregate
distributions exceed such expenses
during the taxable year, the amount
otherwise includible in gross income
under subparagraph (A) shall be reduced
by the amount which bears the same
ratio to the amount so includible
(without regard to this subparagraph)
as such expenses bear to such aggregate
distributions.
``(iii) Election to waive
exclusion.--A taxpayer may elect to
waive the application of this
subparagraph for any taxable year.
``(iv) In-kind distributions.--Any
benefit furnished to a designated
beneficiary under a qualified State
tuition program shall be treated as a
distribution to the beneficiary for
purposes of this paragraph.
``(v) Disallowance of excluded
amounts as credit or deduction.--No
deduction or credit shall be allowed to
the taxpayer under any other section of
this chapter for any qualified higher
education expenses to the extent taken
into account in determining the amount
of the exclusion under this
paragraph.''.
(b) Definition of Qualified Higher Education Expenses.--
Section 529e)(3)(A) (defining qualified higher education
expenses) is amended to read as follows:
``(A) In general.--The term `qualified
higher education expenses' means expenses for
tuition, fees, academic tutoring, special needs
services, books, supplies, computer equipment
(including related software and services), and
other equipment which are incurred in
connection with the enrollment or attendance of
the designated beneficiary at an eligible
educational institution.''.
(c) Coordination With Education Credits.--Section 25A(e)(2)
(relating to coordination with exclusions) is amended--
(1) by inserting ``a qualified State tuition
program or'' before ``an education individual
retirement account'', and
(2) by striking ``section 530(d)(2)'' and inserting
``section 529(c)(3)(B) or 530(d)(2)''.
(d) Eligible Educational Institutions Permitted to Maintain
Qualified Tuition Programs.--
(1) In general.--Section 529(b)(1) (defining
qualified State tuition program) is amended by
inserting ``or, in the case of taxable years beginning
after December 31, 2005, by 1 or more eligible
educational institutions'' after ``maintained by a
State or agency or instrumentality thereof''.
(2) Private qualified tuition programs limited to
benefit plans.--Section 529(b)(1) is amended by adding
at the end the following flush sentence:
``Clause (ii) of subparagraph (A) shall only apply to a
program established and maintained by a State or agency
or instrumentality thereof.''.
(3) Limitation on contributions to private
qualified tuition programs.--Section 529(b) is amended
by adding at the end the following new paragraph:
``(8) Limitation on contributions to private
qualified tuition programs.--In the case of a program
not established and maintained by a State or agency or
instrumentality thereof, such program shall not be
treated as a qualified tuition program unless it limits
the annual contribution to the program on behalf of a
designated beneficiary to an amount equal to the lesser
of--
``(A) $5,000, or
``(B) the excess of--
``(i) $50,000, over
``(ii) the aggregate amount
contributed to such program on behalf
of such beneficiary for all prior
taxable years.''.
(4) Tax on excess contributions.--
(A) In general.--Section 4973(a) (relating
to tax imposed) is amended by striking ``or''
at the end of paragraph (3), by inserting
``or'' at the end of paragraph (4), and by
inserting after paragraph (4) the following new
paragraph:
``(5) a private qualified tuition program (as
defined in subsection (g)),''.
(B) Excess contributions defined.--Section
4973 is amended by adding at the end the
following new subsection:
``(g) Excess Contributions to Private Qualified Tuition
Program.--For purposes of this section--
``(1) In general.--In the case of private qualified
tuition programs, the term `excess contributions'
means, with respect to any 1 beneficiary--
``(A) the amount by which the amounts
contributed for the taxable year to such
programs exceed the lesser of--
``(i) $5,000, or
``(ii) the excess of--
``(I) $50,000, over
``(II) the aggregate amount
contributed to all private
qualified tuition programs on
behalf of such beneficiary for
all prior taxable years, and
``(B) the amount determined under this
subsection for the preceding taxable year,
reduced by the sum of--
``(i) the distributions out of such
programs for the taxable year which are
included in gross income, and
``(ii) the excess (if any) of the
maximum amount which may be contributed
to such programs for the taxable year
over the amount contributed to such
programs for the taxable year.
``(2) Special rule if contributions made to a state
tuition program or an education individual retirement
account.--Notwithstanding paragraph (1), with respect
to any 1 beneficiary, the amount contributed to a
private qualified tuition program for any taxable year
shall be treated as excess contributions if any amount
is contributed during such year for the benefit of such
beneficiary to--
``(A) a qualified tuition program (as
defined in section 529) that is established and
maintained by a State or any agency or
instrumentality thereof, or
``(B) an education individual retirement
account (as defined in section 530).
``(3) Special rules.--The contributions described
in subsection (e)(2) shall not be taken into account.
``(4) Private qualified tuition program.--The term
`private qualified tuition program' means a qualified
tuition program (as defined in section 529) not
established and maintained by a State or any agency or
instrumentality thereof.''.
(5) Technical amendments.--
(A) The text of each of the sections
72(e)(9), 529, 530(b)(2)(B), and 4973(e)(1)(B)
is amended by striking ``qualified State
tuition program'' each place it appears and
inserting ``qualified tuition program''.
(B)(i) The section heading of section 529
is amended to read as follows:
``SEC. 529. QUALIFIED TUITION PROGRAMS.''.
(ii) The item relating to section 529 in
the table of sections for part VIII of
subchapter F of chapter 1 is amended by
striking ``State''.
(e) Technical Corrections.--
(1) Section 135(c)(3) is amended to read as
follows:
``(3) Eligible educational institution.--The term
`eligible educational institution' has the meaning
given such term by section 529(e)(5).''.
(2) Section 529(c)(3)(A) is amended by striking
``section 72(b)'' and inserting ``section 72''.
(3) Section 529(e)(2) is amended to read as
follows:
``(2) Member of family.--The term `member of the
family' means, with respect to any designated
beneficiary--
``(A) the spouse of such beneficiary,
``(B) an individual who bears a
relationship to such beneficiary which is
described in paragraphs (1) through (8) of
section 152(a), and
``(C) the spouse of any individual
described in subparagraph (B).''.
(f) Effective Dates.--
(1) In general.--Except as provided in paragraphs
(2) and (3), the amendments made by this section shall
apply to taxable years beginning after December 31,
1998.
(2) Eligible educational institutions permitted to
maintain qualified tuition programs.--The amendments
made by subsection (d) shall apply to taxable years
beginning after December 31, 2005.
(3) Technical corrections.--The amendments made by
subsection (e) shall take effect as if included in the
amendments made by section 211 of the Taxpayer Relief
Act of 1997.
SEC. 103. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL
ASSISTANCE.
Section 127(d) (relating to termination of exclusion for
educational assistance programs) is amended by striking ``May
31, 2000'' and inserting ``December 31, 2002''.
SEC. 104. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION FOR
GOVERNMENTAL BONDS USED TO FINANCE EDUCATION
FACILITIES.
(a) In General.--Section 148(f)(4)(D)(vii) (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''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to obligations issued after December 31, 1998.
SEC. 105. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE NATIONAL
HEALTH CORPS SCHOLARSHIP PROGRAM AND THE F. EDWARD
HEBERT ARMED FORCES HEALTH PROFESSIONS SCHOLARSHIP
AND FINANCIAL ASSISTANCE PROGRAM.
(a) In General.--Section 117(c) (relating to the exclusion
from gross income amounts received as a qualified scholarship)
is amended--
(1) by striking ``Subsections (a)'' and inserting
the following:
``(1) In general.--Except as provided in paragraph
(2), subsections (a)''; and
(2) by adding at the end the following new
paragraph:
``(2) Exceptions.--Paragraph (1) shall not apply to
any amount received by an individual under--
``(A) the National Health Corps Scholarship
Program under section 338A(g)(1)(A) of the
Public Health Service Act, or
``(B) the Armed Forces Health Professions
Scholarship and Financial Assistance program
under subchapter I of chapter 105 of title 10,
United States Code.''.
(b) Effective Date.--The amendments made by subsection (a)
shall apply to amounts received in taxable years beginning
after December 31, 1993.
Subtitle B--Revenue
SEC. 111. OVERRULING OF SCHMIDT BAKING COMPANY CASE.
(a) In General.--Section 404(a) (relating to general rule)
is amended by adding at the end the following new paragraph:
``(11) Determinations relating to deferred
compensation.--For purposes of determining under this
section--
``(A) whether compensation of an employee
is deferred compensation, and
``(B) when deferred compensation is paid,
no amount shall be treated as received by the employee,
or paid, until it is actually received by the
employee.''.
(b) Effective Date.--
(1) In general.--The amendment made by subsection
(a) shall apply to taxable years ending after December
31, 2001.
(2) Phase-in of increase.--In the case of the first
taxable year of the taxpayer ending after December 31,
2001, only 60 percent of the amount of the increase in
tax resulting from the amendment made by subsection (a)
shall be taken into account for purposes of sections
6654 and 6655 of the Internal Revenue Code of 1986
(relating to failure to pay estimated income tax).
(3) Change in method of accounting.--In the case of
any taxpayer required by this section to change its
method of accounting for its first taxable year ending
after December 31, 2001--
(A) such change shall be treated as
initiated by the taxpayer,
(B) such change shall be treated as made
with the consent of the Secretary of the
Treasury, and
(C) the net amount of the adjustments
required to be taken into account by the
taxpayer under section 481 of the Internal
Revenue Code of 1986 shall be taken into
account in such first taxable year.
Subtitle C--Identification of Limited Tax Benefits Subject To Line Item
Veto
SEC. 121. IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO LINE ITEM
VETO.
Section 1021(a)(3) of the Congressional Budget and
Impoundment Control Act of 1974 shall only apply to section
104(a) (relating to additional increase in arbitrage rebate
exception for governmental bonds used to finance education
facilities).
TITLE II--MEASURES TO ENCOURAGE RESULTS IN TEACHING
SEC. 201. STATE INCENTIVES FOR TEACHER TESTING AND MERIT PAY.
(a) Short Title.--This section may be cited as the
``Measures to Encourage Results in Teaching Act of 1998''.
(b) Findings.--Congress makes the following findings:
(1) All students deserve to be taught by well-
educated, competent, and qualified teachers.
(2) More than ever before, education has and will
continue to become the ticket not only to economic
success but to basic survival. Students will not
succeed in meeting the demands of a knowledge-based,
21st century society and economy if the students do not
encounter more challenging work in school. For future
generations to have the opportunities to achieve
success the future generations will need to have an
education and a teacher workforce second to none.
(3) No other intervention can make the difference
that a knowledgeable, skillful teacher can make in the
learning process. At the same time, nothing can fully
compensate for weak teaching that, despite good
intentions, can result from a teacher's lack of
opportunity to acquire the knowledge and skill needed
to help students master the curriculum.
(4) The Federal Government established the Dwight
D. Eisenhower Professional Development Program in 1985
to ensure that teachers and other educational staff
have access to sustained and high-quality professional
development. This ongoing development must include the
ability to demonstrate and judge the performance of
teachers and other instructional staff.
(5) States should evaluate their teachers on the
basis of demonstrated ability, including tests of
subject matter knowledge, teaching knowledge, and
teaching skill. States should develop a test for their
teachers and other instructional staff with respect to
the subjects taught by the teachers and staff, and
should administer the test every 3 to 5 years.
(6) Evaluating and rewarding teachers with a
compensation system that supports teachers who become
increasingly expert in a subject area, are proficient
in meeting the needs of students and schools, and
demonstrate high levels of performance measured against
professional teaching standards, will encourage
teachers to continue to learn needed skills and broaden
teachers' expertise, thereby enhancing education for
all students.
(c) Purposes.--The purposes of this section are as follows:
(1) To provide incentives for States to establish
and administer periodic teacher testing and merit pay
programs for elementary school and secondary school
teachers.
(2) To encourage States to establish merit pay
programs that have a significant impact on teacher
salary scales.
(3) To encourage programs that recognize and reward
the best teachers, and encourage those teachers that
need to do better.
(d) State Incentives for Teacher Testing and Merit Pay.--
(1) Amendments.--Title II of the Elementary and
Secondary Education Act of 1965 (20 U.S.C. 6601 et
seq.) is amended--
(A) by redesignating part D as part F;
(B) by redesignating sections 2401 and 2402
as sections 2601 and 2602, respectively; and
(C) by inserting after part C the
following:
``PART D--STATE INCENTIVES FOR TEACHER TESTING AND MERIT PAY
``SEC. 2401. STATE INCENTIVES FOR TEACHER TESTING AND MERIT PAY.
``(a) State Awards.--Notwithstanding any other provision of
this title, from funds described in subsection (b) that are
made available for a fiscal year, the Secretary shall make an
award to each State that--
``(1) administers a test to each elementary school
and secondary school teacher in the State, with respect
to the subjects taught by the teacher, every 3 to 5
years; and
``(2) has an elementary school and secondary school
teacher compensation system that is based on merit.
``(b) Available Funding.--The amount of funds referred to
in subsection (a) that are available to carry out this section
for a fiscal year is 50 percent of the amount of funds
appropriated to carry out this title that are in excess of the
amount so appropriated for fiscal year 1999, except that no
funds shall be available to carry out this section for any
fiscal year for which--
``(1) the amount appropriated to carry out this
title exceeds $600,000,000; or
``(2) each of the several States is eligible to
receive an award under this section.
``(c) Award Amount.--A State shall receive an award under
this section in an amount that bears the same relation to the
total amount available for awards under this section for a
fiscal year as the number of States that are eligible to
receive such an award for the fiscal year bears to the total
number of all States so eligible for the fiscal year.
