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Office of the Press Secretary

For Immediate Release January 26, 1998

Modernizing Schools for the 21st Century

In order for students to learn and to compete in the global economy, schools must be well-equipped and they must be able to accommodate smaller class sizes. To address these and other critical needs, the President's FY 99 Budget will propose Federal tax credits to pay interest on nearly $22 billion in bonds to build and renovate public schools. This is more than double the assistance proposed last year, which covered half the interest on an estimated $20 billion in bonds. The new proposal provides tax credits in lieu of interest payments for investors in two types of bonds: School Modernization Bonds (a new proposal), and expansion of the Qualified Zone Academy Bonds (created last year). These tax credits will cost the Treasury $5 billion over 5 years, and more than $10 billion over ten years.

School Modernization Bonds

$19.4 billion in zero-interest bonds ($9.7 billion in 1999 and $9.7 billion in 2000) is proposed for construction and renovation of public school facilities. The Department of the Treasury would allocate the rights to offer these special 15-year bonds to States, territories, and certain school districts that have submitted school construction plans to the Secretary of Education.

Half of the bond authority would be allocated to the 100 school districts with the largest number of low-income children, in proportion to the number of such children served (the Title I Basic Grant formula), to provide assistance in accordance with each school district's plan.

The other half would be allocated to States and territories to provide to school districts in need of assistance in accordance with each State's plan. The bond authority would be allocated according to the State's proportion of low-income children (Title I Basic Grant formula), except that children in the 100 school districts (above) would not be included in the count.

School Construction Plans: In order to receive a bond allocation, States, territories, and the eligible 100 school districts would be required to submit a plan to the Secretary of Education. The plans would (1) demonstrate that a comprehensive survey has been undertaken of the construction and renovation needs in the jurisdiction, including meeting requirements for access by persons with disabilities, and (2) describe how the jurisdiction would ensure that the bond funds are used for the purposes intended by this proposal, including the requirement to supplement, not supplant, amounts that would have been spent on construction and renovation in the absence of these bonds. State plans would also describe how they would ensure that localities with the greatest need -- as demonstrated by inadequate facilities coupled with a low level of resources to meet the needs -- would be served.

Qualified Zone Academy Bonds

This program, created by the Taxpayer Relief Act of 1997, provides a tax credit to pay interest on bonds for a variety of expenses (including building renovation) related to certain public school-business partnerships. The FY 99 Budget would expand these bonds to cover school construction, and would increase and extend the bond authority by $2.4 billion (an additional $1 billion, to $1.4 billion, in 1999, and $1.4 billion in 2000). This bond authority is allocated to States on the basis of their respective populations of individuals with incomes below the poverty line.