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

`(a) ALLOWANCE OF CREDIT- In the case of a taxpayer who holds a qualified public school modernization bond on 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 public 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 public 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 under regulations prescribed 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 PUBLIC SCHOOL MODERNIZATION BOND; CREDIT ALLOWANCE DATE- For purposes of this section--

`(1) QUALIFIED PUBLIC SCHOOL MODERNIZATION BOND- The term `qualified public school modernization bond' means--

`(A) a qualified zone academy bond, and

`(B) a qualified school construction bond.

`(2) CREDIT ALLOWANCE DATE- The term `credit allowance date' means--

`(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.

`(e) OTHER DEFINITIONS- For purposes of this subchapter--

`(1) LOCAL EDUCATIONAL AGENCY- The term `local educational agency' has the meaning given to such term by section 14101 of the Elementary and Secondary Education Act of 1965. Such term includes the local educational agency that serves the District of Columbia but does not include any other State agency.

`(2) BOND- The term `bond' includes any obligation.

`(3) STATE- The term `State' includes the District of Columbia and any possession of the United States.

`(4) PUBLIC SCHOOL FACILITY- The term `public school facility' shall not include--

`(A) any stadium or other facility primarily used for athletic contests or exhibitions or other events for which admission is charged to the general public, or

`(B) any facility which is not owned by a State or local government or any agency or instrumentality of a State or local government.

`(f) 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.

`(g) BONDS HELD BY REGULATED INVESTMENT COMPANIES- If any qualified public school modernization bond is held by a regulated investment company, the credit determined under subsection (a) shall be allowed to shareholders of such company under procedures prescribed by the Secretary.

`(h) CREDITS MAY BE STRIPPED- Under regulations prescribed by the Secretary--

`(1) IN GENERAL- There may be a separation (including at issuance) of the ownership of a qualified public 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 public school modernization bond as if it were a stripped bond and to the credit under this section as if it were a stripped coupon.

`(i) 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 public school modernization bond on a credit allowance date shall be treated as if it were a payment of estimated tax made by the taxpayer on such date.

`(j) 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 repurchase agreements.

`(k) REPORTING- Issuers of qualified public school modernization bonds shall submit reports similar to the reports required under section 149(e).

`(l) PENALTY ON CONTRACTORS FAILING TO PAY PREVAILING WAGE -

`(1) IN GENERAL- If any contractor on any project funded by any qualified public school modernization bond has failed, during any portion of such contractor's taxable year, to pay prevailing wages that would be required under section 439 of the General Education Provisions Act if such funding were an applicable program under such section, the tax imposed by chapter 1 on such contractor for such taxable year shall be increased by 200 percent of the amount involved in such failure.

`(2) AMOUNT INVOLVED- For purposes of paragraph (1), the amount involved with respect to any failure is the excess of the amount of wages such contractor would be so required to pay under such section over the amount of wages paid.

`(3) ABATEMENT OF TAX IF FAILURE CORRECTED- If a failure to pay prevailing wages is corrected within a reasonable period, then any tax imposed by paragraph (1) with respect to such failure (including interest, additions to the tax, and additional amounts) shall not be assessed, and if assessed the assessment shall be abated, and if collected shall be credited or refunded as an overpayment.

`(4) NO CREDITS AGAINST TAX- The tax imposed by paragraph (1) shall not be treated as a tax imposed by this chapter for purposes of determining--

`(A) the amount of any credit allowable under this chapter, or

`(B) the amount of the minimum tax imposed by section 55.

`(m) TERMINATION- This section shall not apply to any bond issued after December 31, 2004.

`PART II--QUALIFIED SCHOOL CONSTRUCTION BONDS

`Sec. 1400G. Qualified school construction bonds.

`SEC. 1400G. QUALIFIED SCHOOL CONSTRUCTION BONDS.