``(d) Use of Funds.--Funds provided under this section may
be used by States to carry out the activities described in
section 2207.
``(e) Definition of State.--For the purpose of this
section, the term `State' means each of the 50 States and the
District of Columbia.''.
(2) Effective Date.--The amendments made by
paragraph (1) shall take effect on October 2, 1999.
(e) Teacher Testing and Merit Pay.--
(1) In General.--Notwithstanding any other
provision of law, a State may use Federal education
funds--
(A) to carry out a test of each elementary
school or secondary school teacher in the State
with respect to the subjects taught by the
teacher; or
(B) to establish a merit pay program for
the teachers.
(2) Definitions.--In this subsection, the terms
``elementary school'' and ``secondary school'' have the
meanings given the terms in section 14101 of the
Elementary and Secondary Education Act of 1965 (20
U.S.C. 8801).
TITLE III--EQUAL EDUCATIONAL OPPORTUNITY
SEC. 301. EQUAL EDUCATIONAL OPPORTUNITY.
Subsection (b) of section 6301 of the Elementary and
Secondary Education Act of 1965 (20 U.S.C. 7351) is amended--
(1) in paragraph (7), by striking ``and'' after the
semicolon;
(2) in paragraph (8), by striking the period and
inserting ``; and''; and
(3) by adding at the end the following:
``(9) education reform projects that provide same
gender schools and classrooms, as long as comparable
educational opportunities are offered for students of
both sexes.''.
TITLE IV--SENSE OF CONGRESS
SEC. 401. FINDINGS.
Congress makes the following findings:
(1) The people of the United States know that
effective teaching takes place when the people of the
United States begin (A) helping children master basic
academics, (B) engaging and involving parents, (C)
creating safe and orderly classrooms, and (D) getting
dollars to the classroom.
(2) Our Nation's children deserve an educational
system which will provide opportunities to excel.
(3) States and localities must spend a significant
amount of Federal education tax dollars applying for
and administering Federal education dollars.
(4) Several States have reported that although the
States receive less than 10 percent of their education
funding from the Federal Government, more than 50
percent of their paperwork is associated with those
Federal dollars.
(5) While it is unknown exactly what percentage of
Federal education dollars reaches the classroom, a
recent audit of New York City public schools found that
only 43 percent of their local education budget reaches
the classroom; further, it is thought that only 85
percent of funds administered by the Department of
Education for elementary and secondary education reach
the school district level; and even if 65 percent of
Federal education funds reach the classroom, it still
means that billions of dollars are not directly spent
on children in the classroom.
(6) American students are not performing up to
their full academic potential, despite the more than
760 Federal education programs, which span 39 Federal
agencies at the price of nearly $100,000,000,000
annually.
(7) According to the Digest of Education
Statistics, in 1993 only $141,598,786,000 out of
$265,285,370,000 spent on elementary and secondary
education was spent on instruction.
(8) According to the National Center for Education
Statistics, in 1994 only 52 percent of staff employed
in public elementary and secondary school systems were
teachers.
(9) Too much of our Federal education funding is
spent on bureaucracy, and too little is spent on our
Nation's youth.
(10) Getting 95 percent of Department of Education
elementary and secondary education funds to the
classroom could provide approximately $2,094 in
additional funding per classroom across the United
States.
(11) More education funding should be put in the
hands of someone in a child's classroom who knows the
child's name.
(12) President Clinton has stated: ``We cannot ask
the American people to spend more on education until we
do a better job with the money we've got now.''.
(13) President Clinton and Vice President Gore
agree that the reinventing of public education will not
begin in Washington but in communities across the
United States and that the people of the United States
must ask fundamental questions about how our Nation's
public school systems' dollars are spent.
(14) President Clinton and Vice President Gore
agree that in an age of tight budgets, our Nation
should be spending public funds on teachers and
children, not on unnecessary overhead and bloated
bureaucracy.
SEC. 402. SENSE OF CONGRESS.
It is the sense of Congress that the Department of
Education, States, and local educational agencies should work
together to ensure that not less than 95 percent of all funds
appropriated for the purpose of carrying out elementary and
secondary education programs administered by the Department of
Education is spent for our Nation's children in their
classrooms.
TITLE V--READING EXCELLENCE
SEC. 501. SHORT TITLE.
This title may be cited as the ``Reading Excellence Act''.
Subtitle A--Reading Grants
SEC. 511. AMENDMENT TO ESEA FOR READING GRANTS.
Title II of the Elementary and Secondary Education Act of
1965 (20 U.S.C. 6601 et seq.) is amended further by inserting
after part D (as inserted by section 201(d)(1)(C) of this Act)
the following:
``PART E--READING GRANTS
``SEC. 2501. PURPOSE.
``The purposes of this part are as follows:
``(1) To teach every child to read in their early
childhood years--
``(A) as soon as they are ready to read; or
``(B) as soon as possible once they enter
school, but not later than 3d grade.
``(2) To improve the reading skills of students,
and the in-service instructional practices for teachers
who teach reading, through the use of findings from
reliable, replicable research on reading, including
phonics.
``(3) To expand the number of high-quality family
literacy programs.
``(4) To reduce the number of children who are
inappropriately referred to special education due to
reading difficulties.
``SEC. 2502. DEFINITIONS.
``For purposes of this part:
``(1) Eligible professional development provider.--
The term `eligible professional development provider'
means a provider of professional development in reading
instruction to teachers that is based on reliable,
replicable research on reading.
``(2) Eligible research institution.--The term
`eligible research institution' means an institution of
higher education at which reliable, replicable research
on reading has been conducted.
``(3) Family literacy services.--The term `family
literacy services' means services provided to
participants on a voluntary basis that are of
sufficient intensity in terms of hours, and of
sufficient duration, to make sustainable changes in a
family (such as eliminating or reducing welfare
dependency) and that integrate all of the following
activities:
``(A) Interactive literacy activities
between parents and their children.
``(B) Equipping parents to partner with
their children in learning.
``(C) Parent literacy training, including
training that contributes to economic self-
sufficiency.
``(D) Appropriate instruction for children
of parents receiving parent literacy services.
``(4) Reading.--The term `reading' means the
process of comprehending the meaning of written text by
depending on--
``(A) the ability to use phonics skills,
that is, knowledge of letters and sounds, to
decode printed words quickly and effortlessly,
both silently and aloud;
``(B) the ability to use previously learned
strategies for reading comprehension; and
``(C) the ability to think critically about
the meaning, message, and aesthetic value of
the text.
``(5) Reading readiness.--The term `reading
readiness' means activities that--
``(A) provide experience and opportunity
for language development;
``(B) create appreciation of the written
word;
``(C) develop an awareness of printed
language, the alphabet, and phonemic awareness;
and
``(D) develop an understanding that spoken
and written language is made up of phonemes,
syllables, and words.
``(6) Reliable, replicable research.--The term
`reliable, replicable research' means objective, valid,
scientific studies that--
``(A) include rigorously defined samples of
subjects that are sufficiently large and
representative to support the general
conclusions drawn;
``(B) rely on measurements that meet
established standards of reliability and
validity;
``(C) test competing theories, where
multiple theories exist;
``(D) are subjected to peer review before
their results are published; and
``(E) discover effective strategies for
improving reading skills.
``SEC. 2503. GRANTS TO READING AND LITERACY PARTNERSHIPS.
``(a) Program Authorized.--The Secretary may make grants on
a competitive basis to reading and literacy partnerships for
the purpose of permitting such partnerships to make subgrants
under sections 2504 and 2505.
``(b) Reading and Literacy Partnerships.--
``(1) Composition.--
``(A) Required participants.--In order to
receive a grant under this section, a State
shall establish a reading and literacy
partnership consisting of at least the
following participants:
``(i) The Governor of the State.
``(ii) The chief State school
officer.
``(iii) The chairman and the
ranking member of each committee of the
State legislature that is responsible
for education policy.
``(iv) A representative, selected
jointly by the Governor and the chief
State school officer, of at least 1
local educational agency that has at
least 1 school that is identified for
school improvement under section
1116(c) in the geographic area served
by the agency.
``(v) A representative, selected
jointly by the Governor and the chief
State school officer, of a community-
based organization working with
children to improve their reading
skills, particularly a community-based
organization using volunteers.
``(B) Optional participants.--A reading and
literacy partnership may include additional
participants, who shall be selected jointly by
the Governor and the chief State school
officer, which may include--
``(i) State directors of
appropriate Federal or State programs
with a strong reading component;
``(ii) a parent of a public or
private school student or a parent who
educates their child or children in
their home;
``(iii) a teacher who teaches
reading; or
``(iv) a representative of (I) an
institution of higher education
operating a program of teacher
preparation in the State; (II) a local
educational agency; (III) an eligible
research institution; (IV) a private
nonprofit or for-profit eligible
professional development provider
providing instruction based on
reliable, replicable research on
reading; (V) a family literacy service
provider; (VI) an adult education
provider; (VII) a volunteer
organization that is involved in
reading programs; or (VIII) a school or
a public library that offers reading or
literacy programs for children or
families.
``(2) Agreement.--The contractual agreement that
establishes a reading and literacy partnership--
``(A) shall specify--
``(i) the nature and extent of the
association among the participants
referred to in paragraph (1); and
``(ii) the roles and duties of each
such participant; and
``(B) shall remain in effect during the
entire grant period proposed in the
partnership's grant application under
subsection (e).
``(3) Functions.--Each reading and literacy
partnership for a State shall prepare and submit an
application under subsection (e) and, if the
partnership receives a grant under this section--
``(A) shall solicit applications for, and
award, subgrants under sections 2504 and 2505;
``(B) shall oversee the performance of the
subgrants and submit performance reports in
accordance with subsection (h);
``(C) if sufficient grant funds are
available under this part--
``(i) work to enhance the capacity
of agencies in the State to disseminate
reliable, replicable research on
reading to schools, classrooms, and
providers of early education and child
care;
``(ii) facilitate the provision of
technical assistance to subgrantees
under sections 2504 and 2505 by
providing the subgrantees information
about technical assistance providers;
and
``(iii) build on, and promote
coordination among, literacy programs
in the State, in order to increase
their effectiveness and to avoid
duplication of their efforts; and
``(D) shall ensure that each local
educational agency to which the partnership
makes a subgrant under section 2504 makes
available, upon request and in an
understandable and uniform format, to any
parent of a student attending any school
selected under section 2504(a)(2) in the
geographic area served by the agency,
information regarding the qualifications of the
student's classroom teacher to provide
instruction in reading.
``(4) Fiscal agent.--The State educational agency
shall act as the fiscal agent for the reading and
literacy partnership for the purposes of receipt of
funds from the Secretary, disbursement of funds to
subgrantees under sections 2504 and 2505, and
accounting for such funds.
``(c) Preexisting Partnership.--If, before the date of the
enactment of the Reading Excellence Act, a State established a
consortium, partnership, or any other similar body, that
includes the Governor and the chief State school officer and
has, as a central part of its mission, the promotion of
literacy for children in their early childhood years through
the 3d grade, but that does not satisfy the requirements of
subsection (b)(1), the State may elect to treat that
consortium, partnership, or body as the reading and literacy
partnership for the State notwithstanding such subsection, and
the consortium, partnership, or body shall be considered a
reading and literacy partnership for purposes of the other
provisions of this part.
``(d) Multi-State Partnership Arrangements.--A reading and
literacy partnership that satisfies the requirements of
subsection (b) may join with other such partnerships in other
States to develop a single application that satisfies the
requirements of subsection (e) and identifies which State
educational agency, from among the States joining, shall act as
the fiscal agent for the multi-State arrangement. For purposes
of the other provisions of this part, any such multi-State
arrangement shall be considered to be a reading and literacy
partnership.
``(e) Applications.--A reading and literacy partnership
that desires to receive a grant under this section shall submit
an application to the Secretary at such time, in such manner,
and including such information as the Secretary may require.
The application--
``(1) shall describe how the partnership will
ensure that 95 percent of the grant funds are used to
make subgrants under sections 2504 and 2505;
``(2) shall be integrated, to the maximum extent
possible, with State plans and programs under this Act,
the Individuals with Disabilities Education Act (20
U.S.C. 1400 et seq.), and, to the extent appropriate,
the Adult Education Act (20 U.S.C. 1201 et seq.);
``(3) shall describe how the partnership will
ensure that professional development funds available at
the State and local levels are used effectively to
improve instructional practices for reading and are
based on reliable, replicable research on reading;
``(4) shall describe--
``(A) the contractual agreement that
establishes the partnership, including at least
the elements of the agreement referred to in
subsection (b)(2);
``(B) how the partnership will assess, on a
regular basis, the extent to which the
activities undertaken by the partnership and
the partnership's subgrantees under this part
have been effective in achieving the purposes
of this part;
``(C) what evaluation instruments the
partnership will use to determine the success
of local educational agencies to whom subgrants
under sections 2504 and 2505 are made in
achieving the purposes of this part;
``(D) how subgrants made by the partnership
under such sections will meet the requirements
of this part, including how the partnership
will ensure that subgrantees will use practices
based on reliable, replicable research on
reading; and
``(E) how the partnership will, to the
extent practicable, make grants to subgrantees
in both rural and urban areas;
``(5) shall include an assurance that each local
educational agency to whom the partnership makes a
subgrant under section 2504--
``(A) will carry out family literacy
programs based on the Even Start family
literacy model authorized under part B of title
I to enable parents to be their child's first
and most important teacher, and will make
payments for the receipt of technical
assistance for the development of such
programs;
``(B) will carry out programs to assist
those kindergarten students who are not ready
for the transition to 1st grade, particularly
students experiencing difficulty with reading
skills;
``(C) will use supervised individuals
(including tutors), who have been appropriately
trained using reliable, replicable research on
reading, to provide additional support, before
school, after school, on weekends, during non-
instructional periods of the school day, or
during the summer, for students in grades 1
through 3 who are experiencing difficulty
reading; and
``(D) will carry out professional
development for the classroom teacher and other
appropriate teaching staff on the teaching of
reading based on reliable, replicable research
on reading; and
``(6) shall describe how the partnership--
``(A) will ensure that a portion of the
grant funds that the partnership receives in
each fiscal year will be used to make subgrants
under section 2505; and
``(B) will make local educational agencies
described in section 2505(a)(1) aware of the
availability of such subgrants.
