The bi-partisan bill is sponsored by Sen. Bob Graham of Florida. Grassley is the lead co- sponsor. Both senators are members of the tax-writing Finance committee.
"Tax-exempt bonds have proven to be an effective financial instrument for building and improving schools. Changing the current limits on the use of tax-exempt bonds for schools could make a big difference for districts who are trying come up with the necessary capital for additional construction or rehabilitation," Grassley said. "It makes sense to expand on something we know works. We also need to consider additional amendments to the tax code to increase access to capital for schools."
Tax-exempt bonds finance about 90 percent of investment in public schools across the country. In Iowa, over $625 million in tax-exempt bonds were issued to school districts last year alone.
The Public School Construction Partnership Act introduced today would:
1)Permit school districts to issue tax-exempt bonds for public school construction or rehabilitation involving private investment. The bonds would be exempt from annual unified state volume caps. "This will help school districts leverage private investment to improve their local schools," Grassley said.
2)Raise from $10 million annually to $15 million annually the volume of school construction bonds a small school district could issue each year and still qualify for the small-issuer arbitrage rebate exemption. "This expands the benefits to a much broader universe of small schools," Grassley said. In addition, the bill would extend from two years to four years the current spend-down exemption in arbitrage rebate regulations. This policy allows the exemption of bonds from arbitrage rebate if the issuer spends virtually all its bond proceeds within two years of the time these bonds for construction projects are issued. "Extending the time limit will give school districts more flexibility and relieve them from burdensome tax compliance costs," Grassley said.
3)Permit banks to invest in qualified tax-exempt school construction bonds of $25 million or less without penalty. Banks would be allowed to Prior to 1986, commercial banks were one of the most active groups of investors in the municipal bond market. The tax code overhaul in 1986 imposed a tax penalty on banks that earn tax-exempt interest. "Making this change would encourage more investment in public schools and directly reduce the cost of borrowing for new school construction," Grassley said.
Grassley said the approach narrowly targets the use of tax-exempt bonds to school construction alone without changing any tax code provisions designed to prevent abuse of bond issuance authority.
In contrast, Grassley said the approach advocated by the president is fundamentally flawed. The administration program relies on the use of tax credit bonds called Qualified Zone Academy Bonds (QZABs). Grassley said the program has been unable to attract investors because tax credit bonds are extremely illiquid and unpredictable investments and use of the bonds is limited by the federal government.
"This bill would prompt effective and immediate assistance to schools who need money for repairs and construction. School districts in Iowa and across the country would benefit from the expanded flexibility and incentives for investment," Grassley said.
Last week, Grassley introduced legislation to give expanded tax relief to those repaying student loans for college. The bill would eliminate the current restriction which allows a tax deduction for student loan interest for just 60 months, or five years. It would allow taxpayers to take the deduction for the life of the loan.