Senate Report 106-497 - PROVIDING FOR THE ISSUANCE OF BONDS TO PROVIDE FUNDING FOR THE CONSTRUCTION OF SCHOOLS OF THE BUREAU OF INDIAN AFFAIRS OF THE DEPARTMENT OF THE INTERIOR, AND FOR OTHER PURPOSES

[Senate Report 106-497]
[From the U.S. Government Publishing Office]

Calendar No. 947
106th Congress Report
SENATE
2d Session 106-497

======================================================================

PROVIDING FOR THE ISSUANCE OF BONDS TO PROVIDE FUNDING FOR THE
CONSTRUCTION OF SCHOOLS OF THE BUREAU OF INDIAN AFFAIRS OF THE
DEPARTMENT OF THE INTERIOR, AND FOR OTHER PURPOSES

_______

October 12, (legislative day, September 22), 2000.--Ordered to be
printed

_______

Mr. Campbell, from the Committee on Indian Affairs, submitted the
following

R E P O R T

[To accompany S. 2580]

The Committee on Indian Affairs, to which was referred the
bill (S. 2580), to provide for the issuance of bonds to provide
funding for the construction of schools of the Bureau of Indian
Affairs of the Department of the Interior, and for other
purposes, having considered the same, reports favorably thereon
with an amendment in the nature of a substitute, and recommends
that the bill, as amended, do pass.

Purposes

The purpose of S. 2580 is to provide optional funding
mechanism for replacing Bureau of Indian Affairs (BIA) school
facilities. It authorizes a two year pilot project that will
provide Indian tribes with the authority to issue Qualified
Tribal School Modernization Bonds (QTSMB). The bonds will
generate revenue that will be used to build new school
facilities. It also authorizes the creation of a new escrow
account to provide tribes with the resources necessary to pay
bondholders when the QTSMB matures.

Background

Through numerous treaties and legislation including the
Snyder Act of 1921 \1\ the Federal government has assumed a
trust responsibility to provide an education to Indian
children. This duty includes providing safe school facilities
that have such basic amenities as heat and healthy air to
breathe. Adequate facilities and such essential necessities are
not being provided to many Indian children attending BIA-funded
schools.
---------------------------------------------------------------------------
\1\ Pub. L. 94-482 (25 U.S.C. 13).
---------------------------------------------------------------------------
The Federal government is solely responsible for the 185
Indian schools funded by the BIA. Nearly 4,500 facilities serve
the Bureau's education program, consisting of over 20 million
square feet of space, including dormitories, employee housing
quarters, and other buildings providing education opportunities
to more than 50,000 Indian students. These facilities serve
more than 330 Federally recognized Indian tribes located in 23
states through Indian Self-Determination and Education
Assistance Act contracts, compacts, and grants.\2\
---------------------------------------------------------------------------
\2\ Statement of William Mehojah, Director, Office of Indian
Education Programs, Bureau of Indian Affairs, U.S. Department of the
Interior, to the Senate Committee on Indian Affairs, September 6, 2000.
---------------------------------------------------------------------------
Half of the school facilities in the BIA's inventory have
exceeded their useful lives of 30 years, and more than 20
percent of such facilities are over 50 years old. The BIA
reports numerous deficiencies in the areas of health, safety,
access for disabled students, classroom size, ability to
integrate computer and telecommunications technology, and
administrative space.\3\ Many Indian students lack access to
computer and science labs, gymnasia, and other basic resources.
Studies suggest these types of deficiencies can have serious
adverse effects on student learning.
---------------------------------------------------------------------------
\3\ Ibid.
---------------------------------------------------------------------------
Moreover, a 1997 General Accounting Office (GAO) study
entitled ``School Facilities, Reported Condition and Cost to
Repair Schools Funded by the Bureau of Indian Affairs''
indicates that BIA schools report building deficiencies at a
higher rate than public schools. Almost four-fifths of the BIA
schools reported having at least one inadequate building
feature, while about one-half to two-thirds of public schools
reported at least one inadequate building feature.\4\
---------------------------------------------------------------------------
\4\ School Facilities: Reported Condition and Costs to Repair
Schools by the Bureau of Indian Affairs:, GAO/HEHS-98-47, December,
1997.
---------------------------------------------------------------------------
The existing backlog of education facility repairs and new
construction needs is estimated at $2.1 billion. The BIA has
published a list of 16 schools awaiting construction funds for
replacement purposes. In addition, at least 96 schools have
been identified as needing to be replaced. These schools have
submitted data to the BIA which in turn has begun the process
of ranking the schools by severity of need and related
criteria.
The Federal government has responded to the problem in
piecemeal fashion, often using temporary solutions instead of
working on a permanent plan of action. For instance, the
current BIA budget requests $2 million for ``portables'' or
trailer classrooms that have been used since 1993. To date, the
BIA has purchased 472 portables and 20% of the BIA's total
education buildings are now portable classrooms. The request
states these trailers are needed due to overcrowding and
unhealthy and unsafe buildings. It states that portables are
used to replace buildings or parts of buildings that have
``poor air quality'' that results in what the BIA calls ``sick
building syndrome.''
Indian school construction is one of the major focuses of
the Fiscal Year 2001 Senate Interior and related agencies
Appropriations bill in terms of funding increases, with $276.6
million slated for such purposes. This represents a significant
increase over the House recommended level of nearly $120.2
million for the education construction budget, but short of the
President's request of $300.5 million. Of the overall education
construction budget, $121.12 million is designated for
construction of six schools: Tuba City Boarding School, Second
Mesa Day School, Zia Day School, Baca Thoreau Consolidated
Community School, Lummi Tribal School and Wingate Elementary
School.
S. 2580 would provide Indian tribes with a new and
voluntary option to fund school construction. Federal funds
would be used to leverage private funds, allowing replacement
schools to be build more quickly than otherwise would be
possible with the same level of appropriations. The bill would
also encourage tribes to gain experience in financing
construction projects and to develop relationships with the
financial community that could help support much-needed
economic development in Indian country.
The large and growing backlog of replacement schools
strongly suggests the need for new schools in Indian country
has reached a level of crisis and that innovative measures to
address the problem must now be considered. The pilot project
authorized in S. 2580 provides both tribes and the Federal
government the opportunity to employ a new method of funding
BIA school construction and determine whether it is a feasible
and effective alternative to the current funding mechanism.