``(f) Peer Review Panel.--
``(1) Composition of peer review panel.--
``(A) In general.--The National Institute
for Literacy, in consultation with the National
Research Council of the National Academy of
Sciences, the National Institute of Child
Health and Human Development, and the
Secretary, shall convene a panel to evaluate
applications under this section. At a minimum
the panel shall include representatives of the
National Institute for Literacy, the National
Research Council of the National Academy of
Sciences, the National Institute of Child
Health and Human Development, and the
Secretary.
``(B) Experts.--The panel shall include
experts who are competent, by virtue of their
training, expertise, or experience, to evaluate
applications under this section, and experts
who provide professional development to
teachers of reading to children and adults,
based on reliable, replicable research on
reading.
``(C) Limitation.--Not more than \1/3\ of
the panel may be composed of individuals who
are employees of the Federal Government.
``(2) Payment of fees and expenses of certain
members.--The Secretary shall use funds reserved under
section 2510(b)(2) to pay the expenses and fees of
panel members who are not employees of the Federal
Government.
``(3) Duties of panel.--
``(A) Model application forms.--The peer
review panel shall develop a model application
form for reading and literacy partnerships
desiring to apply for a grant under this
section. The peer review panel shall submit the
model application form to the Secretary for
final approval.
``(B) Selection of applications.--
``(i) Recommendations of panel.--
``(I) In general.--The
Secretary shall receive grant
applications from reading and
literacy partnerships under
this section and shall provide
the applications to the peer
review panel for evaluation.
With respect to each
application, the peer review
panel shall initially recommend
the application for funding or
for disapproval.
``(II) Priority.--In
recommending applications to
the Secretary, the panel shall
give priority to applications
from States that have modified,
are modifying, or provide an
assurance that not later than 1
year after receiving a grant
under this section the State
will modify, State teacher
certification in the area of
reading to reflect reliable,
replicable research, except
that nothing in this part shall
be construed to establish a
national system of teacher
certification.
``(III) Ranking of
applications.--With respect to
each application recommended
for funding, the panel shall
assign the application a rank,
relative to other recommended
applications, based on the
priority described in subclause
(II), the extent to which the
application furthers the
purposes of this part, and the
overall quality of the
application.
``(IV) Recommendation of
amount.--With respect to each
application recommended for
funding, the panel shall make a
recommendation to the Secretary
with respect to the amount of
the grant that should be made.
``(ii) Secretarial selection.--
``(I) In general.--Subject
to clause (iii), the Secretary
shall determine, based on the
peer review panel's
recommendations, which
applications from reading and
literacy partnerships shall
receive funding and the amounts
of such grants. In determining
grant amounts, the Secretary
shall take into account the
total amount of funds available
for all grants under this
section and the types of
activities proposed to be
carried out by the partnership.
``(II) Effect of ranking by
panel.--In making grants under
this section, the Secretary
shall select applications
according to the ranking of the
applications by the peer review
panel, except in cases where
the Secretary determines, for
good cause, that a variation
from that order is appropriate.
``(iii) Minimum grant amounts.--
Each reading and literacy partnership
selected to receive a grant under this
section shall receive an amount for
each fiscal year that is not less than
$100,000.
``(g) Limitation on Administrative Expenses.--A reading and
literacy partnership that receives a grant under this section
may use not more than 3 percent of the grant funds for
administrative costs.
``(h) Reporting.--
``(1) In general.--A reading and literacy
partnership that receives a grant under this section
shall submit performance reports to the Secretary
pursuant to a schedule to be determined by the
Secretary, but not more frequently than annually. Such
reports shall include--
``(A) the results of use of the evaluation
instruments referred to in subsection
(e)(4)(C);
``(B) the process used to select
subgrantees;
``(C) a description of the subgrantees
receiving funds under this part; and
``(D) with respect to subgrants under
section 2504, the model or models of reading
instruction, based on reliable, replicable
research on reading, selected by subgrantees.
``(2) Provision to peer review panel.--The
Secretary shall provide the reports submitted under
paragraph (1) to the peer review panel convened under
subsection (f). The panel shall use such reports in
recommending applications for funding under this
section.
``SEC. 2504. LOCAL READING IMPROVEMENT SUBGRANTS.
``(a) In General.--
``(1) Subgrants.--A reading and literacy
partnership that receives a grant under section 2503
shall make subgrants, on a competitive basis, to local
educational agencies that have at least 1 school that
is identified for school improvement under section
1116(c) in the geographic area served by the agency.
``(2) Role of local educational agencies.--A local
educational agency that receives a subgrant under this
section shall use the subgrant in a manner consistent
with this section to advance reform of reading
instruction in any school selected by the agency that--
``(A) is identified for school improvement
under section 1116(c) at the time the agency
receives the subgrant; and
``(B) has a contractual association with 1
or more community-based organizations that have
established a record of effectiveness with
respect to reading readiness, reading
instruction for children in kindergarten
through 3d grade, and early childhood literacy.
``(b) Grant Period.--A subgrant under this section shall be
for a period of 3 years and may not be revoked or terminated on
the ground that a school ceases, during the grant period, to be
identified for school improvement under section 1116(c).
``(c) Applications.--A local educational agency that
desires to receive a subgrant under this section shall submit
an application to the reading and literacy partnership at such
time, in such manner, and including such information as the
partnership may require. The application--
``(1) shall describe how the local educational
agency will work with schools selected by the agency
under subsection (a)(2) to select 1 or more models of
reading instruction, developed using reliable,
replicable research on reading, as a model for
implementing and improving reading instruction by all
teachers and for all children in each of the schools
selected by the agency under such subsection and, where
appropriate, their parents;
``(2) shall select 1 or more models described in
paragraph (1), for the purpose described in such
paragraph, and shall describe each such selected model;
``(3) shall demonstrate that a person responsible
for the development of each such model, or a person
with experience or expertise about such model and its
implementation, has agreed to work with the applicant
in connection with such implementation and improvement
efforts;
``(4) shall describe--
``(A) how the applicant will ensure that
funds available under this part, and funds
available for reading for grades kindergarten
through grade 6 from other appropriate sources,
are effectively coordinated and, where
appropriate, integrated, with funds under this
Act in order to improve existing activities in
the areas of reading instruction, professional
development, program improvement, parental
involvement, technical assistance, and other
activities that can help meet the purposes of
this part; and
``(B) the amount of funds available for
reading for grades kindergarten through grade 6
from appropriate sources other than this part,
including title I (except that such description
shall not be required to include funds made
available under part B of title I unless the
applicant has established a contractual
association in accordance with subsection
(d)(2) with an eligible entity under such part
B), the Individuals with Disabilities Education
Act (20 U.S.C. 1400 et seq.), and any other law
providing Federal financial assistance for
professional development for teachers of such
grades who teach reading, which will be used to
help achieve the purposes of this part;
``(5) shall describe the amount and nature of funds
from any other public or private sources, including
funds received under this Act and the Individuals with
Disabilities Education Act (20 U.S.C. 1400 et seq.),
that will be combined with funds received under the
subgrant;
``(6) shall include an assurance that the
applicant--
``(A) will carry out family literacy
programs based on the Even Start family
literacy model authorized under part B of title
I to enable parents to be their child's first
and most important teacher, will make payments
for the receipt of technical assistance for the
development of such programs;
``(B) will carry out programs to assist
those kindergarten students who are not ready
for the transition to 1st grade, particularly
students experiencing difficulty with reading
skills;
``(C) will use supervised individuals
(including tutors), who have been appropriately
trained using reliable, replicable research on
reading, to provide additional support, before
school, after school, on weekends, during non-
instructional periods of the school day, or
during the summer, for students in grades 1
through 3 who are experiencing difficulty
reading; and
``(D) will carry out professional
development for the classroom teacher and other
teaching staff on the teaching of reading based
on reliable, replicable research on reading;
``(7) shall describe how the local educational
agency provides instruction in reading to children who
have not been determined to be a child with a
disability (as defined in section 602 of the
Individuals with Disabilities Education Act (20 U.S.C.
1401)), pursuant to section 614(b)(5) of such Act (20
U.S.C. 1414(a)(5)), because of a lack of instruction in
reading; and
``(8) shall indicate the amount of the subgrant
funds (if any) that the applicant will use to carry out
the duties described in section 2505(b)(2).
``(d) Priority.--In approving applications under this
section, a reading and literacy partnership shall give priority
to an application submitted by an applicant who demonstrates
that the applicant has established--
``(1) a contractual association with 1 or more Head
Start programs under the Head Start Act (42 U.S.C. 9801
et seq.) under which--
``(A) the Head Start program agrees to
select the same model or models of reading
instruction, as a model for implementing and
improving the reading readiness of children
participating in the program, as was selected
by the applicant; and
``(B) the applicant agrees--
``(i) to share with the Head Start
program an appropriate amount of the
applicant's information resources with
respect to the model, such as curricula
materials; and
``(ii) to train personnel from the
Head Start program;
``(2) a contractual association with 1 or more
State- or federally-funded preschool programs, or
family literacy programs, under which--
``(A) the program agrees to select the same
model or models of reading instruction, as a
model for implementing and improving reading
instruction in the program's activities, as was
selected by the applicant; and
``(B) the applicant agrees to train
personnel from the program who work with
children and parents in schools selected under
subsection (a)(2); or
``(3) a contractual association with 1 or more
public libraries providing reading or literacy services
to preschool children, or preschool children and their
families, under which--
``(A) the library agrees to select the same
model or models of reading instruction, as a
model for implementing and improving reading
instruction in the library's reading or
literacy programs, as was selected by the
applicant; and
``(B) the applicant agrees to train
personnel, including volunteers, from such
programs who work with preschool children, or
preschool children and their families, in
schools selected under subsection (a)(2).
``(e) Use of Funds.--
``(1) In general.--Subject to paragraph (2), an
applicant who receives a subgrant under this section
may use the subgrant funds to carry out activities that
are authorized by this part and described in the
subgrant application, including the following:
``(A) Making reasonable payments for
technical and other assistance to a person
responsible for the development of a model of
reading instruction, or a person with
experience or expertise about such model and
its implementation, who has agreed to work with
the recipient in connection with the
implementation of the model.
``(B) Carrying out a contractual agreement
described in subsection (d).
``(C) Professional development (including
training of volunteers), purchase of curricular
and other supporting materials, and technical
assistance.
``(D) Providing, on a voluntary basis,
training to parents of children enrolled in a
school selected under subsection (a)(2) on how
to help their children with school work,
particularly in the development of reading
skills. Such training may be provided directly
by the subgrant recipient, or through a grant
or contract with another person. Such training
shall be consistent with reading reforms taking
place in the school setting.
``(E) Carrying out family literacy programs
based on the Even Start family literacy model
authorized under part B of title I to enable
parents to be their child's first and most
important teacher, and making payments for the
receipt of technical assistance for the
development of such programs.
``(F) Providing instruction for parents of
children enrolled in a school selected under
subsection (a)(2), and others who volunteer to
be reading tutors for such children, in the
instructional practices based on reliable,
replicable research on reading used by the
applicant.
``(G) Programs to assist those kindergarten
students enrolled in a school selected under
subsection (a)(2) who are not ready for the
transition to 1st grade, particularly students
experiencing difficulty with reading skills.
``(H) Providing, for students who are
enrolled in grades 1 through 3 in a school
selected under subsection (a)(2) and are
experiencing difficulty reading, additional
support before school, after school, on
weekends, during non-instructional periods of
the school day, or during the summer, using
supervised individuals (including tutors) who
have been appropriately trained using reliable,
replicable research on reading.
``(I) Carrying out the duties described in
section 2505(b)(2) for children enrolled in a
school selected under subsection (a)(2).
``(J) Providing reading assistance to
children who have not been determined to be a
child with a disability (as defined in section
602 of the Individuals with Disabilities
Education Act (20 U.S.C. 1401)), pursuant to
section 614(b)(5) of such Act (20 U.S.C.
1414(b)(5)), because of a lack of instruction
in reading.
``(2) Limitation on administrative expenses.--A
recipient of a subgrant under this section may use not
more than 3 percent of the subgrant funds for
administrative costs.
``(f) Training Nonrecipients.--A recipient of a subgrant
under this section may train, on a fee-for-service basis,
personnel who are from schools, or local educational agencies,
that are not receiving such a subgrant in the instructional
practices based on reliable, replicable research on reading
used by the recipient. Such a non-recipient school may use
funds received under title I, and other appropriate Federal
funds used for reading instruction, to pay for such training,
to the extent consistent with the law under which such funds
were received.
``SEC. 2505. TUTORIAL ASSISTANCE SUBGRANTS.
