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

July 28, 2005

Mr. ROCKEFELLER introduced the following bill; which was read twice and referred to the Committee on Finance

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

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

SECTION 1. SHORT TITLE.

This Act may be cited as the `America's Better Classroom Act of 2005'.

SEC. 2. EXPANSION OF INCENTIVES FOR PUBLIC SCHOOLS.

(a) In General- Chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subchapter:

`Subchapter Z--Public School Modernization Provisions

`Sec. 1400M. Credit to holders of qualified public school modernization bonds.

`Sec. 1400N. Qualified school construction bonds.

`Sec. 1400O. Qualified zone academy bonds.

`Sec. 1400P. Qualified tribal school modernization bonds.

`SEC. 1400M. 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,

`(B) a qualified school construction bond, and

`(C) a qualified tribal school modernization 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 9101 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) Recapture of Portion of Credit Where Cessation of Compliance-

`(1) IN GENERAL- If any bond which when issued purported to be a qualified public school modernization bond ceases to be a qualified public school modernization bond, the issuer shall pay to the United States (at the time required by the Secretary) an amount equal to the sum of--

`(A) the aggregate of the credits allowable under this section with respect to such bond (determined without regard to subsection (c)) for taxable years ending during the calendar year in which such cessation occurs and the 2 preceding calendar years, and

`(B) interest at the underpayment rate under section 6621 on the amount determined under subparagraph (A) for each calendar year for the period beginning on the first day of such calendar year.

`(2) FAILURE TO PAY- If the issuer fails to timely pay the amount required by paragraph (1) with respect to such bond, the tax imposed by this chapter on each holder of any such bond which is part of such issue shall be increased (for the taxable year of the holder in which such cessation occurs) by the aggregate decrease in the credits allowed under this section to such holder for taxable years beginning in such 3 calendar years which would have resulted solely from denying any credit under this section with respect to such issue for such taxable years.

`(3) SPECIAL RULES-

`(A) TAX BENEFIT RULE- The tax for the taxable year shall be increased under paragraph (2) only with respect to credits allowed by reason of this section which were used to reduce tax liability. In the case of credits not so used to reduce tax liability, the carryforwards and carrybacks under section 39 shall be appropriately adjusted.

`(B) NO CREDITS AGAINST TAX- Any increase in tax under paragraph (2) shall not be treated as a tax imposed by this chapter for purposes of determining--

`(i) the amount of any credit allowable under this part, or

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

`(h) 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.

`(i) 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.

`(j) 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 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.

`(k) 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.

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

`(m) Termination- This section shall not apply to any bond issued after September 30, 2007 (December 31, 2012, in the case of any qualified tribal school modernization bond).

`SEC. 1400N. 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 limitation amount allocated under subsection (d) for such calendar year to such issuer.

`(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 2006,

`(2) $11,000,000,000 for 2007, and

`(3) except as provided in subsection (f), zero after 2007.

`(d) Limitation Allocated Among States-

`(1) IN GENERAL- The limitation applicable under subsection (c) for any calendar year shall be allocated by the Secretary among the States in proportion to the respective amounts each such State received for basic grants under section 1124 of the Elementary and Secondary Education Act of 1965 for the most recent fiscal year ending before such calendar year. The limitation amount allocated to a State under the preceding sentence shall be allocated by the State to issuers within such State.

`(2) 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 amount allocated to such State under this subsection 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 for such State for the most recent fiscal year ending before such calendar year.

`(3) 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.

`(e) 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)(4).

`(f) Special Rules Relating to Arbitrage-

`(1) IN GENERAL- A bond shall not be treated as failing to meet the requirement of subsection (a)(1) solely by reason of the fact that the proceeds of the issue of which such bond is a part are invested for a temporary period (but not more than 36 months) until such proceeds are needed for the purpose for which such issue was issued.