Summary of the Provisions of S. 2580

S. 2580 authorizes Indian tribes to issue up to $200
million in Indian school construction bonds for the two year
period beginning in Fiscal Year 2001. These bonds would provide
purchasers a tax credit in lieu of interest for the duration of
the bond. The bill dedicates $30 million to provide tribes with
funds to pay off the bonds when they mature. As a result,
tribes are authorized to issue approximately $75 million in
bonds with funds identified to pay off the principal. This
would allow six to ten tribal schools to be constructed more
quickly than simply awaiting their turn for funding directly
through the appropriations process.
Indian tribes eligible to take advantage of this pilot
project fall into three categories: first, according to their
rank on the existing priority list for replacement schools;
second according to any additions to that priority list; or
third on the basis of the criteria used to determine the
priority list for replacement schools.

Section-by-Section Analysis

Section 1. Short title

The title of this bill is the Indian School Construction
Act.

Section 2. Definitions

For purposes of this Act definitions for terms such as
Bureau, Indian, Tribe and Tribal School are included. A
``Tribal School'' is defined to include elementary and
secondary schools as well as dormitories operated by tribal
organizations and receiving funds under the Indian Self
Determination and Education Assistance Act (25 U.S.C. 450f,
450(a), and 458(d) or under the Tribally Controlled Schools Act
of 1988 (25 U.S.C. 2501 et seq.). The definition makes both
contract and grant schools eligible for programs within the
Act. In subsection (5), the definition of ``Tribe'' is the same
as ``tribal government'' as that term is defined in Section
7701(a) of the Internal Revenue Code.

Section 3. Issuance of bonds

Under the Act, a pilot program is established providing
eligible tribes the authority to issue bonds to provide funding
to construct new tribal schools. To be eligible to participate
in the pilot program Section 3(b) requires a tribe to:
(1) prepare and submit a plan of construction that
includes a description of the improvements, repairs or
new construction;
(2) undertake a comprehensive survey reflecting the
construction or renovation needs of the school
involved;
(3) provide assurances that bond funding will be used
only for needs reflected in the plan; and any other
related information determined appropriated by the
Secretary, and
(4) fill out an evaluation criteria form contained in
Instructions and Application for Replacement School
Construction, Revision 6, February 6, 1999, and provide
any other related information deemed appropriate by the
Secretary.
Section 3(b)(3) discusses the approval process of tribes
applying for bonding authority. Priority will be given to
tribal schools currently on the BIA Replacement School
Construction Priority List. Priority for schools not on the
list will be based upon the BIA's criteria for determining
``greatest need.''
Section 3(b)(4) authorizes tribes to use escrow funds for
costs associated with advance planning such as designing a and
developing blueprints plans for a new school. In order to use
escrow funds for advance planning and design, the tribe must
request such funding in the initial plan of construction and
must agree to pay back the full amount from bond revenues.
Section 3(c) authorizes tribes to use bond revenues to
retain and pay for licensed and bonded architects, engineers,
financial advisors and other professionals whose services are
required to assist tribes in bond issuance and school design.
Section 3(d) requires each tribe to obtain a trustee to
manage revenues received as a result of bond issuance. All
bonds issued shall be subject to a trust agreement between the
tribe and a trustee. Any bank or guarantee company meeting
requirements set forth by the Secretary may serve as trustee.
The duties of the trustee with respect to the bonds issued
include: acting as a repository for bond proceeds; making
payments to bondholders; investing the escrow money in
obligations that are fully guaranteed by the United States; and
investing the bond revenue in a segregated account. The trustee
must have the project inspected for completion by a local
financial institution or licensed professional before paying
the contractor(s).
Section 3(e) specifies that outstanding principal due on
any qualified tribal school modernization bond is due on the
stated maturity date which is within 15 years from the date of
issuance. In lieu of interest, bondholders will be awarded a
tax credit under section 1400F of the Internal Revenue Code of
1986.
Section 3(f) establishes an escrow account to guarantee
payment of the principal on issued bonds. Payment of the
principal portion of bonds is guaranteed by amounts transferred
from the tribal school modernization escrow account and
deposited with each respective bond trustee. This section also
authorizes the Secretary to deposit not more than $30 million
into a tribal school modernization escrow account. The
Secretary is responsible for payments to trustees from money in
the tribal modernization escrow account. Any money not used by
a trustee for payment of project costs is to be returned to the
tribal school modernization escrow account.
Section 3(g) provides that tribes issuing tribal school
modernization bonds shall not be responsible to repay the
principal on the bond except to the extent of any escrowed
funds furnished by the tribe. This section also provides that
any land or facilities purchased or improved with bond revenue
may not be mortgaged or used as collateral for such bonds.
Section 3(h) authorizes the tribal school modernization
bonds to be sold at a purchase price equal to, or more than, or
less than the par amount.
Section 3(i) provides that any money earned through
investment of funds under the control of a trustee pursuant to
a trust agreement described in subsection (d) shall not be
subject to Federal income tax.
Section 3(j) provides that any sinking fund established to
ensure the payment of principal on qualified tribal school
modernization bonds are to be invested in assets guaranteed by
the United States or other assets as the Secretary of the
Treasury may authorize by regulation.

