text: SECTION 1. SHORT TITLE.
  
      This Act may be cited as the ``Police and Fire Station 
  Modernization Act of 2008''.
  
  SEC. 2. POLICE AND FIRE DEPARTMENT BONDS.
  
      (a) In General.--Part IV of subchapter A of chapter 1 of the 
  Internal Revenue Code of 1986 (relating to credits against tax) is 
  amended by adding at the end the following new subpart:
  
                  ``Subpart I--Qualified Tax Credit Bonds
  
  ``Sec. 54A. Credit to holders of qualified tax credit bonds.
  ``Sec. 54B. Police and fire department bonds.
  
  ``SEC. 54A. CREDIT TO HOLDERS OF QUALIFIED TAX CREDIT BONDS.
  
      ``(a) Allowance of Credit.--If a taxpayer holds a qualified tax 
  credit bond on one or more credit allowance dates of the bond during 
  any taxable year, there shall be allowed as a credit against the tax 
  imposed by this chapter for the taxable year an amount equal to the sum 
  of the credits determined under subsection (b) with respect to such 
  dates.
      ``(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 tax credit 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 tax credit 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 
          (2), the applicable credit rate is the rate which the Secretary 
          estimates will permit the issuance of qualified tax credit 
          bonds with a specified maturity or redemption date without 
          discount and without interest cost to the qualified issuer. The 
          applicable credit rate with respect to any qualified tax credit 
          bond shall be determined as of the first day on which there is 
          a binding, written contract for the sale or exchange of the 
          bond.
              ``(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 or matures.
      ``(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 this 
                  part (other than subpart C and this subpart).
              ``(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 
          (determined before the application of paragraph (1) for such 
          succeeding taxable year).
      ``(d) Qualified Tax Credit Bond.--For purposes of this section--
              ``(1) Qualified tax credit bond.--The term `qualified tax 
          credit bond' means a police and fire department bond which is 
          part of an issue that meets the requirements of paragraphs (2), 
          (3), (4), and (5).
              ``(2) Special rules relating to expenditures.--
                      ``(A) In general.--An issue shall be treated as 
                  meeting the requirements of this paragraph if, as of 
                  the date of issuance, the issuer reasonably expects--
                              ``(i) 100 percent or more of the available 
                          project proceeds to be spent for 1 or more 
                          qualified purposes within the 3-year period 
                          beginning on such date of issuance, and
                              ``(ii) a binding commitment with a third 
                          party to spend at least 10 percent of such 
                          available project proceeds will be incurred 
                          within the 6-month period beginning on such 
                          date of issuance.
                      ``(B) Failure to spend required amount of bond 
                  proceeds within 3 years.--
                              ``(i) In general.--To the extent that less 
                          than 100 percent of the available project 
                          proceeds of the issue are expended by the close 
                          of the expenditure period for 1 or more 
                          qualified purposes, the issuer shall redeem all 
                          of the nonqualified bonds within 90 days after 
                          the end of such period. For purposes of this 
                          paragraph, the amount of the nonqualified bonds 
                          required to be redeemed shall be determined in 
                          the same manner as under section 142.
                              ``(ii) Expenditure period.--For purposes of 
                          this subpart, the term `expenditure period' 
                          means, with respect to any issue, the 3-year 
                          period beginning on the date of issuance. Such 
                          term shall include any extension of such period 
                          under clause (iii).
                              ``(iii) Extension of period.--Upon 
                          submission of a request prior to the expiration 
                          of the expenditure period (determined without 
                          regard to any extension under this clause), the 
                          Secretary may extend such period if the issuer 
                          establishes that the failure to expend the 
                          proceeds within the original expenditure period 
                          is due to reasonable cause and the expenditures 
                          for qualified purposes will continue to proceed 
                          with due diligence.
                      ``(C) Qualified purpose.--For purposes of this 
                  paragraph, the term `qualified purpose' means a purpose 
                  specified in section 54B(a)(1).
                      ``(D) Reimbursement.--For purposes of this 
                  subtitle, available project proceeds of an issue shall 
                  be treated as spent for a qualified purpose if such 
                  proceeds are used to reimburse the issuer for amounts 
                  paid for a qualified purpose after the date that the 
                  Secretary makes an allocation of bond limitation with 
                  respect to such issue, but only if--
                              ``(i) prior to the payment of the original 