`(2) BINDING COMMITMENT REQUIREMENT- Paragraph (1) shall apply to an issue only if, as of the date of issuance, there is a reasonable expectation that--

`(A) at least 10 percent of the proceeds of the issue will be spent within the 6-month period beginning on such date for the purpose for which such issue was issued, and

`(B) the remaining proceeds of the issue will be spent with due diligence for such purpose.

`(3) EARNINGS ON PROCEEDS- Any earnings on proceeds during the temporary period shall be treated as proceeds of the issue for purposes of applying subsection (a)(1) and paragraph (1) of this subsection.

`SEC. 1400O. QUALIFIED ZONE ACADEMY BONDS.

`(a) Qualified Zone Academy Bond- For purposes of this subchapter--

`(1) IN GENERAL- The term `qualified zone academy bond' means any bond issued as part of an issue if--

`(A) 95 percent or more of the proceeds of such issue are to be used for a qualified purpose with respect to a qualified zone academy established by a local educational agency,

`(B) the bond is issued by a State or local government within the jurisdiction of which such academy is located,

`(C) the issuer--

`(i) designates such bond for purposes of this section,

`(ii) certifies that it has written assurances that the private business contribution requirement of paragraph (2) will be met with respect to such academy, and

`(iii) certifies that it has the written approval of the local educational agency for such bond issuance, and

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

Rules similar to the rules of section 1400N(f) shall apply for purposes of subparagraph (A).

`(2) PRIVATE BUSINESS CONTRIBUTION REQUIREMENT-

`(A) IN GENERAL- For purposes of paragraph (1), the private business contribution requirement of this paragraph is met with respect to any issue if the local educational agency that established the qualified zone academy has written commitments from private entities to make qualified contributions having a present value (as of the date of issuance of the issue) of not less than 10 percent of the proceeds of the issue.

`(B) QUALIFIED CONTRIBUTIONS- For purposes of subparagraph (A), the term `qualified contribution' means any contribution (of a type and quality acceptable to the local educational agency) of--

`(i) equipment for use in the qualified zone academy (including state-of-the-art technology and vocational equipment),

`(ii) technical assistance in developing curriculum or in training teachers in order to promote appropriate market driven technology in the classroom,

`(iii) services of employees as volunteer mentors,

`(iv) internships, field trips, or other educational opportunities outside the academy for students, or

`(v) any other property or service specified by the local educational agency.

`(3) QUALIFIED ZONE ACADEMY- The term `qualified zone academy' means any public school (or academic program within a public school) which is established by and operated under the supervision of a local educational agency to provide education or training below the postsecondary level if--

`(A) such public school or program (as the case may be) is designed in cooperation with business to enhance the academic curriculum, increase graduation and employment rates, and better prepare students for the rigors of college and the increasingly complex workforce,

`(B) students in such public school or program (as the case may be) will be subject to the same academic standards and assessments as other students educated by the local educational agency,

`(C) the comprehensive education plan of such public school or program is approved by the local educational agency, and

`(D)(i) such public school is located in an empowerment zone or enterprise community (including any such zone or community designated after the date of the enactment of this section), or

`(ii) there is a reasonable expectation (as of the date of issuance of the bonds) that at least 35 percent of the students attending such school or participating in such program (as the case may be) will be eligible for free or reduced-cost lunches under the school lunch program established under the Richard B. Russell National School Lunch Act.

`(4) QUALIFIED PURPOSE- The term `qualified purpose' means, with respect to any qualified zone academy--

`(A) constructing, rehabilitating, or repairing the public school facility in which the academy is established,

`(B) acquiring the land on which such facility is to be constructed with part of the proceeds of such issue,

`(C) providing equipment for use at such academy,

`(D) developing course materials for education to be provided at such academy, and

`(E) training teachers and other school personnel in such academy.