Section 1400F. Credit to holders of qualified tribal school
modernization provisions

Section (a) authorizes a credit against the tax imposed by
subchapter X for taxpayers holding qualified tribal school
modernization bonds.
Section (b) provides that the amount of such credit is
equal to 25% of the annual credit determined, which in turn, is
calculated by multiplying the applicable credit rate by the
outstanding face amount of the bond. Subsection (b)(3) provides
that the applicable credit rate with respect to a bond issue is
the average market yield on outstanding long-term corporate
debt obligations, to be determined on a monthly basis by the
Secretary. Subsection (b)(4) provides that for bonds issued
during the 3-month period ending on a credit allowance date,
the amount of the credit shall be a rateable portion of the
credit otherwise determined based on the portion of the 3-month
period during which the bond is outstanding.
Section (c) provides that the credit allowable to
bondholders in any taxable year shall not exceed the excess of
(1) the sum of the regular tax liability plus the tax imposed
by section 55, over the sum of the credits allowable under
subpart IV of subchapter A. Subsection (c)(2) provides that if
the tax credit exceeds that bondholders total tax liability,
then the excess is carried to the next year.
Section (d) provides various definitions used in Section
1400FF These definitions include ``Qualified Tribal School
Modernization Bond,'' which is defined to include any bond
issued under this Act whereby (1) 95% of the proceeds are used
for construction, rehabilitation or repair of a school facility
funded by the BIA, or for the acquisition of land on which such
a facility is to be constructed with part of the proceeds of
such issue; (2) the bond is issued by a tribe; (3) the issuer
designates such bond for the purposes of this section; and (4)
the term of each bond which is part of such issue does not
exceed 15 years. Subsection (d)(1)(B) provides a national
limitation of bonds issuable of $200 million in each of years
2001 and 2002, and zero after 2002. The bond limitation is to
be allocated to tribes by the Secretary of Interior according
to the terms of this Act. The ``Credit Allowance Date'' is
defined as the dates on which the tax credits will be allowed
to the bondholders. These are March 15, June 15, September 15
and December 15 respectively. The term ``bond'' includes any
obligation. The term ``Tribe'' has the meaning given that term
in Section 7701(a)(40) of the Internal Revenue Code.
Section (e) provides that credits allowable to the taxpayer
are included in gross income, and the amount so included is to
be treated as interest income.
Section (f) provides that if a tribal school modernization
bond is held by a regulated investment company, the credit
determined to be available is to be allowed to the shareholders
of such company under procedures prescribed by the Secretary.
Section (g) provides that the ownership of a qualified
tribal school modernization bond and the entitlement to the
credit with respect to such bond may be separated pursuant to
regulations prescribed by the Secretary. In case of such
separation, the credit is to be allowed to the person holding
the instrument evidencing entitlement to the credit and not to
the holder of the bond.
Section (h) provides that the credit allowed to a taxpayer
holding a qualified tribal school modernization bond is to be
treated as if it were a payment of estimated tax by such
taxpayer.
Section (i) provides that nothing in any law shall be
construed to limit the transferability of the credit allowed by
this Act through sale and repurchase agreements.
Section (j) authorizes the tax credit created by this bill
to be treated as credit allowable under part IV of subchapter A
of the Internal Revenue Code of 1986.
Section (k) provides that issuers of qualified tribal
school modernization bonds are required to submit reports
similar to reports required under section 149(e) to the
Secretary of the Treasury.

Section 5. Additional provision

Section 5 provides that nothing in this Act or in the
amendments made by this Act shall be construed to impact,
limit, or affect the sovereign immunity of the Federal or any
State or tribal government. The section further provides that
the Act is to take effect on the date of enactment, with bonds
being issued after December 31, 2000, regardless of the status
of the regulations.

Legislative History

S. 2580, the Indian School Construction Act, was introduced
on May 17, 2000 by Senator Tim Johnson with Senators Bingaman,
Inouye and Daschle as co-sponsors. Senators Cochran, Campbell,
Baucus and Reid subsequently joined as cosponsors. This
Committee held a hearing on the bill on September 6, 2000 and
received testimony from the Administration, tribal witnesses
and a financial consultant. The Committee convened a business
meeting to consider S. 2580 and other measures that had been
referred to it. On September 27, 2000, the Committee favorably
reported S. 2580 with a substitute amendment.