`(a) QUALIFIED SCHOOL CONSTRUCTION BOND- For purposes of this subchapter, the term `qualified school construction bond' means any bond issued as part of an issue if--

`(1) 95 percent or more of the proceeds of such issue are to be used for the construction, rehabilitation, or repair of a public school facility 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 State or local government within the jurisdiction of which such school is located,

`(3) the issuer designates such bond for purposes of this section, and

`(4) the term of each bond which is part of such issue does not exceed 15 years.

`(b) LIMITATION ON AMOUNT OF BONDS DESIGNATED- The maximum aggregate face amount of bonds issued during any calendar year which may be designated under subsection (a) by any issuer shall not exceed the sum of--

`(1) the limitation amount allocated under subsection (d) for such calendar year to such issuer, and

`(2) if such issuer is a large local educational agency (as defined in subsection (e)(4)) or is issuing on behalf of such an agency, the limitation amount allocated under subsection (e) for such calendar year to such agency.

`(c) NATIONAL LIMITATION ON AMOUNT OF BONDS DESIGNATED- There is a national qualified school construction bond limitation for each calendar year. Such limitation is--

`(1) $11,000,000,000 for 2001,

`(2) except as provided in subsection (f), zero after 2001.

`(d) HALF OF LIMITATION ALLOCATED AMONG STATES-

`(1) IN GENERAL- One-half of the limitation applicable under subsection (c) for any calendar year shall be allocated among the States under paragraph (2) by the Secretary. The limitation amount allocated to a State under the preceding sentence shall be allocated by the State to issuers within such State and such allocations may be made only if there is an approved State application.

`(2) ALLOCATION FORMULA- The amount to be allocated under paragraph (1) for any calendar year shall be allocated among the States in proportion to the respective amounts each such State received for Basic Grants under subpart 2 of part A of title I of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 6331 et seq.) for the most recent fiscal year ending before such calendar year. For purposes of the preceding sentence, Basic Grants attributable to large local educational agencies (as defined in subsection (e)) shall be disregarded.

`(3) MINIMUM ALLOCATIONS TO STATES-

`(A) IN GENERAL- The Secretary shall adjust the allocations under this subsection for any calendar year for each State to the extent necessary to ensure that the sum of--

`(i) the amount allocated to such State under this subsection for such year, and

`(ii) the aggregate amounts allocated under subsection (e) to large local educational agencies in such State for such year,

is not less than an amount equal to such State's minimum percentage of the amount to be allocated under paragraph (1) for the calendar year.

`(B) MINIMUM PERCENTAGE- A State's minimum percentage for any calendar year is the minimum percentage described in section 1124(d) of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 6334(d)) for such State for the most recent fiscal year ending before such calendar year.

`(4) ALLOCATIONS TO CERTAIN POSSESSIONS- The amount to be allocated under paragraph (1) to any possession of the United States other than Puerto Rico shall be the amount which would have been allocated if all allocations under paragraph (1) were made on the basis of respective populations of individuals below the poverty line (as defined by the Office of Management and Budget). In making other allocations, the amount to be allocated under paragraph (1) shall be reduced by the aggregate amount allocated under this paragraph to possessions of the United States.

`(5) ALLOCATIONS FOR INDIAN SCHOOLS- In addition to the amounts otherwise allocated under this subsection, $200,000,000 for calendar year 2001 shall be allocated by the Secretary of the Interior for purposes of the construction, rehabilitation, and repair of schools funded by the Bureau of Indian Affairs. In the case of amounts allocated under the preceding sentence, Indian tribal governments (as defined in section 7871) shall be treated as qualified issuers for purposes of this subchapter.