`(b) Limitations on Amount of Bonds Designated-

`(1) IN GENERAL- There is a national zone academy bond limitation for each calendar year. Such limitation is--

`(A) $400,000,000 for 1998,

`(B) $400,000,000 for 1999,

`(C) $400,000,000 for 2000,

`(D) $400,000,000 for 2001,

`(E) $400,000,000 for 2002,

`(F) $400,000,000 for 2003,

`(G) $400,000,000 for 2004,

`(H) $400,000,000 for 2005,

`(I) $1,400,000 for 2006,

`(J) $1,400,000 for 2007, and

`(K) except as provided in paragraph (3), zero after 2007.

`(2) ALLOCATION OF LIMITATION-

`(A) ALLOCATION AMONG STATES-

`(i) 1998, 1999, 2000, 2001, 2002, 2003, 2004, AND 2005 LIMITATIONS- The national zone academy bond limitations for calendar years 1998, 1999, 2000, 2001, 2002, 2003, 2004, and 2005 shall be allocated by the Secretary among the States on the basis of their respective populations of individuals below the poverty line (as defined by the Office of Management and Budget).

`(ii) LIMITATION AFTER 2005- The national zone academy bond limitation for any calendar year after 2005 shall be allocated by the Secretary among the States in proportion to the respective amounts each such State received for basic grants under section 1124 of the Elementary and Secondary Education Act of 1965 for the most recent fiscal year ending before such calendar year.

`(B) ALLOCATION TO LOCAL EDUCATIONAL AGENCIES- The limitation amount allocated to a State under subparagraph (A) shall be allocated by the State to qualified zone academies within such State.

`(C) DESIGNATION SUBJECT TO LIMITATION AMOUNT- The maximum aggregate face amount of bonds issued during any calendar year which may be designated under subsection (a) with respect to any qualified zone academy shall not exceed the limitation amount allocated to such academy under subparagraph (B) for such calendar year.

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

`(A) the limitation amount under this subsection for any State, exceeds

`(B) the amount of bonds issued during such year which are designated under subsection (a) (or the corresponding provisions of prior law) with respect to qualified zone academies within such State, the limitation amount under this subsection for such State for the following calendar year shall be increased by the amount of such excess.

`SEC. 1400P. QUALIFIED TRIBAL SCHOOL MODERNIZATION BONDS.

`(a) Qualified Tribal School Modernization Bond- For purposes of this subchapter--

`(1) IN GENERAL- The term `qualified tribal school modernization bond' means, subject to paragraph (2), any bond issued as part of an issue under section 3(c) of the America's Better Classroom Act of 2005, as in effect on the date of the enactment of this section, if--

`(A) 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,

`(B) the bond is issued by an Indian tribe,

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

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

`(2) NATIONAL LIMITATION ON AMOUNT OF BONDS DESIGNATED-

`(A) NATIONAL LIMITATION- There is a national qualified tribal school modernization bond limitation for each calendar year. Such limitation is--

`(i) $200,000,000 for 2006,

`(ii) $200,000,000 for 2007, and

`(iii) zero after 2007.

`(B) ALLOCATION OF LIMITATION- The national qualified tribal school modernization bond limitation shall be allocated to Indian tribes by the Secretary of the Interior subject to the provisions of section 3 of the America's Better Classroom Act of 2005, as in effect on the date of the enactment of this section.

`(C) DESIGNATION SUBJECT TO LIMITATION AMOUNT- The maximum aggregate face amount of bonds issued during any calendar year which may be designated under paragraph (1) with respect to any Indian tribe shall not exceed the limitation amount allocated to such government under subparagraph (B) for such calendar year.

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

`(i) the limitation amount under this paragraph, exceeds

`(ii) the amount of qualified tribal school modernization bonds issued during such year, the limitation amount under this paragraph for the following calendar year shall be increased by the amount of such excess. The preceding sentence shall not apply if such following calendar year is after 2014.

`(b) Tribe- For purposes of this section, the term `tribe' has the meaning given the term `Indian tribal government' by section 7701(a)(40), including the application of section 7871(d). Such term includes any consortium of tribes approved by the Secretary of the Interior.'.