Committee Recommendation and Tabulation of Vote

On September 27, 2000, the Committee on Indian Affairs, in
an open business session, adopted an amendment in the nature of
a substitute to S. 2580 by voice vote and ordered the bill, as
amended, to be reported favorably to the Senate.

Cost and Budgetary Consideration

The cost estimate for S. 2580 as calculated by the
Congressional Budget Office and the Joint Committee on Taxation
are set forth below:

U.S. Congress,
Congressional Budget Office,
Washington, DC, October 11, 2000.
Hon. Ben Nighthorse Campbell,
Chairman, Committee on Indian Affairs,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 2580, the Indian
School Construction Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Paul
Cullinan.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.

S. 2580--Indian School Construction Act

Summary: S. 2580 would authorize Indian tribes to issue
qualified tribal school modernization bonds, which would carry
a new federal income tax credit. The bill also would authorize
the Secretary of the Interior to establish a $30-million escrow
account, the funds from which would be used to provide certain
tribes with enough collateral to issue these bonds. That
funding would augment existing education spending by the Bureau
of Indian Affairs (BIA).
CBO estimates that implementing S. 2580 would cost $30
million over the 2001-2005 period, assuming appropriation of
the authorized amount. The bill also would reduce federal
revenues (i.e., governmental receipts) by about $28 million
over the same period and by $111 million through 2010. Because
the bill would affect receipts, pay-as-you-go procedures would
apply.
S. 2580 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would impose no costs on state, local, or tribal
governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of S. 2580 is shown in the following table.
The costs of this legislation fall within budget function 500
(education, training, employment, and social services).
Basis of estimate: For this estimate, CBO assumes that S.
2580 will be enacted in October 2000, and that the authorized
amounts will be appropriated at that time.

BIA Education Spending Under Current Law:
Estimated Authorization Level \1\.............................. 585 599 614 625 644
Estimated Outlays.............................................. 548 591 605 620 635
Proposed Changes:
Authorization Level............................................ 30 0 0 0 0
Estimated Outlays.............................................. 7 12 11 0 0
BIA Education Spending Under S. 2580:
Estimated Authorization Level.................................. 615 599 614 629 644
Estimated Outlays.............................................. 555 603 616 620 635

CHANGES IN REVENUES

Qualified Tribal School Modernization Bonds Estimated Revenues..... (\2\) -2 -4 -9 -13
----------------------------------------------------------------------------------------------------------------
\1\ The amounts shown are CBO baseline projections, assuming annual increases for anticipated inflation. The
2000 appropriation for BIA education programs was $570 million.
\2\ Less than $500,000.

S. 2580 would authorize the Secretary of the Interior to
allow qualified Indian tribes to issue new school construction
bonds that would receive favorable federal income tax
treatment. Tribes could issue these bonds, up to a total of
$200 million a year in both calendar years 2001 and 2002, only
if they are able to establish trust agreements with approved
banks or trust companies. These trust agreements would specify
that the trustee would hold accounts for the tribes and would
handle all the proceeds from the bond issue, payments to bond
holders, investment of the funds that the tribes would deposit
into the account (including any grants from the Secretary for
this purpose), and earnings on the fund balances. Deposits by
(or on behalf of) the tribes would have to be sufficient, along
with earnings on the funds, to repay the principal on the
bonds. No principal payments would be required until a bond
matured, which in no case would be later than 15 years after
the issuance date. Tribes would not be responsible for any
interest payments on the bonds; instead the federal government
would provide a tax credit equal to the quarterly interest
payments that would have been paid if the bonds earned interest
at the corporate bond rate. In addition, tribes would not be
required to make any additional deposits in the trusteed
account if the balances are insufficient when the principal
payments are due.

Spending subject to appropriation

S. 2580 would authorize the Secretary, subject to the
availability of appropriated funds, to establish a pilot
program that would provide grants to certain tribes to provide
the funds through which the tribes could ensure the repayment
of the principal of the bonds that they issue. The Secretary
could deposit not more than $30 million into a tribal school
modernization escrow account. Projects that would be funded
through the account would be based upon the priorities list
described in the Education Facilities Replacement Construction
Priorities List, published January 31, 2000, in the Federal
Register or any subsequent such priorities list. In addition,
other school construction projects that meet the criteria
described in Instructions and Application for Replacement
Schools, Revision 6, dated February 6, 1999, could qualify. The
escrow funds could be used for advanced planning, design, and
construction for the replacement of tribal schools. Monies used
for planning and design activities would have to be repaid out
of the proceeds of the bond sales.
Based on discussions with BIA and Treasury staff as well as
a bond specialist, CBO estimates that the $30 million in escrow
funds would assist tribes in issuing approximately $70 million
of the $400 million in new bonds authorized by the bill, and
that the advanced planning and design costs would average
$750,000 per school. CBO assumes that five tribal schools would
receive full or partial funding for construction costs from the
escrow account. At least one tribe is currently using private
funds to finance the planning and design process, and might be
ready to issue modernization bonds during 2001. For that
school, CBO assumes that the tribe would not receive the escrow
money for planning and design purposes, but would receive $6
million for the repayment of principal owed by the tribe. We
expect four additional tribes would request and receive
distributions from the escrow fund for school planning and
design, totaling $1 million in 2001 and $2 million in 2002. We
expect these tribes to have successful bond issues in 2002 and
2003--two issues each year--with additional grants of $5.25
million to each tribe. Thus, CBO estimates that net
distributions from the new tribal school account would be $7
million in 2001, $12 million in 2002, and $11 million in 2003.