``(a) In General.--
``(1) Subgrants.--A reading and literacy
partnership that receives a grant under section 2503
shall make subgrants on a competitive basis to--
``(A) local educational agencies that have
at least 1 school in the geographic area served
by the agency that--
``(i) is located in an area
designated as an empowerment zone under
part I of subchapter U of chapter 1 of
the Internal Revenue Code of 1986; or
``(ii) is located in an area
designated as an enterprise community
under part I of subchapter U of chapter
1 of the Internal Revenue Code of 1986;
or
``(B) in the case of local educational
agencies that do not have any such empowerment
zone or enterprise community in the State in
which the agency is located, local educational
agencies that have at least 1 school that is
identified for school improvement under section
1116(c) in the geographic area served by the
agency.
``(2) Applications.--A local educational agency
that desires to receive a subgrant under this section
shall submit an application to the reading and literacy
partnership at such time, in such manner, and including
such information as the partnership may require. The
application shall include an assurance that the agency
will use the subgrant funds to carry out the duties
described in subsection (b) for children enrolled in 1
or more schools selected by the agency and described in
paragraph (1).
``(b) Use of Funds.--
``(1) In general.--A local educational agency that
receives a subgrant under this section shall carry out,
using the funds provided under the subgrant, each of
the duties described in paragraph (2).
``(2) Duties.--The duties described in this
paragraph are the provision of tutorial assistance in
reading to children who have difficulty reading, using
instructional practices based on the principles of
reliable, replicable research, through the following:
``(A) The promulgation of a set of
objective criteria, pertaining to the ability
of a tutorial assistance provider successfully
to provide tutorial assistance in reading, that
will be used to determine in a uniform manner,
at the beginning of each school year, the
eligibility of tutorial assistance providers,
subject to the succeeding subparagraphs of this
paragraph, to be included on the list described
in subparagraph (B) (and thereby be eligible to
enter into a contract pursuant to subparagraph
(F)).
``(B) The promulgation, maintenance, and
approval of a list of tutorial assistance
providers eligible to enter into a contract
pursuant to subparagraph (F) who--
``(i) have established a record of
effectiveness with respect to reading
readiness, reading instruction for
children in kindergarten through 3d
grade, and early childhood literacy;
``(ii) are located in a geographic
area convenient to the school or
schools attended by the children who
will be receiving tutorial assistance
from the providers; and
``(iii) are capable of providing
tutoring in reading to children who
have difficulty reading, using
instructional practices based on the
principles of reliable, replicable
research and consistent with the
instructional methods used by the
school the child attends.
``(C) The development of procedures (i) for
the receipt of applications for tutorial
assistance, from parents who are seeking such
assistance for their child or children, that
select a tutorial assistance provider from the
list described in subparagraph (B) with whom
the child or children will enroll, for tutoring
in reading; and (ii) for considering children
for tutorial assistance who are identified
under subparagraph (D) and for whom no
application has been submitted, provided that
such procedures are in accordance with this
paragraph and give such parents the right to
select a tutorial assistance provider from the
list referred to in subparagraph (B), and shall
permit a local educational agency to recommend
a tutorial assistance provider from the list
under subparagraph (B) in a case where a parent
asks for assistance in the making of such
selection.
``(D) The development of a selection
process for providing tutorial assistance in
accordance with this paragraph that limits the
provision of assistance to children identified,
by the school the child attends, as having
difficulty reading, including difficulty
mastering essential phonic, decoding, or
vocabulary skills. In the case of a child
included in the selection process for whom no
application has been submitted by a parent of
the child, the child's eligibility for receipt
of tutorial assistance shall be determined
under the same procedures, timeframe, and
criteria for consideration as is used to
determine the eligibility of a child whose
parent has submitted such an application. Such
local educational agency shall apply the
provisions of subparagraphs (F) and (G) to a
tutorial assistance provider selected for a
child whose parent has not submitted an
application pursuant to subparagraph (C)(i) in
the same manner as the provisions are applied
to a provider selected in an application
submitted pursuant to subparagraph (C)(i).
``(E) The development of procedures for
selecting children to receive tutorial
assistance, to be used in cases where
insufficient funds are available to provide
assistance with respect to all children
identified by a school under subparagraph (D)
that--
``(i) gives priority to children
who are determined, through State or
local reading assessments, to be most
in need of tutorial assistance; and
``(ii) gives priority, in cases
where children are determined, through
State or local reading assessments, to
be equally in need of tutorial
assistance, based on a random selection
principle.
``(F) The development of a methodology by
which payments are made directly to tutorial
assistance providers who are identified and
selected pursuant to subparagraphs (C), (D),
and (E). Such methodology shall include the
making of a contract, consistent with State and
local law, between the tutorial assistance
provider and the local educational agency
carrying out this paragraph. Such contract--
``(i) shall contain specific goals
and timetables with respect to the
performance of the tutorial assistance
provider;
``(ii) shall require the tutorial
assistance provider to report to the
parent and the local educational agency
on the provider's performance in
meeting such goals and timetables; and
``(iii) shall contain provisions
with respect to the making of payments
to the tutorial assistance provider by
the local educational agency.
``(G) The development of procedures under
which the local educational agency carrying out
this paragraph--
``(i) will ensure oversight of the
quality and effectiveness of the
tutorial assistance provided by each
tutorial assistance provider that is
selected for funding;
``(ii) will remove from the list
under subparagraph (B) ineffective and
unsuccessful providers (as determined
by the local educational agency based
upon the performance of the provider
with respect to the goals and
timetables contained in the contract
between the agency and the provider
under subparagraph (F));
``(iii) will provide to each parent
of a child identified under
subparagraph (D) who requests such
information for the purpose of
selecting a tutorial assistance
provider for the child, in a
comprehensible format, information with
respect to the quality and
effectiveness of the tutorial
assistance referred to in clause (i);
and
``(iv) will ensure that each school
identifying a child under subparagraph
(D) will provide upon request, to a
parent of the child, assistance in
selecting, from among the tutorial
assistance providers who are included
on the list described in subparagraph
(B), the provider who is best able to
meet the needs of the child.
``(c) Definition.--For the purpose of this section the term
`parent' includes a legal guardian.
``SEC. 2506. PROGRAM EVALUATION.
``(a) In General.--From funds reserved under section
2510(b)(1), the Secretary shall conduct a national assessment
of the programs under this part. In developing the criteria for
the assessment, the Secretary shall receive recommendations
from the peer review panel convened under section 2503(f).
``(b) Submission to Peer Review Panel.--The Secretary shall
submit the findings from the assessment under subsection (a) to
the peer review panel convened under section 2503(f).
``SEC. 2507. INFORMATION DISSEMINATION.
``(a) In General.--From funds reserved under section
2510(b)(2), the National Institute for Literacy shall
disseminate information on reliable, replicable research on
reading and information on subgrantee projects under section
2504 or 2505 that have proven effective. At a minimum, the
institute shall disseminate such information to all recipients
of Federal financial assistance under titles I and VII, the
Head Start Act (42 U.S.C. 9801 et seq.), the Individuals with
Disabilities Education Act (20 U.S.C. 1400 et seq.), and the
Adult Education Act (20 U.S.C. 1201 et seq.).
``(b) Coordination.--In carrying out this section, the
National Institute for Literacy--
``(1) shall use, to the extent practicable,
information networks developed and maintained through
other public and private persons, including the
Secretary, the National Center for Family Literacy, and
the Readline Program;
``(2) shall work in conjunction with any panel
convened by the National Institute of Child Health and
Human Development and the Secretary, and any panel
convened by the Office of Educational Research and
Improvement to assess the current status of research-
based knowledge on reading development, including the
effectiveness of various approaches to teaching
children to read, with respect to determining the
criteria by which the National Institute for Literacy
judges reliable, replicable research and the design of
strategies to disseminate such information; and
``(3) shall assist any reading and literacy
partnership selected to receive a grant under section
2503, and that requests such assistance--
``(A) in determining whether applications
for subgrants submitted to the partnership meet
the requirements of this part relating to
reliable, replicable research on reading; and
``(B) in the development of subgrant
application forms.
``SEC. 2508. STATE EVALUATIONS.
``(a) In General.--Each reading and literacy partnership
that receives a grant under this part shall reserve not more
than 2 percent of such grant funds for the purpose of
evaluating the success of the partnership's subgrantees in
meeting the purposes of this part. At a minimum, the evaluation
shall measure the extent to which students who are the intended
beneficiaries of the subgrants made by the partnership have
improved their reading.
``(b) Contract.--A reading and literacy partnership shall
carry out the evaluation under this section by entering into a
contract with an eligible research institution under which the
institution will perform the evaluation.
``(c) Submission.--A reading and literacy partnership shall
submit the findings from the evaluation under this section to
the Secretary and the peer review panel convened under section
2503(f). The Secretary and the peer review panel shall submit a
summary of the findings from the evaluations under this
subsection to the appropriate committees of the Congress,
including the Education and the Workforce Committee of the
House of Representatives.
``SEC. 2509. PARTICIPATION OF CHILDREN ENROLLED IN PRIVATE SCHOOLS.
``Each reading and literacy partnership that receives funds
under this part shall provide for, or ensure that subgrantees
provide for, the participation of children in private schools
in the activities and services assisted under this part in the
same manner as the children participate in activities and
services pursuant to sections 2503, 2504, 2505, and 2506.
``SEC. 2510. AUTHORIZATION OF APPROPRIATIONS; RESERVATIONS FROM
APPROPRIATIONS; APPLICABILITY; SUNSET.
``(a) Authorization.--There are authorized to be
appropriated to carry out this part $210,000,000 for fiscal
years 1999, 2000, and 2001.
``(b) Reservations.--From the amount appropriated under
subsection (a) for each fiscal year, the Secretary--
``(1) shall reserve 1.5 percent to carry out
section 2506(a);
``(2) shall reserve $5,075,000 to carry out
sections 2503(f)(2) and 2507, of which $5,000,000 shall
be reserved for section 2507; and
``(3) shall reserve $10,000,000 to carry out
section 1202(c).
``(c) Applicability.--Part E shall not apply to this part.
``(d) Sunset.--Notwithstanding section 422(a) of the
General Education Provisions Act (20 U.S.C. 1226a(a)), this
part is repealed, effective September 30, 2001, and is not
subject to extension under such section.''.
Subtitle B--Amendments to Even Start Family Literacy Programs
SEC. 521. RESERVATION FOR GRANTS.
Section 1202(c) of the Elementary and Secondary Education
Act of 1965 (20 U.S.C. 6362(c)) is amended to read as follows:
``(c) Reservation for Grants.--
``(1) Grants authorized.--From funds reserved under
section 2510(b)(3), the Secretary shall award grants,
on a competitive basis, to States to enable such States
to plan and implement, statewide family literacy
initiatives to coordinate and integrate existing
Federal, State, and local literacy resources consistent
with the purposes of this part. Such coordination and
integration shall include coordination and integration
of funds available under the Adult Education Act (20
U.S.C. 1201 et seq.), Head Start (42 U.S.C. 9801 et
seq.), this part, part A of this title, and part A of
title IV of the Social Security Act.
``(2) Consortia.--
``(A) Establishment.--To receive a grant
under this subsection, a State shall establish
a consortium of State-level programs under the
following laws:
``(i) This title.
``(ii) The Head Start Act.
``(iii) The Adult Education Act.
``(iv) All other State-funded
preschool programs and programs
providing literacy services to adults.
``(B) Plan.--To receive a grant under this
subsection, the consortium established by a
State shall create a plan to use a portion of
the State's resources, derived from the
programs referred to in subparagraph (A), to
strengthen and expand family literacy services
in such State.
``(C) Coordination with title ii.--The
consortium shall coordinate its activities with
the activities of the reading and literacy
partnership for the State established under
section 2503, if the State receives a grant
under such section.
``(3) Reading instruction.--Statewide family
literacy initiatives implemented under this subsection
shall base reading instruction on reliable, replicable
research on reading (as such terms are defined in
section 2502).
``(4) Technical assistance.--The Secretary shall
provide, directly or through a grant or contract with
an organization with experience in the development and
operation of successfulfamily literacy services,
technical assistance to States receiving a grant under this subsection.
``(5) Matching requirement.--The Secretary shall
not make a grant to a State under this subsection
unless the State agrees that, with respect to the costs
to be incurred by the eligible consortium in carrying
out the activities for which the grant was awarded, the
State will make available non-Federal contributions in
an amount equal to not less than the Federal funds
provided under the grant.''.
SEC. 522. DEFINITIONS.
Section 1202(e) of the Elementary and Secondary Education
Act of 1965 (20 U.S.C. 6362(e)) is amended--
(1) by redesignating paragraphs (3) and (4) as
paragraphs (4) and (5), respectively; and
(2) by inserting after paragraph (2) the following:
``(3) the term `family literacy services' means
services provided to participants on a voluntary basis
that are of sufficient intensity in terms of hours, and
of sufficient duration, to make sustainable changes in
a family (such as eliminating or reducing welfare
dependency) and that integrate all of the following
activities:
``(A) Interactive literacy activities
between parents and their children.
``(B) Equipping parents to partner with
their children in learning.
``(C) Parent literacy training, including
training that contributes to economic self-
sufficiency.
``(D) Appropriate instruction for children
of parents receiving parent literacy
services.''.
SEC. 523. EVALUATION.
Section 1209 of the Elementary and Secondary Education Act
of 1965 (20 U.S.C. 6369) is amended--
(1) in paragraph (1), by striking ``and'' at the
end;
(2) in paragraph (2), by striking the period at the
end and inserting ``; and''; and
(3) by adding at the end the following:
``(3) to provide States and eligible entities
receiving a subgrant under this part, directly or
through a grant or contract with an organization with
experience in the development and operation of
successful family literacy services, technical
assistance to ensure local evaluations undertaken under
section 1205(10) provide accurate information on the
effectiveness of programs assisted under this part.''.
