September 14, 2000

The Honorable Ben Nighthorse Campbell

Chairman

Committee on Indian Affairs

U.S. Senate

Washington, D.C. 20510

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,

/s/

Jonathan Talisman

Acting Assistant Secretary (Tax Policy)

cc: The Honorable Daniel K. Inouye, Vice Chairman

The Honorable William V. Roth, Chairman, Committee on Finance

The Honorable Daniel Patrick Moynihan, Ranking Minority Member, Committee on Finance