Revenues

S. 2580 would create a new income tax credit for qualified
tribal school modernization bonds. The bill authorizes $200
million in bond authority each year in calendar years 2001 and
2002, and any unused authority may be carried over in the
following years. The Joint Committee on Taxation estimates
these bonds would reduce federal revenues by $28 million over
the 2001-2005 period and $111 million during the 10-year period
ending in 2010.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Acts sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. The net
changes in receipts that are subject to pay-as-you-go
procedures are shown in the following table. For the purposes
of enforcing pay-as-you-go procedures, only the effects in the
budget year and the four following years are counted.

----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
----------------------------------------------------------------------------------------------------------------
Changes in outlays.............. Not applicable
Changes in receipts............. 0 -2 -4 -9 -13 -16 -17 -17 -17 -17
----------------------------------------------------------------------------------------------------------------

Intergovernmental and private-sector impact: S. 2580
contains no intergovernmental or private-sector mandates as
defined in UMRA and would impose no costs on state, local, or
tribal governments. Enacting this legislation would benefit
those Indian tribes that would be eligible to issue school
modernization bonds. Any costs incurred by these tribes to meet
the conditions established in the bill would be voluntary.
Estimate prepared by: Federal Costs: Paul Cullinan. Federal
Revenues: Erin Whitaker. Impact on State, Local, and Tribal
Governments: Marjorie Miller. Impact on the Private Sector:
Lauren Marks.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.

Regulatory Impact Statement

Paragraph 11(b) of rule XXVI of the Standing Rules of the
Senate requires that each report accompanying a bill to
evaluate the regulatory paperwork impact that would be incurred
in implementing the legislation. The Committee has concluded
that enactment of S. 2580 will result in de minimis regulatory
and paperwork impact.

Executive Communications

The views on the Administration on S. 2580 are set forth in
a letter of September 11, 2000 to Chairman Ben Nighthorse
Campbell from the Honorable Kevin Gover, Assistant Secretary--
Indian Affairs, U.S. Department of the Interior, and in a
letter of September 14, 2000, to Chairman Ben Nighthorse
Campbell from Jonathan Talisman, Acting Assistant Secretary
(Tax Policy), U.S. Department of the Treasury, as follows:

U.S. Department of the Interior,
Office of the Secretary,
Washington, DC, September 11, 2000.
Hon. Ben Nighthorse Campbell,
Chairman, Committee on Indian Affairs,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: This letter sets forth the views of the
Department of the Interior on S. 2580, the Indian School
Construction Act.
The Bureau of Indian Affairs (BIA) is the primary agency of
the Federal Government charged with the responsibility to
administer policy and operation for the Indian education
programs at 185 federally recognized Tribal or BIA-managed
schools. A critical part of the education program is school
facilities, which Indian students attend.
The BIA's facilities inventory is large, over 6,000
buildings, of which nearly 4,500 serve the BIA's education
program. The 185 BIA-funded schools consist of over 20 million
square feet of space and include dormitories, employee housing
quarters, and other buildings providing educational
opportunities to over 50,000 students. The BIA operates or
provides education opportunities to Indian students in 23
states through Self-Determination contracts, compacts and
education grants. The education program is critical to Indian
communities as pointed out by the President in Executive Order
13096, which calls for creating educational opportunities in
our nation for Native Indian students.
More than half of the school facilities inventory has
exceeded its useful building life of 30 years and, as a result,
numerous deficiencies exist regarding health, safety,
disability access, classroom size, computer and communications
technology, and administrative office space. Extensive repair
or total replacements are needed for these deteriorated
structures, which no longer meet national building codes and
standards. The existing backlog of education facility repair
needs is over $800 million.
National studies of public schools have shown that the
condition of education facilities have a definite influence on
a student's ability to learn. The majority of the BIA's schools
are old and in poor condition, and the physical environment has
adversely impacted the education of Indian students who must
attend these institutions.
It is against this backdrop that the urgency and necessity
to upgrade and modernize the BIA's aging educational facilities
becomes apparent. The President has proposed the use of School
Modernization Bonds in support of the renovation and
construction of public and NativeAmerican schools throughout
the U.S. School Modernization Bonds pay interest in the form of federal
tax credits to investors, making the bonds interest-free for school
districts. Under the President's proposal, $200 million of such bonds
would be authorized for BIA-funded schools in both FY 2001 and FY 2002.
The FY 2001 budget reflects the Administration's support by including
substantial increases for school construction with over $300 million
requested for facilities replacement, repair, and maintenance. Of this
$300 million, up to $30 million may be used to defease the principal on
school modernization bonds. Using $30 million to create sinking funds
to repay the principal of the School Modernization Bonds will allow
about $60 million of the proceeds from these bonds to be used for
construction and repair of BIA-funded schools.
S. 2580 would allow tax credit bonds to be issued only in
those cases where sinking funds had been created out of the $30
million. Tribal governments should have the opportunity to use
the remainder of the $200 million in bonding authority even
without these sinking funds to leverage their resources and
issue bonds. We would recommend a provision to allow for the
use of the remainder of the bonding authority.
If the discretionary program is funded at the requested
level, the three remaining schools of the total 16 school
projects published in the Federal Register priority list of
December 1993 will receive full construction funding. In
addition, the first three schools on the new priority list
published in January 2000 would also receive full funding.
Another round of applications and selections is being
contemplated to keep pace with Congressional appropriations at
an anticipated rate of 4-6 school projects per year. We are
also exploring possibilities for sharing costs with tribal
partners in an effort to obtain non-Federal resources and speed
construction of replacement schools.
The BIA has made good progress in the management and
administration of its school construction program during the
last several years. The long-range 5-year Capital Improvement
Plan addresses our backlog of code and standard deficiencies,
but the need is great and will require massive outlays of
resources if measurable results are to be made in stopping
further deterioration and eliminating the backlog. The BIA is
placing strong emphasis on capital asset planning and
investment control. The BIA's construction processes were re-
engineered several years ago with a resultant success in
reducing the time to complete a school from an average of 6-7
years down to 2-3 years. This achievement was recognized in
February 1999, when the BIA facilities construction program
received the Vice President's Hammer Award for excellence in
re-engineering the new school construction process.
We support the concept within S.2580, the Indian School
Construction Act. The Administration has endorsed a separate
bipartisan proposal sponsored by Reps. Nancy Johnson and
Charles Rangel, introduced as H.R. 4094. This legislation
includes all the components of the national School
Modernization Bonding Initiative including the authority for
tribal governments to issue $200 million of tax credit bonds in
both FY 2001 and FY 2002 for BIA-funded schools. While we can
support separate legislation for BIA-funded schools that is
consistent with the goals of the national Initiative, we have
several concerns with S. 2580. The following provides a list of
the Department's concerns with the current language in S. 2580:

Section 2(4) Definition of Tribal Schools

The definition of tribal schools should be expanded to
include BIA operated schools. As written, the language would
extend bonding authority to only those tribes with schools
operated under contracts, grants, and by cooperative agreement.

Section 2(5) Definition of Tribe

The bonds should be issued by Indian Tribal Governments as
defined in section 7701 of the Internal Revenue Code.

Section 3 Issuance of Bonds (a) In General

The phrase ``new construction'' may be interpreted to
connote the establishment and building of a new school, instead
of replacement or rehabilitation of BIA's current 185
elementary and secondary schools.

Section 3 Issuance of Bonds (b) Eligibility

Needs to be clarified as to how the comprehensive survey
mentioned in the legislation would relate to the current BIA
backlog of code and standard deficiencies, space guidelines and
or education specifications, which currently regulate school
facilities. Further, we ask that the phrases ``and cost'' and
``critical health and safety related'' be inserted to language
in Sec. 3. (b)(2)(A) as follows: ``contains a description and
cost of the critical health and safety related improvements,
repairs, or new construction * * *''

Section 3. (b)(3) Priority

The Department agrees with the language that says the
priority will be given to projects described in the Replacement
School Construction priority list, however we are concerned
that the current language makes no reference to how priorities
will be established for Facilities Improvement and Repair
(FI&R) projects.
Concern: We have a concern about whether these projects
will also be based on a BIA National FI&R Ranking List, and if
this list will be established based on need relating to health
and safety code and standard deficiencies.

Section 3. (b)(4) Approval

The language currently reads ``* * * approved plans of
construction will be based on the order in which the plans are
received by the Secretary * * *''
Concern: We are concerned that this might give (1) tribes
that have financial resources an advantage over poor tribes;
(2) not correspond to the National Priority List order for
Replacement Schools by allowing more of a first come first
served basis on consideration; and (3) not correspond to the
National FI&R lists established based upon need as shown in
backlog of code and standard deficiencies.

Section 3. (c) Permissible Activities (1)

(1) enter into contracts with A/E's contractors, * * * in
order to determine needs of Tribal schools.
Concern: We are concerned that there is no language
provided on the qualifications of the people listed, i.e.,
professional engineers. We suggest more accountability with
reference to the inspection of the final product. We advocate
that the facilities should be inspected by those knowledgeable
of space requirements, safety codes, etc.

Section 3. (d) Bond Trustee (4)(A)

The language ``* * * the tribe shall require the trustee *
* * to inspect the project * * * or provide for an inspection
of that project by a local financial institution to ensure
completion of the project''
Concern: The current state of the language here provides no
provision for BIA inspection and clearance by the Office of
Facilities Management and Construction. The BIA should have
review and inspection of oversight of education specifications,
planning, design and the final inspection authority.