SEC. 524. INDICATORS OF PROGRAM QUALITY.
(a) In General.--The Elementary and Secondary Education Act
of 1965 (20 U.S.C. 6301 et seq.) is amended--
(1) by redesignating section 1210 as section 1212;
and
(2) by inserting after section 1209 the following:
``SEC. 1210. INDICATORS OF PROGRAM QUALITY.
``Each State receiving funds under this part shall develop,
based on the best available research and evaluation data,
indicators of program quality for programs assisted under this
part. Such indicators shall be used to monitor, evaluate, and
improve such programs within the State. Such indicators shall
include the following:
``(1) With respect to eligible participants in a
program who are adults--
``(A) achievement in the areas of reading,
writing, English language acquisition, problem
solving, and numeracy;
``(B) receipt of a secondary school diploma
or its recognized equivalent;
``(C) entry into a postsecondary school, a
job retraining program, or employment or career
advancement, including the military; and
``(D) such other indicators as the State
may develop.
``(2) With respect to eligible participants in a
program who are children--
``(A) improvement in ability to read on
grade level or reading readiness;
``(B) school attendance;
``(C) grade retention and promotion; and
``(D) such other indicators as the State
may develop.''.
(b) State Level Activities.--Section 1203(a) of the
Elementary and Secondary Education Act of 1965 (20 U.S.C.
6363(a)) is amended--
(1) in paragraph (1), by striking ``and'' at the
end;
(2) in paragraph (2), by striking the period at the
end and inserting ``; and''; and
(3) by adding at the end the following:
``(3) carrying out section 1210.''.
(c) Award of Subgrants.--Paragraphs (3) and (4) of section
1208(b) of the Elementary and Secondary Education Act of 1965
(20 U.S.C. 6368) are amended to read as follows:
``(3) Continuing eligibility.--In awarding subgrant
funds to continue a program under this part for the
second, third, or fourth year, the State educational
agency shall evaluate the program based on the
indicators of program quality developed by the State
under section 1210. Such evaluation shall take place
after the conclusion of the startup period, if any.
``(4) Insufficient progress.--The State educational
agency may refuse to award subgrant funds if such
agency finds that the eligible entity has not
sufficiently improved the performance of the program,
as evaluated based on the indicators of program quality
developed by the State under section 1210, after--
``(A) providing technical assistance to the
eligible entity; and
``(B) affording the eligible entity notice
and an opportunity for a hearing.''.
SEC. 525. RESEARCH.
The Elementary and Secondary Education Act of 1965 (20
U.S.C. 6301 et seq.) is amended further by inserting after
section 1210 (as inserted by section 524(a)(2) of this Act) the
following:
``SEC. 1211. RESEARCH.
``(a) In General.--The Secretary shall carry out, through
grant or contract, research into the components of successful
family literacy services. The purpose of the research shall
be--
``(1) to improve the quality of existing programs
assisted under this part or other family literacy
programs carried out under this Act or the Adult
Education Act (20 U.S.C. 1201 et seq.); and
``(2) to develop models for new programs to be
carried out under this Act or the Adult Education Act.
``(b) Dissemination.--The National Institute for Literacy
shall disseminate, pursuant to section 2507, the results of the
research described in subsection (a) to States and recipients
of subgrants under this part.''.
TITLE VI--MISCELLANEOUS PROVISIONS
SEC. 601. MULTILINGUALISM STUDY.
(a) Findings.--Congress finds that--
(1) even though all residents of the United States
should be proficient in English, without regard to
their country of birth, it is also of vital importance
to the competitiveness of the United States that those
residents be encouraged to learn other languages; and
(2) education is the primary responsibility of
State and local governments and communities, and these
entities are responsible for developing policies in
this subject area.
(b) Resident of the United States Defined.--In this
section, the term ``resident of the United States'' means an
individual who resides in the United States, other than an
alien who is not lawfully present in the United States.
(c) Study.--
(1) In general.--Not later than 180 days after the
date of enactment of this Act, the Comptroller General
of the United States (referred to in this section as
the ``Comptroller General'') shall conduct a study of
multilingualism in the United States in accordance with
this section.
(2) Requirements.--
(A) In general.--The study conducted under
this section shall ascertain--
(i) the percentage of residents in
the United States who are proficient in
English and at least 1 other language;
(ii) the predominant language other
than English in which residents
referred to in clause (i) are
proficient;
(iii) the percentage of the
residents described in clause (i) who
were born in a foreign country;
(iv) the percentage of the
residents described in clause (i) who
were born in the United States;
(v) the percentage of the residents
described in clause (iv) who are
second-generation residents of the
United States; and
(vi) the percentage of the
residents described in clause (iv) who
are third-generation residents of the
United States.
(B) Age-specific categories.--The study
under this section shall, with respect to the
residents described in subparagraph (A)(i),
determine the number of those residents in each
of the following categories:
(i) Residents who have not attained
the age of 12.
(ii) Residents who have attained
the age of 12, but have not attained
the age of 18.
(iii) Residents who have attained
the age of 18, but have not attained
the age of 50.
(iv) Residents who have attained
the age of 50.
(C) Federal programs.--In conducting the
study under this section, the Comptroller
General shall establish a list of each Federal
program that encourages multilingualism with
respect to any category of residents described
in subparagraph (B).
(D) Comparisons.--In conducting the study
under this section, the Comptroller General
shall compare the multilingual population
described in subparagraph (A) with the
multilingual populations of foreign countries--
(i) in the Western hemisphere; and
(ii) in Asia.
(d) Report.--Upon completion of the study under this
section, the Comptroller General shall prepare, and submit to
Congress, a report that contains the results of the study
conducted under this section, and such findings and
recommendations as the Comptroller General determines to be
appropriate.
SEC. 602. SAFER SCHOOLS.
(a) Short Title.--This section may be cited as the ``Safer
Schools Act of 1998''.
(b) Amendment.--Section 14601 of the Gun-Free Schools Act
of 1994 (20 U.S.C. 8921) is amended by adding at the end the
following new subsection:
``(g) For the purposes of this section, a weapon that has
been determined to have been brought to a school by a student
shall be admissible as evidence in any internal school
disciplinary proceeding (related to an expulsion under this
section).''.
SEC. 603. STUDENT IMPROVEMENT INCENTIVE AWARDS.
Section 6201 of the Elementary and Secondary Education Act
of 1965 (20 U.S.C. 7331) is amended--
(1) in subsection (a)--
(A) in paragraph (1)(C), by striking
``and'' after the semicolon;
(B) in paragraph (2), by striking the
period and inserting ``; and''; and
(C) by adding at the end the following:
``(3) student improvement incentive awards
described in subsection (c).''; and
(2) by adding at the end the following:
``(c) Student Improvement Incentive Awards.--
``(1) Awards.--A State educational agency may use
funds made available for State use under this title to
make awards to public schools in the State that are
determined to be outstanding schools pursuant to a
statewide assessment described in paragraph (2).
``(2) Statewide assessment.--The statewide
assessment referred to in paragraph (1)--
``(A) shall--
``(i) determine the educational
progress of students attending public
schools within the State; and
``(ii) allow for an objective
analysis of the assessment on a school-
by-school basis; and
``(B) may involve exit exams.''.
And the Senate agree to the same.
William Archer,
Bill Goodling,
Dick Armey,
Managers on the Part of the House.
William V. Roth,
Connie Mack,
Dan Coats,
Slade Gorton,
Paul Coverdell,
Managers on the Part of the Senate.
JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE
The managers on the part of the House and the Senate at
the conference on the disagreeing votes of the two Houses on
the amendment of the Senate to the bill (H.R. 2646) to amend
the Internal Revenue Code of 1986 to allow tax-free
expenditures from education individual retirement accounts for
elementary and secondary school expenses, to increase the
maximum annual amount of contributions to such accounts, and
for other purposes, submit the following joint statement to the
House and the Senate in explanation of the effect of the action
agreed upon by the managers and recommended in the accompanying
conference report.
CONTENTS
Page
I. Revenue Provisions...............................................36
A. Modifications to Education Individual Retirement
Accounts (IRAs) (sec. 2 of the House bill and sec.
101 of the Senate amendment)......................... 36
B. Exclusion from Gross Income of Education
Distributions from Qualified Tuition Programs (sec.
104 of the Senate amendment)......................... 42
C. Extension of Exclusion for Employer-Provided
Educational Assistance (sec. 105 of the Senate
amendment)........................................... 45
D. Arbitrage Rebate Exception for Governmental Bonds of
Certain Small Governments (sec. 106 of the Senate
amendment)........................................... 46
E. Exclusion of Certain Amounts Received under the
National Health Corps Scholarship Program and the F.
Edward Hebert Armed Forces Health Professions
Scholarship and Financial Assistance Program (sec.
107 of the Senate amendment)......................... 47
F. Tax-Exempt Bonds for Privately Owned Public Schools
(sec. 108 of the Senate amendment)................... 48
G. Employer Deductions for Vacation and Severance Pay
(sec. 3(a) of the House bill and sec. 201 of the
Senate amendment).................................... 49
H. Modification to Foreign Tax Credit Carryback and
Carryover Periods (sec. 202 of the Senate amendment). 51
I. Limited Tax Benefits in the Revenue Title Subject to
the Line Item Veto Act............................... 52
II. Non-Tax Provisions...............................................53
A. Prohibition on Federal Testing...................... 53
B. Student Improvement Incentive Awards................ 53
C. State Incentives for Teacher Testing and Merit Pay.. 53
D. Equal Educational Opportunity....................... 54
E. Education Block Grant............................... 54
F. Sense of the Senate on Dollars to the Classroom..... 54
G. Reading Excellence.................................. 55
H. Drop-Out Prevention Program......................... 55
I. Multilingualism Study............................... 55
J. Safe Schools........................................ 55
I. REVENUE PROVISIONS
A. Modifications to Education Individual Retirement Accounts (IRAs)
(sec. 2 of the House bill and sec. 101 of the Senate amendment)
Present Law
In general.--Section 530 provides tax-exempt status to
``education IRAs,'' meaning certain trusts (or custodial
accounts) which are created or organized in the United States
exclusively for the purpose of paying the qualified higher
education expenses of a named beneficiary.1
Contributions to education IRAs may be made only in cash.
Annual contributions to education IRAs may not exceed $500 per
designated beneficiary (except in cases involving certain tax-
free rollovers, as described below), and may not be made after
the designated beneficiary reaches age 18.2
Moreover, section 4973 imposes a penalty excise tax if a
contribution is made by any person to an education IRA
established on behalf of a beneficiary during any taxable year
in which any contributions are made by anyone to a qualified
State tuition program (defined under sec. 529) on behalf of the
same beneficiary. These provisions were enacted as part of the
Taxpayer Relief Act of 1997 (``1997 Act'').
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\1\ Education IRAs generally are not subject to Federal income tax,
but are subject to the unrelated business income tax (``UBIT'') imposed
by section 511.
\2\ An excise tax penalty may be imposed under present-law section
4973 to the extent that excess contributions above the $500 annual
limit are made to an education IRA.
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Phase-out of contribution limit.--The $500 annual
contribution limit for education IRAs is phased out ratably for
contributors with modified AGI between $95,000 and $110,000
($150,000 and $160,000 for joint returns). Individuals with
modified AGI above the phase-out range are not allowed to make
contributions to an education IRA established on behalf of any
other individual.
Treatment of distributions.--Amounts distributed from
education IRAs are excludable from gross income to the extent
that the amounts distributed do not exceed qualified higher
education expenses of the designated beneficiary incurred
during the year the distribution is made (provided that a HOPE
credit or Lifetime Learning credit is not claimed under sec.
25A with respect to the beneficiary for the same taxable
year).3 If a HOPE credit or Lifetime Learning credit
is claimed with respect to a student for a taxable year, then a
distribution from an education IRA may (at the option of the
taxpayer) be made during that taxable year on behalf of that
student, but an exclusion is not available under the Act for
the earnings portion of such distribution.4
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\3\ The exclusion will not be a preference item for alternative
minimum tax (AMT) purposes.
\4\ If a HOPE credit or Lifetime Learning credit was claimed with
respect to a student for an earlier taxable year, the exclusion
provided for by section 530 may be claimed with respect to the same
student for a subsequent taxable year with respect to a distribution
from an education IRA made in that subsequent taxable year in order to
cover qualified higher education expenses incurred during that year.
Conversely, if an exclusion is claimed for a distribution from an
education IRA with respect to a particular student, then a HOPE credit
or Lifetime Learning credit will be available in a subsequent taxable
year with respect to that same student (provided that no exclusion is
claimed in such other taxable years for distributions from an education
IRA on behalf of that student and provided that the requirements of the
HOPE credit or Lifetime Learning credit are satisfied in the subsequent
taxable year).
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Distributions from an education IRA generally are deemed
to consist of distributions of principal (which, under all
circumstances, are excludable from gross income) and earnings
(which may be excludable from gross income) by applying the
ratio that the aggregate amount of contributions to the account
for the beneficiary bears to the total balance of the account.