(b) Reporting- Subsection (d) of section 6049 of the Internal Revenue Code of 1986 (relating to returns regarding payments of interest) is amended by adding at the end the following new paragraph:

`(8) REPORTING OF CREDIT ON QUALIFIED PUBLIC SCHOOL MODERNIZATION BONDS-

`(A) IN GENERAL- For purposes of subsection (a), the term `interest' includes amounts includible in gross income under section 1400M(f) and such amounts shall be treated as paid on the credit allowance date (as defined in section 1400M(d)(2)).

`(B) REPORTING TO CORPORATIONS, ETC- Except as otherwise provided in regulations, in the case of any interest described in subparagraph (A) of this paragraph, subsection (b)(4) of this section shall be applied without regard to subparagraphs (A), (H), (I), (J), (K), and (L)(i).

`(C) REGULATORY AUTHORITY- The Secretary may prescribe such regulations as are necessary or appropriate to carry out the purposes of this paragraph, including regulations which require more frequent or more detailed reporting.'.

(c) Conforming Amendments-

(1) Subchapter U of chapter 1 of the Internal Revenue Code of 1986 is amended by striking part IV, by redesignating part V as part IV, and by redesignating section 1397F as section 1397E.

(2) The table of subchapters for chapter 1 of such Code is amended by adding at the end the following new item:

`SUBCHAPTER Z. PUBLIC SCHOOL MODERNIZATION PROVISIONS.'.

(3) The table of parts of subchapter U of chapter 1 of such Code is amended by striking the last 2 items and inserting the following new item:

`Part IV. Regulations.'.

(d) Sovereign Immunity- This section and the amendments made by this section shall not be construed to impact, limit, or affect the sovereign immunity of the Federal Government or any State or tribal government.

(e) Effective Dates-

(1) IN GENERAL- Except as otherwise provided in this subsection, the amendments made by this section shall apply to obligations issued after December 31, 2005.

(2) REPEAL OF RESTRICTION ON ZONE ACADEMY BOND HOLDERS- In the case of bonds to which section 1397E of the Internal Revenue Code of 1986 (as in effect before the date of the enactment of this Act) applies, the limitation of such section to eligible taxpayers (as defined in subsection (d)(6) of such section) shall not apply after the date of the enactment of this Act.

SEC. 3. INDIAN SCHOOL CONSTRUCTION.

(a) Definitions- In this section:

(1) BUREAU- The term `Bureau' means the Bureau of Indian Affairs of the Department.

(2) DEPARTMENT- The term `Department' means the Department of the Interior.

(3) ESCROW ACCOUNT- The term `escrow account' means the tribal school modernization escrow account established under subsection (b)(6)(B)(i).

(4) INDIAN- The term `Indian' means any individual who is a member of an Indian tribe.

(5) INDIAN TRIBE-

(A) IN GENERAL- The term `Indian tribe' has the meaning given the term `Indian tribal government' by section 7701(a)(40) of the Internal Revenue Code of 1986 (including the application of section 7871(d) of that Code).

(B) INCLUSION- The term `Indian tribe' includes a consortium of Indian tribes approved by the Secretary.

(6) SECRETARY- The term `Secretary' means the Secretary of the Interior.

(7) TRIBAL SCHOOL- The term `tribal school' means an elementary school, secondary school, or dormitory that--

(A) is operated by a tribal organization or the Bureau for the education of Indian children; and

(B) under a contract, a grant, or an agreement, or for a Bureau-operated school, receives financial assistance to pay the costs of operation from funds made available under--

(i) section 102, 103(a), or 208 of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450f, 450h(a), 458d); or

(ii) the Tribally Controlled Schools Act of 1988 (25 U.S.C. 2501 et seq.).