`(6) APPROVED STATE APPLICATION- For purposes of paragraph (1), the term `approved State application' means an application which is approved by the Secretary of Education and which includes--

`(A) the results of a recent publicly-available survey (undertaken by the State with the involvement of local education officials, members of the public, and experts in school construction and management) of such State's needs for public school facilities, including descriptions of--

`(i) health and safety problems at such facilities,

`(ii) the capacity of public schools in the State to house projected enrollments, and

`(iii) the extent to which the public schools in the State offer the physical infrastructure needed to provide a high-quality education to all students, and

`(B) a description of how the State will allocate to local educational agencies, or otherwise use, its allocation under this subsection to address the needs identified under subparagraph (A), including a description of how it will--

`(i) give highest priority to localities with the greatest needs, as demonstrated by inadequate school facilities coupled with a low level of resources to meet those needs,

`(ii) use its allocation under this subsection to assist localities that lack the

fiscal capacity to issue bonds on their own, and

`(iii) ensure that its allocation under this subsection is used only to supplement, and not supplant, the amount of school construction, rehabilitation, and repair in the State that would have occurred in the absence of such allocation.

Any allocation under paragraph (1) by a State shall be binding if such State reasonably determined that the allocation was in accordance with the plan approved under this paragraph.

`(e) HALF OF LIMITATION ALLOCATED AMONG LARGEST SCHOOL DISTRICTS-

`(1) IN GENERAL- One-half of the limitation applicable under subsection (c) for any calendar year shall be allocated under paragraph (2) by the Secretary among local educational agencies which are large local educational agencies for such year. No qualified school construction bond may be issued by reason of an allocation to a large local educational agency under the preceding sentence unless such agency has an approved local application.

`(2) ALLOCATION FORMULA- The amount to be allocated under paragraph (1) for any calendar year shall be allocated among large local educational agencies in proportion to the respective amounts each such agency received for Basic Grants under subpart 2 of part A of title I of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 6331 et seq.) for the most recent fiscal year ending before such calendar year.

`(3) ALLOCATION OF UNUSED LIMITATION TO STATE- The amount allocated under this subsection to a large local educational agency for any calendar year may be reallocated by such agency to the State in which such agency is located for such calendar year. Any amount reallocated to a State under the preceding sentence may be allocated as provided in subsection (d)(1).

`(4) LARGE LOCAL EDUCATIONAL AGENCY- For purposes of this section, the term `large local educational agency' means, with respect to a calendar year, any local educational agency if such agency is--

`(A) among the 100 local educational agencies with the largest numbers of children aged 5 through 17 from families living below the poverty level, as determined by the Secretary using the most recent data available from the Department of Commerce that are satisfactory to the Secretary, or

`(B) 1 of not more than 25 local educational agencies (other than those described in subparagraph (A)) that the Secretary of Education determines (based on the most recent data available satisfactory to the Secretary) are in particular need of assistance, based on a low level of resources for school construction, a high level of enrollment growth, or such other factors as the Secretary deems appropriate.

`(5) APPROVED LOCAL APPLICATION- For purposes of paragraph (1), the term `approved local application' means an application which is approved by the Secretary of Education and which includes--

`(A) the results of a recent publicly-available survey (undertaken by the local educational agency or the State with the involvement of school officials, members of the public, and experts in school construction and management) of such agency's needs for public school facilities, including descriptions of--

`(i) the overall condition of the local educational agency's school facilities, including health and safety problems,

`(ii) the capacity of the agency's schools to house projected enrollments, and

`(iii) the extent to which the agency's schools offer the physical infrastructure needed to provide a high-quality education to all students,

`(B) a description of how the local educational agency will use its allocation under this subsection to address the needs identified under subparagraph (A), and

`(C) a description of how the local educational agency will ensure that its allocation under this subsection is used only to supplement, and not supplant, the amount of school construction, rehabilitation, or repair in the locality that would have occurred in the absence of such allocation.

A rule similar to the rule of the last sentence of subsection (d)(6) shall apply for purposes of this paragraph.

`(f) CARRYOVER OF UNUSED LIMITATION- If for any calendar year--

`(1) the amount allocated under subsection (d) to any State, exceeds

`(2) the amount of bonds issued during such year which are designated under subsection (a) pursuant to such allocation,

the limitation amount under such subsection for such State for the following calendar year shall be increased by the amount of such excess. A similar rule shall apply to the amounts allocated under subsection (d)(5) or (e).

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