If the qualified higher education expenses of the student for
the year are at least equal to the total amount of the
distribution (i.e., principal and earnings combined) from an
education IRA, then the earnings in their entirety will be
excludable from gross income. If, on the other hand, the
qualified higher education expenses of the student for the year
are less than the total amount of the distribution (i.e.,
principal and earnings combined) from an education IRA, then
the qualified higher education expenses will be deemed to be
paid from a pro-rata share of both the principal and earnings
components of the distribution. Thus, in such a case, only a
portion of the earnings will be excludable under section 530
(i.e., a portion of the earnings based on the ratio that the
qualified higher education expenses bear to the total amount of
the distribution) and the remaining portion of the earnings
will be includible in the distributee's gross
income.5 To the extent that a distribution exceeds
qualified higher education expenses of the designated
beneficiary, an additional 10-percent tax is imposed on the
earnings portion of such excess distribution under section
530(d)(4), unless such distribution is made on account of the
death or disability of, or scholarship received by, the
designated beneficiary.
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\5\ For example, if an education IRA has a total balance of
$10,000, of which $4,000 represents principal (i.e., contributions) and
$6,000 represents earnings, and if a distribution of $2,000 is made
from such an account, then $800 of that distribution will be treated as
a return of principal (which under no event is includible in the gross
income of the distributee) and $1,200 of the distribution will be
treated as accumulated earnings. In such a case, if qualified higher
education expenses of the beneficiary during the year of the
distribution are at least equal to the $2,000 total amount of the
distribution (i.e., principal plus earnings), then the entire earnings
portion of the distribution will be excludable under section 530,
provided that a Hope credit or Lifetime Learning credit is not claimed
for that same taxable year on behalf of the beneficiary. If, however,
the qualified higher education expenses of the beneficiary for the
taxable year are less than the total amount of the distribution, then
only a portion of the earnings will be excludable from gross income
under section 530. Thus, in the example discussed above, if the
beneficiary incurs only $1,500 of qualified higher education expenses
in the year that a $2,000 distribution is made, then only $900 of the
earnings will be excludable from gross income under section 530 (i.e.,
an exclusion will be provided for the pro-rata portion of the earnings,
based on the ratio that the $1,500 of qualified higher education
expenses bears to the $2,000 distribution) and the remaining $300 of
the earnings portion of the distribution will be includible in the
distributee's gross income.
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Section 530(d) allows tax-free (and penalty-free)
transfers or rollovers of account balances from one education
IRA benefitting one beneficiary to another education IRA
benefitting another beneficiary (as well as redesignations of
the named beneficiary), provided that the new beneficiary is a
member of the family of the old beneficiary.6
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\6\ For this purpose, a ``member of the family'' means persons
described in paragraphs (1) through (8) of section 152(a)--e.g., sons,
daughters, brothers, sisters, nephews and nieces, certain in-laws,
etc.--and any spouse of such persons.
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The legislative history to the 1997 Act indicates that
any balance remaining in an education IRA will be deemed to be
distributed within 30 days after the date that the named
beneficiary reaches age 30 (or, if earlier, within 30 days of
the date that the beneficiary dies).
Qualified higher education expenses.--The term
``qualified higher education expenses'' includes tuition, fees,
books, supplies, and equipment required for the enrollment or
attendance of the designated beneficiary at an eligible
education institution, regardless of whether the beneficiary is
enrolled at an eligible educational institution on a full-time,
half-time, or less than half-time basis. Moreover, the term
``qualified higher education expenses'' include room and board
expenses (meaning the minimum room and board allowance
applicable to the student as determined by the institution in
calculating costs of attendance for Federal financial aid
programs under sec. 472 of the Higher Education Act of 1965)
for any period during which the beneficiary is at least a half-
time student. Qualified higher education expenses include
expenses with respect to undergraduate or graduate-level
courses. In addition, section 530(b)(2)(B) specifically
provides that qualified higher education expenses include
amounts paid or incurred to purchase tuition credits (or to
make contributions to an account) under a qualified State
tuition program, as defined in section 529, for the benefit of
the beneficiary of the education IRA.
Qualified higher education expenses generally include
only out-of-pocket expenses. Such qualified higher education
expenses do not include expenses covered by educational
assistance for the benefit of the beneficiary that is
excludable from gross income. Thus, total qualified higher
education expenses are reduced by scholarship or fellowship
grants excludable from gross income under present-law section
117, as well as any other tax-free educational benefits, such
as employer-provided educational assistance that is excludable
from the employee's gross income under section 127. In
addition, qualified higher education expenses do not include
expenses paid with amounts that are excludable under section
135. No reduction of qualified higher education expenses is
required, however, for a gift, bequest, devise, or inheritance
within the meaning of section 102(a).
Eligible educational institution.--Eligible educational
institutions are defined by reference to section 481 of the
Higher Education Act of 1965. Such institutions generally are
accredited post-secondary educational institutions offering
credit toward a bachelor's degree, an associate's degree, a
graduate-level or professional degree, or another recognized
post-secondary credential. Certain proprietary institutions and
post-secondary vocational institutions also are eligible
institutions. The institution must be eligible to participate
in Department of Education student aid programs.
House Bill
Annual contribution limit.--For the period 1998 through
2002, the House bill increases to $2,500 the annual
contribution limit that currently applies to education IRAs
under section 530(b)(1)(A)(iii). Thus, under the House bill,
aggregate contributions that may be made by all contributors to
one (or more) education IRAs established on behalf of any
particular beneficiary are limited to $2,500 for each year
during the period 1998 through 2002. For 2003 and later years,
the annual contribution limit for education IRAs is $500.
Qualified expenses.--With respect to contributions made
during the period 1998 through 2002 (and earnings attributable
to such contributions), the House bill expands the definition
of qualified education expenses that may be paid with tax-free
distributions from an education IRA. Specifically, the
definition of qualified education expenses is expanded to
include ``qualified elementary and secondary education
expenses'' meaning (1) tuition, fees, tutoring, special needs
services, books, supplies, computer equipment (including
related software and services) and other equipment,
transportation and supplementary expenses required for the
enrollment or attendance of the designated beneficiary at a
public, private, or religious school (through grade 12).
``Qualified elementary and secondary education expenses'' also
include certain homeschooling education expenses if the
requirements of any applicable State or local law are met with
respect to such homeschooling. For contributions made in 2003
or later years (and for earnings attributable to such
contributions), the definition of qualified education expenses
is limited to post-secondary education expenses.
Special needs beneficiaries.--The House bill also
provides that, although contributions to an education IRA
generally may not be made after the designated beneficiary
reaches age 18, contributions may continue to be made to an
education IRA in the case of a special needs beneficiary (as
defined by Treasury Department regulations). In addition, under
the bill, in the case of a special needs beneficiary, a deemed
distribution of any balance in an education IRA will not be
required when the beneficiary reaches age 30.
Contributions by persons other than individuals.--The
House bill clarifies that corporations and other entities
(e.g., tax-exempt entities) are permitted to make contributions
to education IRAs, regardless of the income of the corporation
or entity during the year of the contribution. As under present
law, the eligibility of high-income individuals to make
contributions to education IRAs is phased out ratably for
individuals with modified AGI between $95,000 and $110,000
($150,000 and $160,000 for joint returns).
Effective date.--The provisions are effective for taxable
years beginning after December 31, 1997.
Senate Amendment
Annual contribution limit.--The Senate amendment is the
same as the House bill, except that the Senate amendment
increases to $2,000 the annual contribution limit, and only for
the period 1999 through 2002.
Qualified expenses.--With respect to contributions made
during the period 1999 through 2002 (and earnings attributable
to such contributions), the Senate amendment expands the
definition of qualified education expenses that may be paid
with tax-free distributions from an education IRA.
Specifically, the definition of qualified education expenses is
expanded to include ``qualified elementary and secondary
education expenses'' meaning (1) tuition, fees, academic
tutoring 7, special needs services, books, supplies,
and equipment (including computers and related software and
services) incurred in connection with the enrollment or
attendance of the designated beneficiary as an elementary or
secondary student at a public, private, or religious school
providing elementary or secondary education (kindergarten
through grade 12), and (2) room and board, uniforms,
transportation, and supplementary items and services (including
extended-day programs) required or provided by such a school in
connection with such enrollment or attendance of the designated
beneficiary. ``Qualified elementary and secondary education
expenses'' also include certain homeschooling education
expenses if the requirements of any applicable State or local
law are met with respect to such homeschooling. For
contributions made in 2003 or later years (and for earnings
attributable to such contributions), the definition of
qualified education expenses is limited to post-secondary
education expenses. 8
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\7\ For this purpose, the Senate amendment provides that it is
intended that ``academic tutoring'' means additional, personalized
instruction provided in coordination with the student's academic
courses.
\8\ To the extent a taxpayer incurs ``qualified elementary and
secondary expenses'' during any year that a distribution is made from
an education IRA, the distribution will be deemed to first consist of a
distribution of any contributions (and earnings thereon) that were made
to the education IRA during the period 1999-2002 (reduced by the amount
of such contributions and earnings that were deemed to be distributed
in prior taxable years). The Senate amendment requires that trustees of
education IRAs keep separate accounts with respect to contributions
made during the period 1999-2002 (and earnings thereon).
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Under the Senate amendment, no deduction or credit (such
as the dependent care credit under section 21) will be allowed
under the Internal Revenue Code for any qualified education
expenses taken into account in determining the amount of the
exclusion under section 530 for a distribution from an
education IRA.
With respect to post-secondary education, qualified
education expenses include (1) tuition, fees, academic
tutoring, special needs services, books, supplies, and
equipment (including computers and related software and
services) incurred in connection with the enrollment or
attendance of the designated beneficiary at an eligible post-
secondary educational institution, and (2) room and board
expenses (meaning the minimum room and board allowance
applicable to the student as determined by the institution
calculating costs of attendance for Federal financial aid
programs) for any period during which the student is at least a
half-time student.
Special needs beneficiaries.--The Senate amendment is the
same as the House bill. 9
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\9\ The legislative history to the Senate amendment clarifies the
Committee's intention that the determination of whether a beneficiary
has ``special needs'' will be required to be made for each year that
contributions are made to an education IRA after the beneficiary
reaches age 18. However, if an individual meets the definition of a
``special needs'' beneficiary when such individual reaches age 30, then
such individual thereafter will be presumed to be a ``special needs''
beneficiary.
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Contributions by persons other than individuals.--The
Senate amendment is the same as the House bill.
Technical corrections.--The Senate amendment provides for
several technical corrections to section 530 (as enacted as
part of the Taxpayer Relief Act of 1997), including: (1) adding
a provision that any balance remaining in an education IRA will
be deemed to be distributed within 30 days after the date that
the named beneficiary reaches age 30; (2) clarifying that,
under rules contained in present-law section 72, distributions
from education IRAs are treated as representing a pro-rata
share of the principal and accumulated earnings in the account;
and (3) clarifying that, under section 530(d)(4), the 10-
percent additional tax will not be imposed in cases where a
distribution (although used to pay for qualified higher
education expenses) is includible in gross income solely
because the taxpayer elects the HOPE or Lifetime Learning
credit on behalf of the student for the same taxable year.
Effective date.--The provisions modifying education IRAs
under section 530 generally are effective for taxable years
beginning after December 31, 1998. However, the provision
thatincreases the annual contribution limit for education IRAs (i.e.,
to $2,000 per year) applies during the period January 1, 1999, through
December 31, 2002, and the provision that expands the definition of
qualified education expenses to include qualified elementary and
secondary education expenses applies to contributions (and earnings
thereon) made during the period January 1, 1999, through December 31,
2002. The technical correction provisions are effective as if included
in the 1997 Act--i.e., for taxable years beginning after December 31,
1997.
Conference Agreement
The conference agreement follows the Senate amendment and
includes certain additional technical corrections.
The conference agreement clarifies that, in the event of
the death of the designated beneficiary, the balance remaining
in an education IRA may be distributed (without imposition of
the additional 10-percent tax) to any other (i.e., contingent)
beneficiary or to the estate of the deceased designated
beneficiary. If any member of the family of the deceased
beneficiary becomes the new designated beneficiary of an
education IRA, then no tax will be imposed on such
redesignation and the account will continue to be treated as an
education IRA.
The conference agreement further provides that the
additional 10-percent tax will not apply to the distribution of
any contribution to an education IRA made during a taxable year
if such distribution is made on or before the date that a
return is required to be filed (including extensions of time)
by the beneficiary for the taxable year during which the
contribution was made (or, if the beneficiary is not required
to file such a return, April 15th of the year following the
taxable year during which the contribution was made). In
addition, the conference agreement amends section 4973(e) to
provide that the excise tax penalty applies under that section
for each year that an excess contribution remains in an
education IRA (and not merely the year that the excess
contribution is made).
The conference agreement clarifies that, in order for
taxpayers to establish an education IRA, the designated
beneficiary must be a life-in-being. Further, the conference
agreement clarifies that for purposes of the special rules
regarding tax-free rollovers and changes of designated
beneficiaries, the new beneficiary must be under the age of 30.
The conference agreement also provides that, if any
qualified higher education expenses are taken into account in
determining the amount of the exclusion under section 530 for a
distribution from an education IRA, then no deduction (under
section 162 or any other section), or exclusion (under section
135) or credit will be allowed under the Internal Revenue Code
with respect to such qualified higher education expenses.
In addition, because the 1997 Act allows taxpayers to
redeem U.S. Savings Bonds and be eligible for the exclusion
under present-law section 135 (as if the proceeds were used to
pay qualified higher education expenses) provided the proceeds
from the redemption are contributed to an education IRA (or to
a qualified State tuition program defined under section 529) on
behalf of the taxpayer, the taxpayer's spouse, or a dependent,
the conference agreement conforms the definition of ``eligible
educational institution'' under section 135 to the broader
definition of that term under present-law section 530 (and
section 529). Thus, for purposes of section 135, as under
present-law sections 529 and 530, the term ``eligible
educational institution'' is defined as an institution which
(1) is described in section 481 of the Higher Education Act of
1965 (20 U.S.C. 1088) and (2) is eligible to participate in
Department of Education student aid programs.