(b) Issuance of Bonds-

(1) IN GENERAL- The Secretary shall establish a pilot program under which eligible Indian tribes may issue qualified tribal school modernization bonds to provide funding for the construction, rehabilitation, or repair of tribal schools (including the advance planning and design of tribal schools).

(2) ELIGIBILITY-

(A) IN GENERAL- To be eligible to issue any qualified tribal school modernization bond under the program under paragraph (1), an Indian tribe shall--

(i) prepare and submit to the Secretary a plan of construction that meets the requirements of subparagraph (B);

(ii) provide for quarterly and final inspection of the project by the Bureau; and

(iii) pledge that the facilities financed by the bond will be used primarily for elementary and secondary educational purposes for not less than the period during which the bond remains outstanding.

(B) PLAN OF CONSTRUCTION- A plan of construction referred to in subparagraph (A)(i) meets the requirements of this subparagraph if the plan--

(i) contains a description of the construction to be carried out with funding provided under a qualified tribal school modernization bond;

(ii) demonstrates that a comprehensive survey has been completed to determine the construction needs of the tribal school involved;

(iii) contains assurances that funding under the bond will be used only for the activities described in the plan;

(iv) contains a response to the evaluation criteria contained in Instructions and Application for Replacement School Construction, Revision 6, dated February 6, 1999; and

(v) contains any other reasonable and related information determined to be appropriate by the Secretary.

(C) PRIORITY- In determining whether an Indian tribe is eligible to participate in the program under this subsection, the Secretary shall give priority to an Indian tribe that, as demonstrated by the relevant plans of construction, will fund projects--

(i) described in the Education Facilities Replacement Construction Priorities List, as of fiscal year 2000, of the Bureau (65 Fed. Reg. 4623);

(ii) described in any subsequent priorities list published in the Federal Register; or

(iii) that meet the criteria for ranking schools as described in Instructions and Application for Replacement School Construction, Revision 6, dated February 6, 1999.

(D) ADVANCE PLANNING AND DESIGN FUNDING-

(i) IN GENERAL- An Indian tribe may propose in the plan of construction of the Indian tribe to receive advance planning and design funding from the escrow account.

(ii) CONDITIONS ON ALLOCATION OF FUNDS- As a condition to the allocation to an Indian tribe of advance planning and design funds from the escrow account under clause (i), the Indian tribe shall agree--

(I) to issue qualified tribal school modernization bonds after the date of receipt of the funds; and

(II) as a condition of each bond issuance, that the Indian tribe will deposit into the escrow account, or a fund managed by the trustee as described in paragraph (4)(C), an amount equal to the amount of funds received from the escrow account.

(3) PERMISSIBLE ACTIVITIES- In addition to the use of funds permitted under paragraph (1), an Indian tribe may use amounts received through the issuance of a qualified tribal school modernization bond--

(A) to enter into and make payments under contracts with licensed and bonded architects, engineers, and construction firms--

(i) to determine the needs of the tribal school; and

(ii) for the design and engineering of the tribal school;

(B) enter into and make payments under contracts with financial advisers, underwriters, attorneys, trustees, and other professionals who would be able to provide assistance to the Indian tribe in issuing bonds; and

(C) carry out other activities determined to be appropriate by the Secretary.

(4) BOND TRUSTEE-

(A) IN GENERAL- Notwithstanding any other provision of law, any qualified tribal school modernization bond issued by an Indian tribe under this subsection shall be subject to a trust agreement between the Indian tribe and a trustee.

(B) TRUSTEE- Any bank or trust company that meets requirements established by the Secretary may be designated as a trustee under subparagraph (A).