                          expenditure, the issuer declared its intent to 
                          reimburse such expenditure with the proceeds of 
                          a qualified tax credit bond,
                              ``(ii) not later than 60 days after payment 
                          of the original expenditure, the issuer adopts 
                          an official intent to reimburse the original 
                          expenditure with such proceeds, and
                              ``(iii) the reimbursement is made not later 
                          than 18 months after the date the original 
                          expenditure is paid.
              ``(3) Reporting.--An issue shall be treated as meeting the 
          requirements of this paragraph if the issuer of qualified tax 
          credit bonds submits reports similar to the reports required 
          under section 149(e).
              ``(4) Special rules relating to arbitrage.--
                      ``(A) In general.--An issue shall be treated as 
                  meeting the requirements of this paragraph if the 
                  issuer satisfies the requirements of section 148 with 
                  respect to the proceeds of the issue.
                      ``(B) Special rule for investments during 
                  expenditure period.--An issue shall not be treated as 
                  failing to meet the requirements of subparagraph (A) by 
                  reason of any investment of available project proceeds 
                  during the expenditure period.
                      ``(C) Special rule for reserve funds.--An issue 
                  shall not be treated as failing to meet the 
                  requirements of subparagraph (A) by reason of any fund 
                  which is expected to be used to repay such issue if--
                              ``(i) such fund is funded at a rate not 
                          more rapid than equal annual installments,
                              ``(ii) such fund is funded in a manner 
                          reasonably expected to result in an amount not 
                          greater than an amount necessary to repay the 
                          issue, and
                              ``(iii) the yield on such fund is not 
                          greater than the discount rate determined under 
                          paragraph (5)(B) with respect to the issue.
              ``(5) Maturity limitation.--
                      ``(A) In general.--An issue shall not be treated as 
                  meeting the requirements of this paragraph if the 
                  maturity of any bond which is part of such issue 
                  exceeds the maximum term determined by the Secretary 
                  under subparagraph (B).
                      ``(B) Maximum term.--During each calendar month, 
                  the Secretary shall determine the maximum term 
                  permitted under this paragraph for bonds issued during 
                  the following calendar month. Such maximum term shall 
                  be the term which the Secretary estimates will result 
                  in the present value of the obligation to repay the 
                  principal on the bond being equal to 50 percent of the 
                  face amount of such bond. Such present value shall be 
                  determined using as a discount rate the average annual 
                  interest rate of tax-exempt obligations having a term 
                  of 10 years or more which are issued during the month. 
                  If the term as so determined is not a multiple of a 
                  whole year, such term shall be rounded to the next 
                  highest whole year.
      ``(e) Other Definitions.--For purposes of this subchapter--
              ``(1) 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.
              ``(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) Available project proceeds.--The term `available 
          project proceeds' means--
                      ``(A) the excess of--
                              ``(i) the proceeds from the sale of an 
                          issue, over
                              ``(ii) the issuance costs financed by the 
                          issue (to the extent that such costs do not 
                          exceed 2 percent of such proceeds), and
                      ``(B) the proceeds from any investment of the 
                  excess described in subparagraph (A).
      ``(f) Credit Treated as Interest.--For purposes of this subtitle, 
  the credit determined under subsection (a) shall be treated as interest 
  which is includible in gross income.
      ``(g) S Corporations and Partnerships.--In the case of a tax credit 
  bond held by an S corporation or partnership, the allocation of the 
  credit allowed by this section to the shareholders of such corporation 
  or partners of such partnership shall be treated as a distribution.
      ``(h) Bonds Held by Regulated Investment Companies and Real Estate 
  Investment Trusts.--If any qualified tax credit bond is held by a 
  regulated investment company or a real estate investment trust, the 
  credit determined under subsection (a) shall be allowed to shareholders 
  of such company or beneficiaries of such trust (and any gross income 
  included under subsection (f) with respect to such credit shall be 
  treated as distributed to such shareholders or beneficiaries) 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 tax credit 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 tax credit bond as if it were a stripped 
          bond and to the credit under this section as if it were a 
          stripped coupon.
      ``(j) Termination.--This section shall not apply to bonds issued 
  after December 31, 2014.
  