B. Exclusion From Gross Income of Education Distributions From
Qualified Tuition Programs (sec. 104 of the Senate amendment)
Present Law
Section 529 provides tax-exempt status to ``qualified
State tuition programs,'' meaning certain programs established
and maintained by a State (or agency or instrumentality
thereof) under which persons may (1) purchase tuition credits
or certificates on behalf of a designated beneficiary that
entitle the beneficiary to a waiver or payment of qualified
higher education expenses of the beneficiary, or (2) make
contributions to an account that is established for the purpose
of meeting qualified higher education expenses of the
designated beneficiary of the account. The term ``qualified
higher education expenses'' has the same meaning as does the
term for purposes of education IRAs (as described above) and,
thus, includes expenses for tuition, fees, books, supplies, and
equipment required for the enrollment or attendance at an
eligible educational institution,\10\ as well as room and board
expenses (meaning the minimum room and board allowance
applicable to the student as determined by the institution in
calculating costs of attendance for Federal financial aid
programs under sec. 472 of the Higher Education Act of 1965)
for any period during which the student is at least a half-time
student.
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\10\ ``Eligible educational institutions'' are defined the same for
purposes of education IRAs (described in I.A., above) and qualified
State tuition programs.
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Section 529 also provides that no amount shall be
included in the gross income of a contributor to, or
beneficiary of, a qualified State tuition program with respect
to any distribution from, or earnings under, such program,
except that (1) amounts distributed or educational benefits
provided to a beneficiary (e.g., when the beneficiary attends
college) will be included in the beneficiary's gross income
(unless excludable under another Code section) to the extent
such amounts or the value of the educational benefits exceed
contributions made on behalf of the beneficiary, and (2)
amounts distributed to a contributor or another distributee
(e.g., when a parent receives a refund) will be included in the
contributor's/distributee's gross income to the extent such
amounts exceed contributions made on behalf of the beneficiary.
A qualified State tuition program is required to provide
that purchases or contributions only be made in cash.\11\
Contributors and beneficiaries are not allowed to directly or
indirectly direct the investment of contributions to the
program (or earnings thereon). The program is required to
maintain a separate accounting for each designated beneficiary.
A specified individual must be designated as the beneficiary at
the commencement of participation in a qualified State tuition
program (i.e., when contributions are first made to purchase an
interest in such a program), unless interests in such a program
are purchased by a State or local government or a tax-exempt
charity described in section 501(c)(3) as part of a scholarship
program operated by such government or charity under which
beneficiaries to be named in the future will receive such
interests as scholarships. A transfer of credits (or other
amounts) from one account benefitting one designated
beneficiary to another account benefitting a different
beneficiary will be considered a distribution (as will a change
in the designated beneficiary of an interest in a qualified
State tuition program), unless the beneficiaries are members of
the same family.\12\ Earnings on an account may be refunded to
a contributor or beneficiary, but the State or instrumentality
must impose a more than de minimis monetary penalty unless the
refund is (1) used for qualified higher education expenses of
the beneficiary, (2) made on account of the death or disability
of the beneficiary, or (3) made on account of a scholarship
received by the designated beneficiary to the extent the amount
refunded does not exceed the amount of the scholarship used for
higher education expenses.
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\11\ Sections 529(c)(2), (c)(4), and (c)(5), and section 530(d)(3)
provide special estate and gift tax rules for contributions made to,
and distributions made from, qualified State tuition programs and
education IRAs.
\12\ For this purpose, the term ``member of the family'' means
persons described in paragraphs (1) through (8) of section 152(a)--
e.g., sons, daughters, brothers, sisters, nephews and nieces, certain
in-laws, etc.--and any spouse of such persons.
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No amount is includible in the gross income of a
contributor to, or beneficiary of, a qualified State tuition
program with respect to any contribution to or earnings on such
a program until a distribution is made from the program, at
which time the earnings portion of the distribution (whether
made in cash or in-kind) will be includible in the gross income
of the distributee. However, to the extent that a distribution
from a qualified State tuition program is used to pay for
qualified tuition and related expenses (as defined in sec.
25A(f))(1)), the distributee (or another taxpayer claiming the
distributee as a dependent) will be able to claim the HOPE
credit or Lifetime Learning credit under section 25A with
respect to such tuition and related expenses (assuming that the
other requirements for claiming the HOPE credit or Lifetime
Learning credit are satisfied and the modified AGI phaseout for
those credits does not apply).
House Bill
No provision.
Senate Amendment
Under the Senate amendment, an exclusion from gross
income is provided for distributions from qualified State
tuition programs (as defined in sec. 529) to the extent that
the distribution is used to pay for (1) tuition, fees, academic
tutoring, special needs services, books, supplies, and
equipment (including computers and related software and
services) incurred in connection with the enrollment or
attendance of a designated beneficiary at an eligible post-
secondary educational institution (i.e., colleges,
universities, and certain vocational schools), and (2) room and
board expenses (meaning the minimum room and board allowance
applicable to the student as determined by the institution
calculating costs of attendance for Federal financial aid
programs) for any period during which the student is at least a
half-time student. As under present law, there is no specific
dollar limitation imposed under the Internal Revenue Code on
contributions made to qualified State tuition programs,
although section 529(b)(7) will continue to require that the
programs themselves provide adequate safeguards to prevent
contributions on behalf of a beneficiary in excess of those
necessary to provide for qualified higher education expenses of
the beneficiary.
As with the present-law exclusion from gross income for
distributions from education IRAs, the tax-free treatment for a
distribution from a qualified State tuition program will be
allowed only if, for the taxable year during which the
distribution is made, a HOPE or Lifetime Learning credit (under
sec. 25A) is not claimed on behalf of the student. As under
present law, if a student is claimed as a dependent by his or
her parent, then the parent (if eligible) must decide whether
to elect to claim a HOPE or Lifetime Learning credit with
respect to that student for that taxable year; and, if the
parent elects to claim a HOPE or Lifetime Learning credit, then
the earnings portion of a distribution made to a student from a
qualified State tuition program will be includible in the gross
income of the student.
Under the Senate amendment, no deduction (under section
162 or any other section) or credit is allowed under the
Internal Revenue Code for any qualified higher education
expenses taken into account in determining the amount of the
exclusion under section 529 for a distribution made to, or on
behalf of, a student by a qualified State tuition program.
Technical correction.--The Senate amendment clarifies
that, under rules contained in present-law section 72,
distributions from qualified State tuition programs are treated
as representing a pro-rata share of the principal (i.e.,
contributions) and accumulated earnings in the account.
Effective date.--The provision that allows an exclusion
from gross income for certain distributions from qualified
State tuition programs under section 529 (and the modification
to the definition of qualified higher education expenses under
that section) is effective for distributions made in taxable
years beginning after December 31, 1998.
Conference Agreement
The conference agreement follows the Senate amendment,
except that it expands the definition of ``qualified tuition
program'' to include not only qualified State tuition programs
as defined under present-law section 529, but also certain
prepaid tuition programs established and maintained by one or
more eligible educational institutions (which may be private
institutions) that satisfy the requirements under section 529
(other than the present-law State sponsorship rule). In the
case of a qualified tuition program maintained by one or more
private educational institutions, persons may purchase tuition
credits or certificates on behalf of a designated beneficiary
as set forth in section 529(b)(1)(A)(i), but may not make
contributions to an account as described in section
529(b)(1)(A)(ii) (so-called ``savings account plans''). In
addition, contributions to any such program on behalf of a
named beneficiary may not exceed $5,000 per year, with an
aggregate limit of $50,000 for contributions to all such
programs on behalf of that beneficiary for all years.\13\
Contributions may not be made to a qualified tuition program
maintained by one or more private educational institutions in
any year in which contributions are made on behalf of the same
beneficiary to an education IRA or a State-sponsored qualified
tuition program.
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\13\ To the extent contributions exceed the $50,000 aggregate
limit, an excise tax penalty may be imposed under present-law section
4973, unless the excess contributions (and any earnings thereon) are
returned to the contributor before the due date for the return for the
taxable year during which the excess contribution is made.
State-sponsored qualified tuition programs will continue to be
governed by the rule contained in present-law section 529(b)(7) that
such programs provide adequate safeguards to prevent contributions on
behalf of a designated beneficiary in excess of those necessary to
provide for the qualified higher education expenses of the beneficiary.
State-sponsored qualified tuition programs will not be subject to a
specific dollar cap under section 529 on annual (or aggregate)
contributions that can be made under the program on behalf of a named
beneficiary.
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In addition, the conference agreement includes a
technical correction to section 529(e)(2), clarifying that--for
purposes of tax-free rollovers and changes of designated
beneficiaries--a ``member of the family'' includes the spouse
of the original beneficiary.
Effective date.--The provision providing for the
establishment of qualified tuition programs maintained by one
or more private educational institutions is effective for
taxable years beginning after December 31, 2005. The technical
corrections provision is effective for distributions made after
December 31, 1997.
C. Extension of Exclusion for Employer-Provided Education Assistance
(sec. 105 of the Senate amendment)
Present Law
Under present-law section 127, an employee's gross income
and wages do not include amounts paid or incurred by the
employer for educational assistance provided to the employee if
such amounts are paid or incurred pursuant to an educational
assistance program that meets certain requirements. This
exclusion is limited to $5,250 of educational assistance with
respect to an individual during a calendar year. The exclusion
does not apply with respect to graduate- level courses. The
exclusion is scheduled to expire with respect to courses
beginning after May 31, 2000.
In the absence of the exclusion provided by section 127,
educational assistance is excludable from income only if the
education is related to the employee's current job, meaning
that the education (1) maintains or improves a skill required
in a trade or business currently engaged in by the taxpayer, or
(2) meets the express requirements of the taxpayer's employer,
or requirements of applicable law or regulations, imposed as a
condition of continued employment (but not if the education
relates to certain minimum educational requirements or enables
a taxpayer to begin working in a new trade or business).
House Bill
No provision.
Senate Amendment
The Senate amendment reinstates the exclusion for
graduate-level courses, effective with respect to courses
beginning after December 31, 1997. In addition, the Senate
amendment provides that the exclusion (as applied to both
graduate and undergraduate courses) expires with respect to
courses beginning after December 31, 2002.
Effective date.--The extension of the exclusion for
employer-provided educational assistance to graduate-level
courses is effective for expenses with respect to courses
beginning after December 31, 1997. The exclusion (with respect
to both graduate and undergraduate courses) expires with
respect to courses beginning after December 31, 2002.
Conference Agreement
The conference agreement follows the Senate amendment,
except that it does not reinstate the exclusion for graduate-
level courses.
D. Arbitrage Rebate Exception for Governmental Bonds of Certain Small
Governments (sec. 106 of the Senate amendment)
Present Law
Arbitrage profits earned on tax-exempt bonds generally
must be rebated to the Federal Government. An exception is
provided for profits earned on governmental bonds issued by
certain governmental units that issue no more than $5 million
of such bonds in the year when the bonds benefitting from the
exception are issued. The $5 million limit is increased to $10
million if bonds equal to at least the excess over $5 million
are used to finance public schools.
House Bill
No provision.
Senate Amendment
The Senate amendment allows an additional $5 million of
public school bonds to be issued without loss of eligibility
for the small-issuer arbitrage rebate exception (for total
issuance of up to $15 million per year if bonds equal to at
least the excess over $5 million are used to finance public
schools).
Effective date.--The provision is effective for bonds
issued after December 31, 1998.
Conference Agreement
The conference agreement follows the Senate amendment.
E. Exclusion of Certain Amounts Received Under the National Health
Corps Scholarship Program and the F. Edward Hebert Armed Forces Health
Professions Scholarship and Financial Assistance Program (sec. 107 of
the Senate amendment)
Present Law
Section 117 excludes from gross income amounts received
as a qualified scholarship by an individual who is a candidate
for a degree and used for tuition and fees required for the
enrollment or attendance (or for fees, books, supplies, and
equipment required for courses of instruction) at a primary,
secondary, or post-secondary educational institution. The tax-
free treatment provided by section 117 does not extend to
scholarship amounts covering regular living expenses, such as
room and board. In addition to the exclusion for qualified
scholarship, section 117 provides an exclusion from gross
income for qualified tuition reductions for certain education
provided to employees (and their spouses and dependents) of
certain educational organizations.
Section 117(c) specifically provides that the exclusion
for qualified scholarships and qualified tuition reductions
does not apply to any amount received by a student that
represents payment for teaching, research, or other services by
the student required as a condition for receiving the
scholarship or tuition reduction.
House Bill
No provision.
Senate Amendment
Under the Senate amendment, amounts received by an
individual under the National Health Corps Scholarship
Program--administered under section 338A(g)(1)(A) of the Public
Health Service Act--are eligible for tax-free treatment as a
qualified scholarship under section 117, without regard to the
fact that the recipient of the scholarship is obligated to
later provide medical services in a geographic area (or to an
underserved population group or designated facility) identified
by the Public Health Service as having a shortage of health
care professionals. As with other qualified scholarships under
section 117, the tax-free treatment does not apply to amounts
received by students to cover regular living expenses, such as
room and board.
Effective date.--The provision applies to amounts
received in taxable years beginning after December 31, 1993.