(C) CONTENT OF TRUST AGREEMENT- A trust agreement entered into by an Indian tribe under this paragraph shall specify that the trustee, with respect to any bond issued under this subsection, shall--

(i) act as a repository for the proceeds of the bond;

(ii) make payments to bondholders;

(iii) receive, as a condition to the issuance of the bond, a transfer of funds from the escrow account, or from other funds furnished by or on behalf of the Indian tribe, in an amount that (including interest earnings from the investment of the funds in obligations of, or fully guaranteed by, the United States, or from other investments authorized by paragraph (10)) will produce funds sufficient to timely pay in full the entire principal amount of the bond on the stated maturity date of the bond;

(iv) invest the funds transferred under clause (iii) in an investment described in that clause; and

(v)(I) hold and invest the funds transferred under clause (iii) in a segregated fund or account under the agreement; and

(II) use the fund or account solely for payment of the costs of items described in paragraph (3).

(D) REQUIREMENTS FOR MAKING DIRECT PAYMENTS-

(i) PAYMENTS-

(I) IN GENERAL- Notwithstanding any other provision of law, the trustee shall make any payment referred to in subparagraph (C)(v) in accordance with such requirements as the Indian tribe shall prescribe in the trust agreement entered into under subparagraph (C).

(II) INSPECTION- Before making a payment for a project to a contractor under subparagraph (C)(v), to ensure completion of the project, the trustee shall require an inspection of the project by--

(aa) a local financial institution; or

(bb) an independent inspecting architect or engineer.

(ii) CONTRACTS- Each contract referred to in paragraph (3) shall specify, or be renegotiated to specify, that payments under the contract shall be made in accordance with this paragraph.

(5) PAYMENTS OF PRINCIPAL AND INTEREST-

(A) PRINCIPAL-

(i) IN GENERAL- No principal payment on any qualified tribal school modernization bond shall be required under this subsection until the final, stated date on which the bond reaches maturity.

(ii) MATURITY; OUTSTANDING PRINCIPAL- With respect to a qualified tribal school modernization bond issued under this subsection--

(I) the bond shall reach maturity not later than 15 years after the date of issuance of the bond; and

(II) on the date on which the bond reaches maturity, the entire outstanding principal under the bond shall become due and payable.

(B) INTEREST- There shall be awarded a tax credit under section 1400M of the Internal Revenue Code of 1986 in lieu of interest on a qualified tribal school modernization bond issued under this subsection.

(6) BOND GUARANTEES-

(A) IN GENERAL- Payment of the principal portion of a qualified tribal school modernization bond issued under this subsection shall be guaranteed solely by amounts deposited with each respective bond trustee as described in paragraph (4)(C)(iii).

(B) ESTABLISHMENT OF ACCOUNT-

(i) IN GENERAL- Notwithstanding any other provision of law, the Secretary may--

(I) establish a tribal school modernization escrow account; and

(II) beginning in fiscal year 2006, from amounts made available for school replacement under the construction account of the Bureau, deposit not more than $30,000,000 for each fiscal year into the escrow account.

(ii) TRANSFERS OF EXCESS PROCEEDS- Excess proceeds held under any trust agreement that are not needed for any of the purposes described in clauses (iii) and (v) of paragraph (4)(C) shall be transferred, from time to time, by the trustee for deposit into the escrow account.

(iii) PAYMENTS- The Secretary shall use any amounts deposited in the escrow account under clauses (i) and (ii)--

(I) to make payments to trustees appointed and acting in accordance with paragraph (4); or

(II) to make payments described in paragraph (2)(D).

(7) LIMITATIONS-

(A) OBLIGATION TO REPAY-

(i) IN GENERAL- Notwithstanding any other provision of law, the principal amount on any qualified tribal school modernization bond issued under this subsection shall be repaid only to the extent of any escrowed funds provided under paragraph (4)(C)(iii).

(ii) NO GUARANTEE- No qualified tribal school modernization bond issued by an Indian tribe under this subsection shall be an obligation of, and no payment of the principal of such a bond shall be guaranteed by--

(I) the United States;

(II) the Indian tribe; or

(III) the tribal school for which the bond was issued.

(B) LAND AND FACILITIES- No land or facility purchased or improved with amounts derived from a qualified tribal school modernization bond issued under this subsection shall be mortgaged or used as collateral for the bond.