Section 3. (f) Bond Guarantees (2)(A)

The language here states ``* * * notwithstanding any other
provision of law, subject to the availability of amounts made
available under any appropriations Act, beginning in fiscal
year 2001, the Secretary may deposit not more than $30,000,000
of unobligated funds into a tribal school modernization escrow
account.'' Neither the House nor the Senate appropriated FY
2001 funds for the School Bonding Initiative.
Concern: The Department has serious concerns with this
section of the proposed bill that is broadly worded and
authorizes the use of unobligated funds from any account under
any appropriations Act to be made available for the Bonding
Initiative. This could result in displacement of funding for
high priority projects within the same appropriation or within
any appropriations Act.

Section 3. (g) Limitations (1)

Concern: As drafted, this language creates a new loan
guarantee program that would be subject to the Federal Credit
Reform Act of 1990, as amended. In addition to implementation
issues, we are concerned that the Federal Government would
ultimately be responsible for repayment on the bonds if the
tribes are absolved of the responsibility to repay principal in
the event that something goes wrong. We would recommend a clear
statement in the bill that ``Neither BIA nor any other Federal
agency will be liable for repayment should the tribes fail to
repay principal on the bonds.''

Section 4. Expansion of Incentives for Schools

Subchapter X--Tribal School Modernization Provisions. The
Department is not in a position to comment on this section as
we recognize that this is within the purview of the Treasury
Department and should be evaluated by them.
We understand that Treasury has additional concerns with S.
2580 and will be submitting a letter to the Committee shortly.
We look forward to working with you and Committee staff to
support a bill that is consistent with the goals of the
Administration's proposal for School Modernization, and to
accomplish our mutual goal of providing quality educational
opportunities to American Indian youth in a contemporary
setting conducive to productive learning.
The Office of Management and Budget has advised that there
is no objection to the presentation of this report from the
standpoint of the Administration's program
Sincerely,
Kevin Gover,
Assistant Secretary for Indian Affairs.
------

Department of the Treasury,
Washington, September 14, 2000.
Hon. Ben Nighthorse Campbell,
Chairman, Committee on Indian Affairs,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Department of the Treasury is
pleased to submit these comments on S. 2580, the ``Indian
School Construction Act.'' Section 4 of the bill would amend
the Internal Revenue Code to allow specific amounts of tax
credit bonds to be issued for the construction, rehabilitation
or repair of tribal school facilities.
The amendments to the tax code contained in S. 2580 are
modeled on the portion of the Administration's proposal for
school modernization bonds that would provide authority to
issue $200 million of tax credit bonds in both 2001 and 2002
for the construction, rehabilitation or repair of Bureau of
Indian Affairs-funded schools. The Department hopes to work
closely with the tax-writing committees to enact the National
School Modernization bond proposal before Congress adjourns.
The proposal is a major priority of the Administration.
The Department would support enactment of a separate
provision dealing with Indian schools if structured along the
lines of the Administration's original proposal. To that end,
we urge that S. 2580 be amended to allow Indian tribal
governments, with the approval of the Bureau of Indian Affairs,
to issue tax credit bonds where repayment of principal is
provided by funds other than, or in addition to, any funds that
might be made available through section 3 of the bill. We also
urge that S. 2580 incorporate the technical specifications for
tax credit bonds contained in the Administration's proposal for
school modernization bonds and Better America Bonds. These
include requiring that 95 percent of any investment earnings be
treated as bond proceeds that must be used for allowable
purposes, and providing that any proceeds not expended within
three years be used to redeem outstanding bonds. The bill
should also include provisions requiring bond proceeds, and any
sinking funds established to repay bond principal, to be
invested safely. In addition, the definition of Indian tribal
governments eligible to issue tax credit bonds should, in order
to simplify administration of the program established under S.
2580, conform to the current definition in the tax code. Other
minor changes to S. 2580 would need to be made to allow these
tax credit bonds to be marketed easily and to permit the
program to be administered by the Internal Revenue Service.
The Department looks forward to working with the Congress
and the Bureau of Indian Affairs to ensure a bill that is
consistent with the goals of the Administration's proposal for
school modernization.
OMB has advised that there is no objection to the
presentation of this report from the standpoint of the
Administration's program.
Sincerely,
Jonathan Talisman,
Acting Assistant Secretary (Tax Policy).

Changes in Existing Law

In compliance with subsection 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
the bill are required to be set out in that accompanying
Committee report. The Committee finds that enactment of S. 2580
will result in the following changes in existing law. All text
to be inserted is indicated in italic. At the end of Chapter 1
of the Internal Revenue Code of 1986, the following new
subchapter will be added.

* * * * * * *

Sec. 1400F. Credit to holders of qualified tribal school modernization
bonds.
* * * * * * *

SEC. 1400F. CREDIT TO HOLDERS OF QUALIFIED TRIBAL SCHOOL MODERNIZATION
BONDS.