  ``SEC. 54B. POLICE AND FIRE DEPARTMENT BONDS.
  
      ``(a) In General.--For purposes of this subpart, the term `police 
  and fire department bond' means any bond issued as part of an issue 
  if--
              ``(1) 100 percent of the available project proceeds of such 
          issue are to be used for capital expenditures incurred by a 
          State or local government for one or more police or fire 
          departments of the State or local government (as the case may 
          be),
              ``(2) the bond is issued by a State or local government, 
          and
              ``(3) the issuer designates such bond for purposes of this 
          section.
      ``(b) Limitation on Amount of Bonds Designated.--The maximum 
  aggregate face amount of bonds which may be designated under subsection 
  (a) by any issuer shall not exceed the limitation amount allocated to 
  such issuer under subsection (d).
      ``(c) National Limitation on Amount of Bonds Designated.--There is 
  a national police and fire department bond limitation of 
  $3,000,000,000.
      ``(d) Allocations.--
              ``(1) In general.--The limitation applicable under 
          subsection (c) shall be allocated by the Secretary among the 
          States in proportion to the population of the States.
              ``(2) Allocations to largest local governments.--
                      ``(A) In general.--In the case of any State in 
                  which there is a large local government, each such 
                  local government shall be allocated a portion of such 
                  State's allocation which bears the same ratio to the 
                  State's allocation (determined without regard to this 
                  subparagraph) as the population of such large local 
                  government bears to the population of such State.
                      ``(B) Allocation of unused limitation to state.--
                  The amount allocated under this subsection to a large 
                  local government may be reallocated by such local 
                  government to the State in which such local government 
                  is located.
                      ``(C) Large local government.--For purposes of this 
                  section, the term `large local government' means any 
                  municipality or county if such municipality or county 
                  has a population of 500,000 or more.
      ``(e) Population.--
              ``(1) In general.--The population of any State or local 
          government shall be determined for purposes of this section as 
          provided in section 146(j) for the calendar year which includes 
          the date of the enactment of this section.
              ``(2) Special rule for counties.--In determining the 
          population of any county for purposes of this section, any 
          population of such county which is taken into account in 
          determining the population of any municipality which is a large 
          local government shall not be taken into account in determining 
          the population of such county.''.
      (b) Reporting.--Subsection (d) of section 6049 of such Code 
  (relating to returns regarding payments of interest) is amended by 
  adding at the end the following new paragraph:
              ``(9) Reporting of credit on qualified tax credit bonds.--
                      ``(A) In general.--For purposes of subsection (a), 
                  the term `interest' includes amounts includible in 
                  gross income under section 54A and such amounts shall 
                  be treated as paid on the credit allowance date (as 
                  defined in section 54A(e)(1)).
                      ``(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) Sections 54(c)(2) and 1400N(l)(3)(B) of such Code are 
          each amended by striking ``subpart C'' and inserting ``subparts 
          C and I''.
              (2) Section 1397E(c)(2) of such Code is amended by striking 
          ``subpart H'' and inserting ``subparts H and I''.
              (3) Section 6401(b)(1) of such Code is amended by striking 
          ``and H'' and inserting ``H, and I''.
              (4) The table of subparts for part IV of subchapter A of 
          chapter 1 of such Code is amended by inserting after the item 
          relating to subpart H the following new item:
  
                ``subpart i. qualified tax credit bonds.''.
  
      (d) Effective Date.--The amendments made by this section shall 
  apply to obligations issued after December 31, 2008.
  
  SEC. 3. APPLICATION OF CERTAIN LABOR STANDARDS ON PROJECTS FINANCED 
                UNDER TAX CREDIT BONDS.
  
      Subchapter IV of chapter 31 of title 40, United States Code, shall 
  apply to projects financed with the proceeds of any tax credit bond (as 
  defined in section 54A of the Internal Revenue Code of 1986).
target: Police and Fire Station Modernization Act of 2008 - Amends the Internal Revenue Code to allow a tax credit for investment in bonds to finance capital expenditures for state and local police or fire departments. Terminates such credit after 2014.
feat_title: To amend the Internal Revenue Code of 1986 to authorize tax credit bonds for capital improvements for police and fire departments.