Conference Agreement
The conference agreement follows the Senate amendment. In
addition, the conference agreement provides that amounts
received by an individual under the F. Edward Hebert Armed
Forces Health Professions Scholarship and Financial Assistance
Program under subchapter I of chapter 105 of title 10 U.S.C.
also are eligible for tax-free treatment as a qualified
scholarship under section 117, without regard to the
recipient's future service obligation.
F. Tax-Exempt Bonds for Privately Owned Public Schools (sec. 108 of the
Senate amendment)
Present Law
Interest on State and local government bonds generally is
tax-exempt if the bond proceeds are used to carry out
governmental functions of the issuer and the debt is repaid
with governmental funds. Interest on bonds used to finance
private business activities is taxable unless the Internal
Revenue Code includes an exception for the activity involved.
The Code does not include an exception for bonds to finance
public schools owned by for-profit private businesses.
House Bill
No provision.
Senate Amendment
The Senate amendment allows States to issue up to $10 per
resident ($5 million, if greater) per year in tax-exempt bonds
for public schools that are owned by for-profit, private
businesses, but that are operated by States or local
governments as part of the public school system. Except for an
amount not exceeding $5 million per year, each State could use
these bonds only for public elementary and secondary schools
located in ``high-growth'' school districts. High-growth school
districts are defined as districts having an enrollment of at
least 5,000 students in the second preceding academic year and
having experienced student enrollment increases of 20 percent
or more during the 5-year period ending with that second year.
Effective date.--The provision is effective for bonds
issued after December 31, 1998.
Conference Agreement
The conference agreement does not include the Senate
amendment.
G. Employer Deductions for Vacation and Severance Pay (sec. 3(a) of the
House bill and sec. 201 of the Senate amendment)
Present Law
For deduction purposes, any method or arrangement that
has the effect of a plan deferring the receipt of compensation
or other benefits for employees is treated as a deferred
compensation plan (sec. 404(b)). In general, contributions
under a deferred compensation plan (other than certain pension,
profit-sharing and similar plans) are deductible in the taxable
year in which an amount attributable to the contribution is
includible in income of the employee. However, vacation pay
which is treated as deferred compensation is deductible for the
taxable year of the employer in which the vacation pay is paid
to the employee (sec. 404(a)(5)).
Temporary Treasury regulations provide that a plan,
method, or arrangement defers the receipt of compensation or
benefits to the extent it is one under which an employee
receives compensation or benefits more than a brief period of
time after the end of the employer's taxable year in which the
services creating the right to such compensation or benefits
are performed. A plan, method or arrangement is presumed to
defer the receipt of compensation for more than a brief period
of time after the end of an employer's taxable year to the
extent that compensation is received after the 15th day of the
3rd calendar month after the end of the employer's taxable year
in which the related services are rendered (the ``2\1/2\
month'' period). A plan, method or arrangement is not
considered to defer the receipt of compensation or benefits for
more than a brief period of time after the end of the
employer's taxable year to the extent that compensation or
benefits are received by the employee on or before the end of
the applicable 2\1/2\ month period. (Temp. Treas. Reg. sec.
1.404(b)-1T A-2).
The Tax Court recently addressed the issue of when
vacation pay and severance pay are considered deferred
compensation in Schmidt Baking Co., Inc., 107 T.C. 271 (1996).
In Schmidt Baking, the taxpayer was an accrual basis taxpayer
with a fiscal year that ended December 28, 1991. The taxpayer
funded its accrued vacation and severance pay liabilities for
1991 by purchasing an irrevocable letter of credit on March 13,
1992. The parties stipulated that the letter of credit
represented a transfer of substantially vested interest in
property to employees for purposes of section 83, and that the
fair market value of such interest was includible in the
employees'' gross incomes for 1992 as a result of the
transfer.14 The Tax Court held that the purchase of
the letter of credit, and the resulting income inclusion,
constituted payment of the vacation and severance pay within
the 2\1/2\ month period. Thus, the vacation and severance pay
were treated as received by the employees within the 2\1/2\
month period and were not treated as deferred compensation. The
vacation pay and severance pay were deductible by the taxpayer
for its 1991 fiscal year pursuant to its normal accrual method
of accounting.
---------------------------------------------------------------------------
\14\ While the rules of section 83 may govern the income inclusion,
section 404 governs the deduction if the amount involved is deferred
compensation.
---------------------------------------------------------------------------
House Bill
The House bill specifically overrules the result in
Schmidt Baking and provides that the Internal Revenue Code will
be applied without regard to the result reached in that case.
Thus, under the House bill, the fact that an item of
compensation is includible in income is not taken into account
in determining whether or not payment has been made. Thus, an
item of compensation must have been actually paid or received
by employees within the 2\1/2\ month period in order for the
compensation not to be treated as deferred compensation.
While Schmidt Baking involved only vacation pay and
severance pay, the provision is not limited to such items of
compensation. In addition, arrangements similar to the letter
of credit approach used in Schmidt Baking do not constitute
actual receipt by the employee.
Effective date.--The provision is effective for taxable
years ending after October 8, 1997. Any change in method of
accounting required by the provision is treated as initiated by
the taxpayer with the consent of the Secretary. Any adjustment
required by section 481 as a result of the change is taken into
account in the year of the change.
Senate Amendment
The Senate amendment is the same as the House bill,
except that the Senate amendment does not apply to severance
pay. In addition, the Senate amendment makes certain technical
modifications. Instead of providing that the Code is to be
applied without regard to the result in Schmidt Baking, the
Senate amendment explicitly provides that for purposes of
determining whether an item of compensation (other than
severance pay) is deferred compensation, the compensation is
not considered to be paid or received until actually received
by the employee. As under the House bill, similar arrangements
to the letter of credit approach used in Schmidt Baking do not
constitute actual receipt by the employee.
Effective date.--The provision is effective for taxable
years ending after the date of enactment. With respect to the
change in method of accounting, the Senate amendment is the
same as the House bill.
Conference Agreement
The conference agreement follows the House bill, with
certain technical modifications as incorporated in the Senate
amendment.
As under the House bill and Senate amendment, the fact
that an item of compensation is includible in employees'
incomes or wages within the applicable 2\1/2\ month period is
not relevant to determining whether an item of compensation is
deferred compensation.
As under the House bill and Senate amendment, many
arrangements in addition to the letter of credit approach used
in Schmidt Baking do not constitute actual receipt by
employees. For example, actual receipt does not include the
furnishing of a note or letter or other evidence of
indebtedness of the taxpayer, whether or not the evidence is
guaranteed by any other instrument or by any third party. As a
further example, actual receipt does not include a promise of
the taxpayer to provide service or property in the future
(whether or not the promise is evidenced by a contract or other
written agreement). In addition, actual receipt does not
include an amount transferred as a loan, refundable deposit, or
contingent payment. Further, amounts set aside in a trust for
employees are not considered to be actually received by the
employee.
Effective date.--The provision is effective for taxable
years ending after December 31, 2001. Under the conference
agreement, for the first taxable year for which the provision
is effective, a taxpayer is permitted to calculate estimated
tax liability by taking into account only 60 percent of the
estimated tax payments otherwise required to made on account of
the provision.
H. Modification to Foreign Tax Credit Carryback and Carryover Periods
(sec. 202 of the Senate amendment)
Present Law
U.S. persons may credit foreign taxes against U.S. tax on
foreign-source income. The amount of foreign tax credits that
can be claimed in a year is subject to a limitation that
prevents taxpayers from using foreign tax credits to offset
U.S. tax on U.S.-source income. Separate foreign tax credit
limitations are applied to specific categories of income.
The amount of creditable taxes paid or accrued (or deemed
paid) in any taxable year which exceeds the foreign tax credit
limitation is permitted to be carried back two years and
forward five years. The amount carried over may be used as a
credit in a carryover year to the extent the taxpayer otherwise
has excess foreign tax credit limitation for such year. The
separate foreign tax credit limitations apply for purposes of
the carryover rules.
House Bill
No provision.
Senate Amendment
The Senate amendment reduces the carryback period for
excess foreign tax credits from two years to one year. The
amendment also extends the excess foreign tax credit
carryforward period from five years to seven years.
Effective date.--The provision applies to foreign tax
credits arising in taxable years beginning after December 31,
2000.
Conference Agreement
The conference agreement does not include the Senate
amendment.
I. Limited Tax Benefits in the Revenue Title Subject to the Line Item
Veto Act
Present Law
The Line Item Veto Act amended the Congressional Budget
and Impoundment Act of 1974 to grant the President the limited
authority to cancel specific dollar amounts of discretionary
budget authority, certain new direct spending, and limited tax
benefits. The Line Item Veto Act provides that the Joint
Committee on Taxation is required to examine any revenue or
reconciliation bill or joint resolution that amends the
Internal Revenue Code of 1986 prior to its filing by a
conference committee in order to determine whether or not the
bill or joint resolution contains any ``limited tax benefits,''
and to provide a statement to the conference committee that
either (1) identifies each limited tax benefit contained in the
bill or resolution, or (2) states that the bill or resolution
contains no limited tax benefits. The conferees determine
whether or not to include the Joint Committee on Taxation
statement in the conference report. If the conference report
includes the information from the Joint Committee on Taxation
identifying provisions that are limited tax benefits, then the
President may cancel one or more of those, but only those,
provisions that have been identified. If such a conference
report contains a statement from the Joint Committee on
Taxation that none of the provisions in the conference report
are limited tax benefits, then the President has no authority
to cancel any of the specific tax provisions, because there are
no tax provisions that are eligible for cancellation under the
Line Item Veto Act. If the conference report contains no
statement with respect to limited tax benefits, then the
President may cancel any revenue provision in the conference
report that he determines to be a limited tax benefit.
Conference Statement
The Joint Committee on Taxation has determined that the
revenue title to H.R. 2646 contains the following provision
that constitutes a limited tax benefit within the meaning of
the Line Item Veto Act:
Section 104 (relating to additional increase in arbitrage
rebate exception for governmental bonds used to finance
education facilities).
II. NON-TAX PROVISIONS
A. Prohibition on Federal Testing
House Bill
No provision.
Senate Amendment
Section 102 of Title I of the Senate amendment prohibits
Federally-sponsored testing unless specifically and explicitly
provided for in authorizing legislation enacted into law.
Conference Agreement
Senate recedes.
B. Student Improvement Incentive Awards
House Bill
No provision.
Senate Amendment
Section 103 of Title I of the Senate amendment authorizes
student improvement incentive awards which could be used by a
State educational agency to make awards to public schools in
the State that are determined to be outstanding schools
pursuant to a statewide assessment.
Conference Agreement
House recedes.
C. State Incentives for Teacher Testing and Merit Pay
House Bill
No provision.
Senate Amendment
Section 301 of Title III of the Senate amendment
authorizes incentives for states to implement teacher testing
and merit pay programs. The Department of Education would
provide awards to states that test their K-12 teachers every 3-
5 years in the subjects they teach and that have a merit pay
program.
Conference Agreement
House recedes.
D. Equal Educational Opportunity
House Bill
No provision.
Senate Amendment
Section 401 of Title IV of the Senate amendment
authorizes the use of Federal education dollars to fund
education reform projects that provide same gender schools and
classrooms, as long as comparable educational opportunities are
offered for students of both sexes.
Conference Agreement
House recedes.
E. Education Block Grant
House Bill
No provision.
Senate Amendment
Sections 501-507 of Title V of the Senate amendment
provide States a choice of receiving over $10 billion in
Federal education funds as a block grant at the state level,
local level, or to continue receiving funding as under current
categorical programs.
Conference Agreement
Senate recedes. The Conferees have reluctantly agreed to
remove the education block grant amendment of Senator Slade
Gorton (R-WA) from the conference report in order to
expeditiously move the underlying education savings account
measure to the President. The Conferees believe the Gorton
amendment would have returned authority for decisions about our
children's education to where it belongs--to our parents,
teachers, principals, superintendents and elected school board
members, not bureaucrats in Washington, DC. The Conferees wish
to commend the diligent efforts of Senator Gorton in this
matter.
F. Sense of the Senate on Dollars to the Classroom
House Bill
No provision.
Senate Amendment
Sections 601-602 of Title VI of the Senate amendment is a
Sense of the Senate resolution that 95 percent of every Federal
education dollar should end up in the classroom.
Conference Agreement
House recedes.
G. Reading Excellence
House Bill
No provision.
Senate Amendment
Sections 701, 711, and 721-725 of Title VII of the Senate
amendment authorize a literacy program which focuses upon
training teachers to teach reading using scientifically proven
methods, like phonics.
Conference Agreement
House recedes.
H. Drop-out Prevention Program
House Bill
No provision.
Senate Amendment
Sections 801, 811-812, and 821 of Title VIII of the
Senate amendment authorize a National Dropout Prevention
program.
Conference Agreement
Senate recedes.
I. Multilingualism Study
House Bill
No provision.
Senate Amendment
Section 901 of Title IX of the Senate amendment
authorizes a study on multilingualism.
Conference Agreement
House recedes with an amendment to add a finding to
indicate that education is the primary responsibility of State
and local governments and as such they are responsible for
developing policies on multilingualism.
J. Safe Schools
House Bill
No provision.
Senate Amendment
Section 902 of Title IX of the Senate amendment provides
that weapons brought to school are admissible as evidence in
any internal school disciplinary proceeding.
Conference Agreement
House recedes.
William Archer,
Bill Goodling,
Dick Armey,
Managers on the Part of the House.
William V. Roth,
Connie Mack,
Dan Coats,
Slade Gorton,
Paul Coverdell,
Managers on the Part of the Senate.