(a) Allowance of Credit.--In the case of a taxpayer who
holds a qualified tribal school modernization bond on a credit
allowance date of such bond which occurs during the taxable
year, there shall be allowed as a credit against the tax
imposed by this chapter for such taxable year an amount equal
to the sum of the credits determined under subsection (b) with
respect to credit allowance dates during such year on which the
taxpayer holds such bond.
(b) Amount of Credit.--
(1) In general.--The amount of the credit determined
under this subsection with respect to any credit
allowance date for a qualified tribal school
modernization bond is 25 percent of the annual credit
determined with respect to such bond.
(2) Annual credit.--The annual credit determined with
respect to any qualified tribal school modernization
bond is the product of--
(A) the applicable credit rate, multiplied by
(B) the outstanding face amount of the bond.
(3) Applicable credit rate.--For purposes of
paragraph (1), the applicable credit rate with respect
to an issue is the rate equal to an average market
yield (as of the day before the date of issuance of the
issue) on outstanding long-term corporate debt
obligations (determined monthly by the Secretary).
(4) Special rule for issuance and redemption.--In the
case of a bond which is issued during the 3-month
period ending on a credit allowance date, the amount of
the credit determined under this subsection with
respect to such credit allowance date shall be a
ratable portion of the credit otherwise determined
based on the portion of the 3-month period during which
the bond is outstanding. A similar rule shall apply
when the bond is redeemed.
(c) Limitation Based on Amount of Tax.--
(1) In general.--The credit allowed under subsection
(a) for any taxable year shall not exceed the excess
of--
(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed
by section 55, over
(B) the sum of the credits allowable under
part IV of subchapter A (other than subpart C
thereof, relating to refundable credits).
(2) Carryover of unused credit.--If the credit
allowable under subsection (a) exceeds the limitation
imposed by paragraph (1) for such taxable year, such
excess shall be carried to the succeeding taxable year
and added to the credit allowable under subsection (a)
for such taxable year.
(d) Qualified Tribal School Modernization Bond; Other
Definitions.--For purposes of this section--
(1) Qualified tribal school modernization bond.--
(A) In general.--The term ``qualified tribal
school modernization bond'' means, subject to
subparagraph (B), any bond issued as part of an
issue under section 3 of the Indian School
Construction Act, as in effect on the date of
the enactment of this section, if--
(i) 95 percent or more of the
proceeds of such issue are to be used
for the construction, rehabilitation,
or repair of a school facility funded
by the Bureau of Indian Affairs of the
Department of the Interior or for the
acquisition of land on which such a
facility is to be constructed with part
of the proceeds of such issue,
(ii) the bond is issued by a tribe,
(iii) the issuer designates such bond
for purposes of this section, and
(iv) the term of each bond which is
part of such issue does not exceed 15
years.
(B) National limitation on amount of bonds
designated.--
(i) National limitation.--There is a
national qualified tribal school
modernization bond limitation for each
calendar year. Such limitation is--
(I) $200,000,000 for 2001,
(ii) $200,000,000 for 2002,
and
(III) zero after 2002.
(ii) Allocation of Limitation.--The
national qualified tribal school
modernization bond limitation shall be
allocated to tribes by the Secretary of
the Interior pursuant to the Indian
School Construction Act as in effect on
the date of the enactment of this
section.
(iii) Designation Subject To
Limitation Amount.--The maximum
aggregate face amount of bonds issued
during any calendar year which may be
designated under subsection (d)(1) with
respect to any tribe shall not exceed
the limitation amount allocated to such
government under clause (ii) for such
calendar year.
(2) Credit Allowance Date.--The term ``credit
allowance date'' means--
(A) March 15,
(B) June 15,
(C) September 15, and
(D) December 15.
Such term includes the last day on which the bond is
outstanding.
(3) Bond.--The term ``bond'' includes any obligation.
(4) Tribe.--The term ``tribe'' has the meaning given
the term ``Indian tribal government'' by section
7701(a)(40), including the application of section
7871(d).
(e) Credit Included in Gross Income.--Gross income includes
the amount of the credit allowed to the taxpayer under this
section (determined without regard to subsection (c)) and the
amount so included shall be treated as interest income.
(f) Bonds Held by Regulated Investment Companies.-- If any
qualified tribal school modernization bond is held by a
regulated investment company, the credit determined under
subsection (a) shall be allowed to shareholders of such company
under procedures prescribed by the Secretary.
(g) Credits May Be Stripped.--Under regulations prescribed
by the Secretary--
(1) In general.--There may be a separation (including
at issuance) of th4e ownership of a qualified tribal
school modernization bond and the entitlement to the
credit under this section with respect to such bond. In
case of any such separation, the credit under this
section shall be allowed to the person who on the
credit allowance date holds the instrument evidencing
the entitlement to the credit and not to the holder of
the bond.
(2) Certain rules to apply.--In the case of a
separation described in paragraph (1)(, the rules of
section 1286 shall apply to the qualified tribal school
modernization bond as if it were a stripped bond and to
the credit under this section as if it were a stripped
coupon.
(h) Treatment for Estimated Tax Purposes.--Solely for
purposes of sections 6654 and 6655, the credit allowed by this
section to a taxpayer by reason of holding a qualified tribal
school modernization bonds on a credit allowance date shall be
treated as if it were a payment of estimated tax made by the
taxpayer on such date.
(i) Credit May Be Transferred.--Nothing in any law or rule
of law shall be construed to limit the transferability of the
credit allowed by this section through sale and repurchasing
agreements.
(j) Credit Treated As Allowed Under Part IV of Subchapter
A.--For purposes of subtitle F, the credit allowed by this
section shall be treated as a credit allowable under part IV of
subchapter A of this chapter.
(k) Reporting.--Issuers of qualified tribal school
modernization bonds shall submit reports similar to the reports
required under section 149(e).