(8) SALE OF BONDS- A qualified tribal school modernization bond may be sold at a purchase price equal to, in excess of, or at a discount from, the par amount of the bond.

(9) TREATMENT OF TRUST AGREEMENT EARNINGS- No amount earned through the investment of funds under the control of a trustee under any trust agreement described in paragraph (4) shall be subject to Federal income taxation.

(10) INVESTMENT OF SINKING FUNDS- A sinking fund established for the purpose of the payment of principal on a qualified tribal school modernization bond issued under this subsection shall be invested in--

(A) obligations issued by or guaranteed by the United States; or

(B) such other assets as the Secretary of the Treasury may by regulation allow.

SEC. 4. APPLICATION OF CERTAIN LABOR STANDARDS ON CONSTRUCTION PROJECTS FINANCED UNDER PUBLIC SCHOOL MODERNIZATION PROGRAM.

Section 439 of the General Education Provisions Act (20 U.S.C. 1232b) is amended--

(1) by inserting `(a)' before `All laborers and mechanics', and

(2) by adding at the end the following new subsection:

`(b)(1) For purposes of this section, the term `applicable program' also includes the qualified zone academy bond provisions enacted by section 226 of the Taxpayer Relief Act of 1997 and the program established by section 2 of the America's Better Classroom Act of 2005.

`(2) A State or local government participating in a program described in paragraph (1) shall--

`(A) in the awarding of contracts, give priority to contractors with substantial numbers of employees residing in the local education area to be served by the school being constructed; and

`(B) include in the construction contract for such school a requirement that the contractor give priority in hiring new workers to individuals residing in such local education area.

`(3) In the case of a program described in paragraph (1), nothing in this subsection or subsection (a) shall be construed to deny any tax credit allowed under such program. If amounts are required to be withheld from contractors to pay wages to which workers are entitled, such amounts shall be treated as expended for construction purposes in determining whether the requirements of such program are met.'.

SEC. 5. EMPLOYMENT AND TRAINING ACTIVITIES RELATING TO CONSTRUCTION OR RECONSTRUCTION OF PUBLIC SCHOOL FACILITIES.

(a) In General- Section 134 of the Workforce Investment Act of 1998 (29 U.S.C. 2864) is amended by adding at the end the following new subsection:

`(f) Local Employment and Training Activities Relating to Construction or Reconstruction of Public School Facilities-

`(1) IN GENERAL- In order to provide training services related to construction or reconstruction of public school facilities receiving funding assistance under an applicable program, each State shall establish a specialized program of training meeting the following requirements:

`(A) The specialized program provides training for jobs in the construction industry.

`(B) The program provides trained workers for projects for the construction or reconstruction of public school facilities receiving funding assistance under an applicable program.

`(C) The program ensures that skilled workers (residing in the area to be served by the school facilities) will be available for the construction or reconstruction work.

`(2) COORDINATION- The specialized program established under paragraph (1) shall be integrated with other activities under this Act, with the activities carried out under the National Apprenticeship Act of 1937 by the State Apprenticeship Council or through the Bureau of Apprenticeship and Training in the Department of Labor, as appropriate, and with activities carried out under the Carl D. Perkins Vocational and Technical Education Act of 1998. Nothing in this subsection shall be construed to require services duplicative of those referred to in the preceding sentence.

`(3) APPLICABLE PROGRAM- In this subsection, the term `applicable program' has the meaning given the term in section 439(b) of the General Education Provisions Act (relating to labor standards).'.

(b) State Plan- Section 112(b)(17)(A) of the Workforce Investment Act of 1998 (29 U.S.C. 2822(b)(17)(A)) is amended--

(1) in clause (iii), by striking `and' at the end;

(2) by redesignating clause (iv) as clause (v); and

(3) by inserting after clause (iii) the following new clause:

`(iv) how the State will establish and carry out a specialized program of training under section 134(f); and'.

END